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Failure to cede EUAs

28 November 2013

Introduction
It occurs frequently that upon transfer of a section in a sectional title scheme to the transferee thereof, that exclusive use areas (“EUA’s”) are not simultaneously ceded. This is generally due to an oversight by the Estate Agent and/or Conveyancer who fail to identify and deal appropriately with the relevant EUA.

Provided that no other sections are registered in the name of the transferor other than the section being transferred, the transferor ceases to be a member of the body corporate immediately upon transfer.

Section 27(4)
Section 27(4)(b) of the Sectional Titles Act No. 95 of 1986 (“the Act”) states that: “If an owner ceases to be a member of the body corporate as contemplated in section 36 (2), any right to an exclusive use area still registered in his or her name vests in the body corporate free from any mortgage bond or registered real right.”

Section 27(4)(c) of the Act states that: “If a right to the exclusive use of a part or parts of the common property vests in a body corporate, the body corporate shall, in the prescribed form, apply to the registrar for the issuing of a certificate of real right of exclusive use in its favour and submit a certificate to the effect that the provisions of any law in connection with the vesting have been complied with.”

In this instance, the Registrar must issue such certificate in the prescribed form, as stipulated by section 27(4)(d) of the Act.

Failure to deal appropriately with EUA’s
The failure to deal with EUA’s held notarially, where the EUA then reverts to the Body Corporate, will trigger certain legal implications.

Legal implications
The purchase price may have been quantified to include the right to the EUA. This will result in potential damages being incurred by the transferee as a result because although they have paid for the EUA, it has not been ceded to them and now vests in the Body Corporate. The Body Corporate has no legal obligation to cede the EUA back to the transferee.

It may also prejudice the purchaser’s loan finance because the bank that granted him a bond may have relied on the value of the EUA when agreeing to lend him money. The bond may be retracted by the bank if the bank feels that without the EUA there is insufficient value in the property to secure the loan.

In addition, the cession of an EUA from the Body Corporate back to the purchaser requires unanimous resolution by the Body Corporate. Additional legal and deeds office fees are incurred in calling a meeting to get consent and in registering the cession of the EUA. The Seller and/or the Body Corporate may insist on further compensation/consideration to effect cession of the EUA. Lastly the transfer of an EUA, dependant on the value thereof, may result in possible transfer duty implications for the Body Corporate and/or the Purchaser.

Measures to avoid
To avoid this situation, it is imperative that when drafting any agreement for the sale of immovable sectional title property (or vetting such agreement) one conducts a “person search” in the respective Deeds Office to determine whether any contracts or notarial deeds are registered against the person’s name as this will not be reflected on an ordinary property search. Note that occasionally the EUA will be reflected not as a property but under “Contracts” on the person search.

The sale agreement must indicate that the purchase price includes a right to the EUA, which must be ceded by notarial deed simultaneous to transfer of the unit.

Louis Kruger and Gabriel da Matta
Schindlers Attorneys

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