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Section 27A Exclusive Use Areas

17 January 2013

Section 27A Exclusive Use Areas
It is absolutely clear that when dealing with a sectional title sale that includes an exclusive use area that has to be ceded by notarial deed (a section 27 EUA) it is essential that in the transfer duty receipt, the rates certificate, the power of attorney to transfer and the Deed of Transfer mention needs to be made of the fact that the EUA is part of the subject matter of the sale. The EUA would also have been referred to in the agreement of sale.

It is reasonable to assume that a residential (or commercial) section that is sold with an EUA (which may be a storeroom, a courtyard, a garage, a carport, an open parking bay or a garden to mention a few possibilities) will sell for a higher price than a section that does not have any such EUA. If such an EUA is not so referred to as before stated, the transfer of the section will not be able to proceed unless the conveyancer in error omits the cession of the EUA. Any person looking at the details of the sale (such as a municipal valuer or an estate agent) as recorded in the deed of transfer, and seeking to compare the sale with another will be able to understand a substantial difference in the sale price for two similar sections sold at the same time, if the one includes an EUA and the other does not.

It does not seem to be equally clear that a section 27A EUA should be referred to in the transfer duty receipt, power of attorney to transfer, and deed of transfer. I have discussed this with colleagues and find that my view that a section 27A EUA should be so disclosed is considered by some to be wrong. The basis of the view is that section 27A EUAs do not get transferred. The rights in respect of any section 27A EUA automatically follow the ownership of the section to which such right is linked in the rules of the scheme.

I acknowledge that the conveyancer has no function in effecting a transfer of the section 27A EUA but he does have a responsibility to purchaser, seller and the rest of the world to properly and accurately represent what is the subject matter of the sale, or putting it differently what was paid for by the purchase price.

The same assumption about price, referred to above, applies equally to a section 27A EUA and a section 27 EUA, but of course where a section 27A EUA is not disclosed even if it a part of the subject of the sale the transfer will proceed unaffected unless either the purchaser or the seller insists on disclosure of the section 27A EUA in the documents.

When two sections in a scheme are sold at the same time and the one sale includes a section 27A EUA and the other does not and the price for the one with the EUA is higher, anybody looking at the two deeds of transfer may be mystified as to why there is such a difference unless mention is made of the section 27A EUA. It is conceivable that SARS may look at two such transfers for guidance on what transfer duty to charge in a donation of a section with no section 27A EUA in the same scheme at the same time, and very understandably insist that the correct valuation for the donated section (without a section 27A EUA) is the same as the higher price paid for the section with a section 27A EUA that is not disclosed.

It is my view that every conveyancer who fails to disclose in the documents he/she prepares that a section 27A EUA forms part of the subject matter of the sale, if this is the case, is guilty of not only bad conveyancing but also professional misconduct.

What do you think? If you disagree why do you disagree? If you agree please say so.

Donald Moore
Guthrie & Rushton
Attorneys Notaries & Conveyancers

Reader Comments: 7
Edgar Morake 17/01/2013:

Interesting! I have to say I agree with Mr Moore though it is not what always happens in practice.

Graeme Phillips 18/01/2013:

I agree with Donald that it should be disclosed in the contract of sale. However, as no rights are being transferred I am of the view that it should not be disclosed in the transfer documents. .

CLIVE VALENTINE 21/01/2013:

I agree with Donald that such rights should be disclosed in all the documents. With respect, I can't agree with Graeme Phillips that no rights are being transferred.  Indeed with a 27A EUA, rights are being transferred albeit not by means of a deed of transfer. Technically, I think an underhand cession should be signed and lodged with the Body Corporate. However, I would not go so far to say, as Donald does, that failure to disclose amounts to professional misconduct.

Clearly there will be differences of opinion on this issue and one cannot be found to be guilty of misconduct for subscribing to a differing opinion!

Dee Robertson 16/07/2013:

I have this exact problem. I purchased a sectional title unit with an exclusive use garden and subsequently sold it. The garden is shown on the plans. The ownership of the garden has now come into question - and the new owners are demanding compensation for my misrepresentation as I cannot prove that I have exclusive use. No extra levy was charged - and as this was my first and only sectional title property i did not question - but paid what the managing agent billed.

norma gargan 15/11/2013:

What happens when an owner of a sectional title unit extends the unit into exclusive use area and does not have this registered in deeds office and therefore when the owner sells his title deed only shows the old sq metres of the unit. There is no record in the deeds office of the extension. What would the legal implications be in this regard?

Abi Ogunojemite 10/12/2014:

For clarity to the Purchaser, the EUA in terms of Section 27A should be cited in the contract of Sale and same should be reflected in all documents. EUA in terms of Section 27A , though is attached to a particular unit in terms of the Management Rules, but the Purchaser needs to know for sure the type of EUA attached to the Unit he is buying. However if not cited in the documents, it should not be seen as a professional misconduct.

Donald Moore 23/12/2014:

I read the letter and comments with great interest and only at the end did I realise the letter was my own from nearly 2 years ago. Just to add to the debate at this late stage I suggest that the bad conveyancing in not disclosing the 27A EUA in all documents including the deed of transfer for the section (a reference would fit well into the narration of the price as "together with 27A EUA P3 ") may lie, not so much in the failure to disclose as in the evidence that this may be of a failure on the part of the conveyancer to properly research the transaction. If no search was made of the rules to ascertain whether any section 27A EUA existed then that would be negligence. Is such negligence not professional misconduct particularly if it is standard practice? If the agent failed to disclose the 27A EUA in the agreement would anyone dispute that an addendum is necessary to make it clear that the eua forms part of the sale? The conveyancer bears the ultimate responsibility.

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