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Developer's powers

22 March 2012

Deeds Registries are inundated with requests by developers of Sectional Title Schemes, prior to the establishment of the body corporate, to allow for the:

  • subdivision of a section;
  • consolidation of sections;
  • extension of sections;
  • extension of the common property; and 
  • extension of the time period for the exercising of a real right of extension, as envisaged by section 25.

On closer perusal of the Sectional Titles Act 95 of 1986 (the “Act”), the above acts of registration only befall the owner of the section(s) or be done with the permission of the body corporate.

For the extension of the time period to exercise a real right of extension, the Registrars at their annual conference resolved that a developer may not unilaterally extend the time period, prior to the body corporate being established, nor may a co developer extend the time period of the right of extension, prior to the body corporate being established. The developer will have to cancel the existing right and register the right de novo (RCR 66 of 2011).

In respect of the developer's powers to subdivide, consolidate or extend any section or to add to the common property of the scheme, before the establishment of the body corporate, it is submitted that the developer does not have such powers.

Any of these changes would affect not only the physical nature of the scheme from a legal perspective, but also the administrative and financial aspects of management of the scheme. Subdividing a unit increases the number of owners and affects the voting rights and contribution (levy) obligations. Increasing the common property will usually add to the scheme’s overall expenses and change the fundamental nature of the scheme and would prejudice the rights of third parties who have contracted with the developer but who have no registered real rights until they obtain transfer of the units and exclusive use rights they have purchased.

The above matter will be referred to the Sectional Title Regulation Board and Registrars’ Conference, however, readers’ views on this issue will be appreciated.

Allen West
Deeds
Training Pretoria

Reader Comments: 5
John Christie 22/03/2012:

The Developer of any sectional scheme has the right, before the establishment of the body corporate, to cancel a scheme unilaterally. That being so, it is difficult to see why a developer should not in law possesss the right to do something much less drastic - namely make changes to the scheme which have a far lesser impact than cancelling the scheme. The potential impact on third parties of the cancellation of a scheme are therefore possibly much worse than the mere changes Mr West has alluded to.

The deeds registries have, so some degree over the last number of years, assumed to themselves, the role of public protector/ombudsman, interfering with matters that should be no concern to a Registrar of Deeds. Prime examples of this are the requirements that divorce settlement agreements need to be lodged where marriages have been dissolved by divorce, and the misguided assumption that it is for the Registrars of Deeds to police section 25(2) of the Sectional Titles Act.

D Matthee 22/03/2012:

We have a similar situation. The developer company is the owner of 2 adjacent erven. An existing building on the one erf is converted into a sectional title scheme with business and residential units. Certificates of Registered Sectional Titles were applied for and registered by the deeds office in respect of all the units still registered in the name of the developer/owner. The Developer/owner now wants to add the garages on the neighbouring erf as units to the existing scheme as a necessity to increase the residential component of the scheme so that the banks may grand residential bonds over the residential units in the scheme. According to the banks the present percentage of residential units versus business units prevent them from considering home loans for those residential units. But apparently he is not allowed to do that even though he is the owner of all the units and the neighbouring full title stand.

None of the properties are bonded. The solution that he must:

(i) transfer at least one section for the sole purpose of forming a body corporate to then,

(ii) apply for the extension of the scheme by addition of land to the common property (by the body corporate who will be the developer and the one new owner) and then,

(iii) apply for a certificate of real right to extension of the scheme by addition of sections, and then,

(iv) Apply for the extension of the scheme by dividing the garages into sections which will form part of the residential units and satisfying the banks to consider home loans, seems extremely cumbersome and expensive and a waste of time since no one else will be affected if the developer owner of all the sections just apply for the additions and extensions himself.

Are you aware of a cheaper and quicker solution that we and the Deeds office personnel consulted, could not find?

Dudley Lee 23/03/2012:

I fully agree with Mr. Christie's comment to Mr. West's article. The developer's right to extend the period of the section 25 right to extend is a moot point and despite RCR66/2011 I am not convinced that it cannot be done by the developer prior to the establishment of the body corporate. One can live with that decision. As regards the developer's powers to subdivide, consolidate etc. it would be interesting to know Mr. West's authority to make the statement that the developer does not have the powers to make such changes is.

Until such time as the body corporate has been established the developer has every such right in terms of the common law. Why would the developer's powers he had immediately prior to the opening of the sectional title register, namely every normal right of ownership, be diminished to a sort of a caretaker for others merely because a sectional scheme has been opened?

Will his right to mortgage the scheme or any part of it also suddenly disappear? Section 25(6A) was nothing but a confirmation of the common law and that procedure was allowed by the then Registrar in Cape Town, Mr. Kretzmann, in any case, long before the advent of section 25(6A), and for exactly that reason. To state that such changes would "..increase the number of owners..." is in direct conflict with the entire article. The developer will still be owner of everything forming part of the scheme, including units that were subdivided, extended, consolidated, or whatever. Whose voting rights will be affected? And as for the management and expenses of the scheme are concerned that seem to concern Mr. West, I fail to see how it is anybody but the developer's business.

Why even bring it into the equation? What third parties will have their rights affected by the developer's actions, when there are no third parties to consider? At most the developer will have a duty to inform possible purchasers who have not received transfer of their units yet, and no more. That such changes made by the developer will affect the "fundamental nature" of the scheme is non-sensical, with respect.

Allen West 04/04/2012:

I would like to briefly respond to Mr Lee who requested the authority for the allegations made in the article.  If the legislature had the intentiopn of also affording the developer the powers alluded to, it would have been spelt out in the Act . The omission of such must clearly indicate that it was never the intention of the legislature and cannot be a common law right which is ultra vires the Act. The matter will be placed on the Agenda for the upcoming Sectional Titles Board meeting and Registrars Conference

Dave James 20/04/2012:

I agree with Mr Lee/Christie. To state that had the act intended it to happen, that it would have had it in the act is an assumption that cannot be made. The fact that it is silent surely allows all the common law rights to be applied. If the developer has the right to cancel he must have the right to amend.

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