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Dissolution of a body corporate

16 August 2012

The issue of the dissolution of the body corporate by court order and the resultant termination of a sectional title scheme seems to present some uncertainty to practitioners and examiners alike. It is the intention in this article to investigate whether such an act by the court can per se result in the dissolution of a sectional title scheme, and also perhaps stir some legal debate around that possibility.

Except for the provisions of section 48(6) of the Sectional Titles Act 95 of 1986 (the Act), which empowers a court of law to make an order for the winding up of the affairs of a body corporate on destruction of the building, no further enabling provision in other legislation can be found. The provisions of the Companies Act 61 of 1973 also do not find application to a body corporate established in terms of the Act. It is thus clear that the Sectional Title Act does not anticipate the dissolution of the body corporate for any reason other than that in section 48(6), while the Sectional Scheme is still in place.

In all the provisions of the Act that relate to the termination of a sectional scheme it becomes the developer or the body corporate’s call regarding the fate of the scheme.

The first provision in the Act that provides for the termination of the scheme is section 14, which empowers the developer in the appropriate circumstances to cancel the sectional plan resulting in the termination of the scheme. This does not bring about many complications as the body corporate is not yet in existence, so none will dissolve.

The sectional plans can also be cancelled by a court order at the instance of the party who will show cause to the court why that should happen. Sections 14(8) and (9) of the Act provide in this regard as follows:

  1. A registered sectional plan shall, subject to the provisions of subsection (6) and subsection 17(6), only be cancelled by an order of the Court, and the registrar shall give effect to any such cancellation by making the necessary endorsements and entries in his/her records, and shall notify the Surveyor General, who shall cancel the original sectional plan and the deeds office copy thereof.

  2. The registrar shall notify the local authority of the cancellation of the registration of a sectional plan.” Again this cancellation has the effect of bringing the sectional title scheme to an end as the plan on which the scheme was based has been cancelled. Obviously the court will pronounce itself on the way to go with regard to how the other real rights that might already be registered should be dealt with. The registrar will then comply with such order in respect of the titles in his/her records.

Another way that the scheme can be terminated is provided for in sections 17(5) and (6) of the Act which provide as follows:

  1. When the whole of the land comprised in the common property shown on the sectional plan is transferred by the body corporate pursuant to this section the sectional title deeds of the owners of units and the title deeds of the holders of exclusive use areas shall be surrendered to the registrar for cancellation, and the title deed of any other registered real right in the land, excluding mineral rights, shall be surrendered to the registrar for endorsement and the registrar shall close the sectional title register and notify the Surveyor General and the local authority that the sectional title register has been closed.

  2. Upon receipt of the notification referred to in subsection (5), the Surveyor General shall cancel the original sectional plan and the deeds registry copy of the sectional plan.

Alienation in this instance can relate to the sale, lease or other means of disposal of the whole of the common property comprised in the scheme. Of importance is that all the owners of units in the scheme must unanimously resolve to alienate the whole common property as envisaged and such resolution must also be lodged. The land will be transferred back to the conventional land register by the prescribed form of deed of transfer, accompanied by all the relevant title deeds registered under the sectional scheme, and other documents prescribed.

Total destruction of the building(s) comprised in the scheme can lead to termination of a sectional title scheme in terms of section 49 of the Act. ‘Can’ because such an act does not automatically result in the termination of the scheme since the body corporate still retains the right to rebuild the buildings in accordance with the registered sectional plans. In the event that the body corporate of the scheme decides not to rebuild the destroyed scheme buildings, then the scheme will be deemed to have been terminated. In this regard the scheme together with the body corporate will be deemed to have been terminated since there cannot be a body corporate for a non-existent scheme.

The question in the reverse is: can there be a scheme without a body corporate? What happens to the scheme where the court dissolves the body corporate for whatever reasons other than upon destruction of buildings?

It is submitted that while the possibility is highly unlikely and the question is only academic, it is better to be prepared than to be caught off guard. The deeds office will play an important role in such a scenario because the deeds office must provide the relevant court with a report upon request, where the matter before the court may affect a registered title deed. In this instance it will be up to the registrar to point out to the court that any possible order relating to the dissolution of the body corporate cannot end there, but must proceed to pronounce itself on the fate of such a scheme or its affairs. In the event that the registrar was not asked for a court report, one can only hope that the parties will still seek a court order as to the fate of the sectional title scheme after the dissolution of the body corporate.

It is submitted that in such an event the following can result from such a court order: the dissolution of the body corporate in that way will result in the termination of the scheme and the matter can be dealt with in the usual manner in terms of the Act. Obviously this presupposes that the owners in the scheme or other affected parties support the order.

In the event where the court does not wish to terminate the scheme per se, then the court has the inherent duty to make an order as to what must happen to the day-to-day duties of the body corporate of a scheme. An administration order can be issued in terms of section 48(6)(a) of the Act for one or other party to administer the affairs of such sectional scheme until the affairs of such a scheme are back on healthy course. This opinion is expressed from the premise that there is no provision in the Sectional Title Act or the Companies Act that covers the scenario where the body corporate is dissolved for some reason except upon destruction of the scheme buildings to the extent provided for in the Act. It is submitted that the provisions of section 48(6) (b) of the Act can also be applied mutatis mutandis to a situation where the buildings are not destroyed, to achieve the same results envisaged in the said section. In that case the court must continue to give guidance on how the affairs of the body corporate must be finalised without prejudice to any interested party.

In the meantime it is submitted that the Act may have to be amended to accommodate any of the above scenarios where the body corporate is dissolved for some reason other than those mentioned in section 48.

Sydney Mekwe
Deeds Training
Pretoria

Readers’ views on this issue will be appreciated - Editor

Reader Comments: 7
harriet 16/08/2012:

What happens if the body corporate is non-functional and no levies are being collected as each unit is insured separately and rates are being paid by the owners to the municipality. we submit 15(b) (3) stating that there is no body corporate or would it be rejected in the deeds office?

Corne 17/08/2012:

What happens once the body corporate had been dissolved and there were sectional title owners and portion of real right to extend holders? As far as I am aware the sectional title owners become owners of the land in undivided shares as per the participation quota's but what about the real right holder who did extend his property but not yet sectionalized it?

Allen West 17/08/2012:

A sectional title scheme cannot exist without a body corporate, as it is a creature of statute and comprises all the owners in the scheme. The Act has introduced a sanction for instances where the the AGM is not held.   Yes, the Deed Registry will reject the deeds if a form W was issued and it is now averred that there is no body corporate.

Hester Kruger 17/08/2012:

1. During the last 3 years we often came across the scenario where the Developer registered a Sectional Plan on a small piece of land, where he could build only two units. The result of this practice is that there is no active Body Corporate, and the owners of the properties are usually not even aware that the property is not free hold, but sectional title. How does the non-existence of a Body Corporate influence the Conveyancer signing the Conveyancer's Certificate declaring that all levies are paid? We normally obtain a declaration from the other owner stating that there are no outstanding amounts owing to the body corporate.

2. Our firm was instructed to attend to the transfer of a sectional title unit from an Insolvent Estate. There are over 30 Units, but there is no active operating Body Corporate. The City of Johannesburg refuses to issue a clearance certificate because the outstanding amount due to it by the sectional title complex is over R480 000.00. Our client refuses to pay for a court application to request a Body Corporate to be instituted and is prepared to rather abandon the property. What will happen if one of the other owners would want to sell their unit?

Allen West 20/08/2012:

I refer Ms Kruger to section 36 (7) (a) and (b) more specifically the sanction referred to in the (b ) portion.  A scheme cannot exist without a body corporate.

Allen West 20/08/2012:

In response to Corne, I would also like to refer him to to section 48 (1) (b) of the Act. The holders of real rights must firstly exercise their real right and obtain a title for their section, alternatively, should they consent to the destruction of the scheme before exercising such right, they lose all right in the scheme.

Pierre Fourie 08/08/2014:

We have a Sectional Title Scheme consisting of 5 Units that is basically bankrupt because 2 of the owners are very far in arrears and were handed over in April but as of yet no funds have been recovered. The municipal account is two months in arrears and we are now going for the third month. With the levies of the other three owners we pay the insurance, gardener, security company and admin fees. The three owners that are paying and up to date are calling for the dissolution of the body corporate and to basically cancel or dissolve the Scheme as a Sectional Title Scheme. Can this be done and if so, how?

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