More on the Community Schemes Ombud Services Act, 2011

Martin Bester, the Managing Director of Intersect Sectional Title Services, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is a committee member of the Sectional Title Regulations Board, explains in further detail his interpretation of the Community Schemes Ombud Services Act, 2011. 

“Until such time as the Ombud Service is staffed one can only, really, hypothesise at this stage the full application of this Act” says Bester.   

Though the Community Schemes Ombud Services Act does, quote “provide for its mandate and functions; and to provide for a dispute resolution mechanism in community schemes; and to provide for matters connected therewith” how, exactly, this service is to be applied, operated, funded as well as its effectiveness remains to be seen. 

He continues: 
 
Sections 38 and 39 of the Act provide for the mechanism of application and the relief orders that the service will adjudicate upon.  I have summarised these to the following categories: financial; behavioural; governance; meetings; management; works [repairs and maintenance] and general. 

It is envisaged that the Ombud service will investigate and adjudicate claims and complaints against managing agents or other employees of community schemes, such as sectional title body corporate’s, home owners associations, shareblock schemes etc., and should have jurisdiction to rule on certain aspects thereof. 

It is also hoped that this service will provide both the trustees and the residents within community schemes the platform to resolve disputes in an orderly, fair and equitable manner. 

The way I see the application process unfolding is for any person to lodge a dispute, in the prescribed manner, with Ombud service seeking relief of one, or more, of the orders provided for in the Act.   Upon receipt thereof the Ombud will consider the content and merit of the application and may either reject, request further particulars, or investigate the application.  If an adjudicator decides that the application does warrant that making an order is appropriate then notice must be issued to the affected parties of such decision and the adjudication process, as provided for in the Act, followed. 
 

Amendments to the Sectional Titles Act

Recent amendments to the Sectional Titles Act of 1986, were published in the Government Gazette on 28 September 2011. 

Annexure 8 of the Act, being the prescribed management rules, was amended and these amendments will, I am sure, be welcomed by managing agents and trustees alike.
 
One such amendment is the insertion of rule 31 (2A), which states that the budget of the body corporate shall run concurrent with the financial year of the scheme.  This, in turn, led to the amendment of rule 36 (1) which now provides for the trustees to prepare the budget, prior to year-end, and to lay this budget before the members at the AGM.  Whereas in the past may budgets were ‘on hold’ until the AGM was held and the budget approved by the members, sometimes causing strains on the cash flow of the body corporate.
 
Another amendment, which will certainly save time, costs and, importantly, resources is the substitution of rule 39, which now allows for the delivery of documents by means of facsimile or email, provided the owner consents in writing to receiving same.   This means that, inter alia, the paper and postage intensive annual notice and supporting documents for the AGM may now be issued in a digital format, whereas in the past this had to be issued by prepaid post, if the owner consents thereto.  

I foresee, in a scheme where all owners consent, to not only saving costs and resources, but also to ensuring timeous delivery by using delivery confirmations.  One could even go so far as to use the email software to notify members of the meeting and to remind them of same. 

Trustees and members of sectional title body corporates should also be aware of the deletion of sub rule 31 (4), which dealt with the application of special contributions [special levies] and, in turn, make themselves au fait with sections 37 (2A) and 37 (2B) of the Act which provide for the Trustees to raise and collect special contributions. 

Intersect appointed to manage three new schemes

Intersect Sectional Title Services, the sectional title specialist subsidiary of the Spire Property Group, is proud to announce its recent appointment to manage the Icon Building in the Cape Town CBD; Rivers Edge in Rondebosch and Le Village in the Atlantic Seaboard. 
 
The Icon building was completed in 2007 at a cost of some R390 million and consists of retail, corporate and residential units, totalling 19 storeys and is situated on Hans Strydom Avenue in the Cape Town Foreshore precinct.    Popular brands in the retail sector include a Food lovers Market and Vida E Café to name but two and the corporate offices are home to, inter alia, SAA and the Basileus Group. 
 
The residential component is made up of 150 apartments and includes an hotel, operated by Urban Hip Hotels, with a full concierge service. 
 
Rivers Edge is a brand new residential development consisting of 84 units in Rondebosch and handover is expected in July 2011. 
 
Le Village is an upmarket sectional title development in Sea Point and joined Intersect in May 2011. 
 
“We are extremely proud to welcome these three new schemes to our books and look forward to a long and productive relationship with each of them” says Martin Bester, Managing Director of Intersect. 

Two new Acts that affect Sectional Title Schemes

Two acts were recently signed by the President, with operation expected later this year, which affect Sectional Title and Community Schemes. 

The 1st is the Sectional Titles Schemes Management Act and 2nd is the Community Schemes Ombud Services Act. 

Though the application of the above acts is yet to be tested it is largely believed that the Sectional Titles Schemes Management Act will seek to assist bodies corporate to manage and regulate sectional titles schemes, including the application of the rules and to establish a sectional titles schemes management advisory council. 

The Sectional Titles Schemes Management Advisory Council, will be tasked with making recommendations to and advising the Minister iro the provisions of the act; keep the implementation of the Act and the regulations under regular review.  The Council will consist of not more than seven but not less than five members of whom one must be the chief Ombud, one must be a senior official of the department designated by the Director-General; and the remainder must be persons appointed by the Minister who must have skills, knowledge and experience in the management of a range of types of schemes.
 
The Community Schemes Ombud Services Act aims to provide for the establishment of the community schemes Ombud service and a dispute resolution mechanism in community schemes. 

The Service must develop and provide a dispute resolution service; provide training for conciliators, adjudicators; regulate, monitor and control the quality of all sectional titles scheme governance documentation; and take custody of, preserve and provide public access to sectional title scheme governance documentation. 

The industry has long talked of the need for an Ombud service, and later this year we may have one.

Sectional Title Act amendment to assist in resolving insurance excess disputes

A bone of contention, in many sectional title schemes, is the application of insurance excesses.  Some argue that as the body corporate is insured under a single combined policy the body corporate should also be responsible for the excess. 

To date the application of insurance excesses has been left to the discretion of the trustees, unless a special resolution had been passed to the contrary. 
 
But a recent amendment to Prescribed Management Rule 29, by the insertion of sub rule 29 (4), has resolved this and this amendment is welcomed by the industry and trustees alike. 
 
The exact wording is as follows: 

“The owner of a section is responsible for any excess payment in respect of his or her section payable in terms of a contract of insurance entered into by the body corporate: provided that owners may by special resolution determine that the body corporate is responsible for excess payments in respect of specified damage.” 
 
In plain and simple English, the excess is payable by the owner of the section who suffers the loss or damage.  
 
It is further suggested that should the loss or damage affect more than one section then the excess should be split on a percentage basis between the affected parties.  
 
Should the loss or damage be suffered on the common property then the body corporate will be liable for the excess. 
 
Naturally exceptions will occur, and the trustees will be required to use their discretion in these circumstances, but this amendment does go a long way to resolving excess disputes on the clearcut cases. 
 
Whilst it is my opinion that the application of a special resolution to determine the application of insurance excesses is debateable, this rule does demystify the issue a great deal. 
 
Ensuring that the scheme is properly and adequately insured against certain perils is one of the fundamental duties of trustees, but is also one that is most misunderstood and often overlooked. 
 
Martin Bester, Managing Director of Intersect Sectional Title Services, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is a committee member of NAMA and the Sectional Title Regulations Board, says that Intersect advise trustees to have the buildings and common property  professionally valued at regular intervals, 3-4 years is the rule of thumb, to ensure that the replacement values are up to date and correct. 

There are certain underwriting companies who have policies specifically geared to sectional title insurance and the managing agent and / or insurance broker would be able to provide advice to the trustees in this regard. 
 

If it's broken, who's going to fix it? Sectional Title and the Median Line

In sectional title the common boundary between any section and another or between any section and the common property is the median line of the dividing floor, wall or ceiling, as the case may be.
 
Questions have often been raised in the past as to who is responsible for the repairs and maintenance, and the costs thereof, of doors and windows and any part of the building that falls within these boundaries. 

Martin Bester, the Managing Director of Intersect Sectional Title Services, explains that on 7 December 2010, the Sectional Titles Amendment Act, No. 11 of 2010 was published and in this amendment the median line was established as the centre of any door, window or other aperture, in a section's wall, floor or ceiling
. 
“Therefore, regardless of where the door or aperture is situated in the wall, it will be deemed to be the centre and therefore form part of the boundary of the section.” 

“This will hopefully guide trustees with regards to the repairs and maintenance obligations of doors and windows,” says Bester, who states that more often than not the 50/50 rule of thumb applies, but that some sectional title schemes have adopted rules, by means of a special resolution, to establish responsibility in this regard. 

Extension of sections in Sectional Title Schemes

The Sectional Titles Amendment Act, No. 11 of 2010 was published on 7 December 2010 and within these amendments, Section 24 (6) (d) - which deals with the extension of sections in Sectional Title schemes  - was addressed. 
 
Martin Bester, the Managing Director of Intersect Sectional Title Services, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is a committee member of the Sectional Title Regulations Board, explains that, as before, under Section 24, any owner wishing to extend his or her section needs to apply to the body corporate for approval. 
 
“On receiving this approval, which must be in the form of a special resolution of the members, the owner must arrange a draft sectional plan of extension which is then submitted to the Surveyor General for approval.” 
 
“The amendments for Section 24 (6) (d) (i) now prescribe that a land surveyor or architect as opposed to a conveyancer, as was previously prescribed, must confirm that the proposed extension does not exceed the 10% extension threshold, currently in place.” 
 
“Should the extension exceed the 10% threshold then amended Section 24 (6) (d) (ii) prescribes that a conveyancer must provide a certificate confirming that all mortgagees have consented to the registration of the sectional plan of extension of that section,” says Bester. 
 
“Lastly an insertion had been made (Section 24 (6A)), which states that should the extension deviate by more than 10% then the applicant must inform, by registered post, all mortgagees and provide certain prescribed details to them.  Should the applicant not receive an objection to the notice, within 30 days of the date of posting, it will be deemed that the mortgagee consents thereto.” 

Intersect recommends best practice when it comes to construction projects

All too little attention is paid to, or even knowledge of the existence of, the Construction Regulations, as promulgated in July 2003, whereby it became the responsibility of the client to ensure that any contractor, working at their site, complies with the OHSA [Occupational Health and Safety Act]. 
 
It is often believed that the primary responsibility for health and safety begins and ends with the principal contractor, but this is no longer true. 
 
The definition of construction is broad and this is where the trustees of sectional title schemes and property and homeowners’ associations benefit from good advice from top managing agent such as Intersect Sectional Title Services, the sectional title specialist subsidiary of the Spire Property Group. 

Martin Bester, Managing Director of Intersect, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is a committee member of NAMA and the Sectional Title Regulations Board, says that Intersect employ a rigid open tender process for all major works. 
 
“We strongly advise our clients to employ registered and reputable contractors when tackling large projects” 
One large project that each scheme faces every few years is that of redecoration. 
 
“The process that we employ is to have a specification drafted for the entire project and then to invite reputable contractors (all of whom are BIBC [Building Industry Bargaining Council] compliant, registered with the Compensation Commissioner [Workman's compensation], comply with the OHSA [Occupational Health and Safety Act] and are adequately insured) to an open tender at our offices at which all the prices are read out.” 
 
“Our clients are also invited to this meeting and this ensures transparency and good corporate governance.” 
 
Thereafter a summary of the tenders is issued to the client for further consideration.  Once the contract is awarded in principle we will have the contractor furnish us with a detailed Health and Safety plan for the project.  Thereafter the contractor is appointed in writing. 
This procedure ensure that the client is fulfilling their obligation in terms of the regulations and  ensures transparency. 

The importance of good financial planning in Sectional Title

One of the fundamental functions of a body corporate is to establish a fund to meet the expenses of the body corporate, including administration, management, repairs and maintenance of the common property. 
 
This fund should include a reasonable provision for future repairs and maintenance. 
 
Ensuring that such a fund is established and, very importantly, maintained, is the responsibility of the trustees.  The trustees do so with the assistance of the managing agent, if appointed. 
 
“One goes about ensuring that an adequate fund is maintained by preparing realistic budgets every year for approval by the members at an AGM.  Trustees need to be cognizant of actual costs of running the scheme and should further provide for reasonable contingencies.  Reference to prior year actual costs is a good starting point.   Note that the City of Cape Town’s increases are implemented, annually, in July and this needs to be considered when budgeting as municipal costs often constitute a large percentage of the scheme’s running costs.” 
 
"Repairs and maintenance costs are difficult to foresee, however if the Trustees are aware of upcoming projects, quotes can be obtained, and escalated if necessary, to assist with the budgeting process.” 
 
“Members too need to be realistic when approving a budget at the AGM as amendments thereto, specifically where proposed levies are reduced, could have long terms effects on the overall financial position of the scheme.” 
 
“The ramifications of not establishing and maintaining, adequately, such a fund could result in the scheme not being able to meet its expenses and may result in special levies having to be raised to cover same.” 
 
“Whilst special levies, specifically for major projects such as painting, waterproofing, roofing and improvements, are common place in sectional title, these should be raised for specific purposes only and not to compensate for a lack of funds.” 
 
One must also bear in mind that potential purchasers and bond holders too view the financial statements of a sectional title scheme prior to purchase or granting a bond and that a poor set of financial statements are negatively viewed by both parties. 

Intersect expands Southern Suburbs portfolio

Intersect Sectional Title Services, the sectional title specialist subsidiary of the Spire Property Group, has recently been awarded the management contracts of two additional homeowners associations in the Southern Suburbs. 

The latest two schemes to join Intersect are Doordrift Village and Victoria Green homeowners associations and are situated in Constantia and Kenilworth respectively. 

“A homeowners association is similar to a sectional title scheme in that it is a cluster development with shared resources and facilities, but, as opposed to being registered and administered in terms of the Sectional Titles Act, each association has its own constitution, or articles or memorandum of association, depending on how it was established” says Martin Bester, Managing Director of Intersect. 

“We are really pleased that these two upmarket residential developments have joined us and this is testimony to our continued growth in the area” Bester continued. 

Intersect grows its commercial property portfolio

The Blackheath Small Business Centre, situated in Blackheath’s Industrial Hive, recently appointed Intersect Sectional Title Services to manage the sectional title affairs on behalf of the body corporate. 

The Blackheath Small Business Centre is host to over 60 businesses with a range of services and manufacturing of a light industrial nature. 

“Our commercial property portfolio has grown to 25% of the total portfolio of schemes we administer, with residential schemes taking up 65% and mixed use developments the 10% balance” reports Mr Martin Bester, Managing Director of Intersect. 

 “We pride ourselves on the professional and efficient manner in which we manage all of our schemes and in particular, due to our close involvement with sister company Spire Property Management, we provide specialised services to commercial and industrial clients” Bester concluded. 

Compound interest on arrear levies - Sectional Title

We are often asked if a sectional title body corporate is entitled to charge compound interest on arrear levies and what effect, if any, does the National Credit Act have.  Well the simple answer is yes it may and the NCA has no effect due to the provisions of the Sectional Titles Act.  
 
The Sectional Titles Act provides that one of the [fundamental] functions of a body corporate is to establish a fund for the repair, upkeep, control, management and administration of the common property.  This then requires owners or members to make contributions to such fund called levies.  
 
The Act provides further that any contributions levied under these provisions shall be due and payable on the passing of a resolution by the trustees of the body corporate.  
 
Non-payment of the contributions levied is dealt with in prescribed management rule [PMR] 31 (5) & (6): 
 
"(5) An owner shall be liable for and pay all legal costs, including costs as between attorney and client, collection commission, expenses and charges incurred by the body corporate in obtaining the recovery of arrear levies, or any other arrear amounts due and owing by such owner to the body corporate, or in enforcing compliance with these rules, the conduct rules or the Act. 
 
(6) The trustees shall be entitled to charge interest on arrear amounts at such rate as they may from time to time determine." 
 
A recent court case upheld that a body corporate may indeed charge compound interest, if resolved by the trustees, and that the arrangement between the body corporate and the owner, due to the provisions of the Sectional Title Act, is not subject to the NCA. 

Intersect - Hout Bay Specialists

Intersect Sectional Title Services has, recently, substantially grown their management contracts in the suburb of Hout Bay – becoming regional specialists in the area. 
 
Martin Bester, Managing Director of Intersect, who is a member of the Residential and Sectional Title Committee of SAPOA,  the National Association of Managing Agents and the Sectional Title Regulations Board, explains that Intersect has recently been awarded management contracts for Sea Glade and Silvermist Mountain Lodge, both of which are in Hout Bay. 
 
“Sea Glade is beautifully situated on the Disa River in Hout Bay and consists of 66 upmarket town houses,” explains Bester, “and Silvermist Mountain Lodge is situated on the forested Southern slopes of Table Mountain and within the Table Mountain National Park.” 
 
Hout Bay is a beautiful suburb and a growing one, with increasing residential developments as well as increasing industry.  Intersect has identified it as an area in which we wish to focus. 
 
Other current Hout Bay management contracts within the Intersect stable are Villa di Legno and Princess Beach. 
 

Prime new commercial and industrial project managed by Intersect

Intersect, the sectional title subsidiary of the Spire Property Group has been awarded the management contract for Glenkey Mews, a light industrial sectional title scheme that is situated within the prime commercial and industrial development of Sheffield Business Park – also managed by Intersect. 
 
“The newly built Glenkey Mews is situated in a great location and consists of six units that average between 217 and 434 square metres in size – all secured by monitored access as the Sheffield Business Park itself has security controlled 24 hour access,” explains Martin Bester, Managing Director of Intersect. 
 
Sheffield Business Park is a 56-hectare development, situated on the corner of Lansdowne and Ottery and adjacent to the Spar distribution centre.  It is one of the largest single, multi-use commercial and industrial projects seen in the Cape in recent years and falls within the Lansdowne Corridor redevelopment programme – a government initiative focused on upgrading one of the busiest arterial commuting routes. 
 
“Intersect administer the Property Owners Association for Sheffield and now manage the Body Corporate for Glenkey Mews within the Park.” 
 
Antony Payne, developer of Glenkey Mews, says that he has been working with Intersect, who manage several of his companies’ properties, for several years.  “Intersect have always been a professional organisation and their experience and willingness to share their knowledge is a great ‘value-add’ to the developments that they manage.”  
 
For those needing custom manufacturing and light industrial space, Glenkey Mews, within the Sheffield Business Park, is one of the most attractive options currently in terms of location and value.  “Intersect are proud to be involved in this development and are confident that we can add value through our services and expertise,” concludes Bester. 
 

Welcome tax relief for Body Corporates

South African body corporates have been given some welcome tax relief through the Taxation Laws Amendment Act, which was promulgated by SARS in July of last year. 
 
The Act states that all taxable income received by body corporates, i.e. income other than that derived from levies, will be granted a R50 000 exemption per annum. 
 
According to Martin Bester, Managing Director of Intersect Sectional Title Services, a subsidiary of the Spire Property Group, up till now, taxable income earned by body corporates was subject to taxation at prevailing company rates.  This included inter alia interest earned on investments and rental income. 
 
“We have always encouraged the schemes we administer to build healthy cash reserves but these reserves were being eroded by the taxation that was payable on the interest earned.  Now that the first R50 000 of such income is exempt from taxation, we are seeing a welcome relief for all schemes.” 
 
”Building cash reserves, to meet unexpected expenses and allow for reasonable contingencies is sound practice.”  “At Intersect we ensure that our client’s funds are invested at the best possible rates, whilst ensuring liquidity and, given our membership with the Estate Agency Affairs Board, with fidelity fund cover as well.” 
 
“Interest earned on investments is not the only income that body corporates could earn, they might also derive income from sources such as rentals, and this too will be subject to the exemption.” 
 

VAT and the Home Owners' Association

In finance minister, Trevor Manuel’s budget speech in 2008 it was announced that the annual threshold for VAT will be increased from R300 000 to R1 million. 
 
According to Martin Bester, Managing Director of Intersect Sectional Title Services, a subsidiary of Spire Property Group, this is potentially good news for residential home owners associations whose levy income is below the new threshold as they may now opt to deregister for VAT as some were registered due to confusion in the past on this topic. 
 
“Levy income at home owners’ associations is subject to VAT at the standard rate in terms of section 7(1)(a) of the VAT tax Act, No. 89 of 1991, therefore, historically, all schemes with an income of over R300k per annum were obliged to register.  But in residential schemes there is little, if any, material benefit to being VAT registered and deregistering will reduce the admin burden on the scheme.” 
“Furthermore,” says Bester, “schemes can also save money as most managing agents charge additional fees for completing the VAT returns and the audit should be less complicated and costly too.” 
 
Of course not all home or property owners associations will opt to deregister and Bester advises that an accountant would be the best person to direct the trustees and/or Directors in this regard as the net input and output VAT of the scheme should also be considered. 
 
“Intersect constantly strives to reduce the administrative costs of the associations that they administer.” 
 
In this light, Bruce Kerswill, the managing director of Spire Property Group and Bester, concur that, from an administrator’s point of view, they believe that deregistration should be seriously considered.