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21 July 2005

Sectional Titles Amendment Bill 10B of 2005: This Bill has now been approved by both houses of Parliament and is about to be signed into being.

It contains six proposed amendments to the Sectional Titles Act ("STA"). These are discussed below.

1. Amendment to definition of 'Exclusive use area'
Uncertainty existed whether the word "exclusive use area" as it appears throughout the STA only refers to the 'real McCoy' type of EUAs (created in terms of section 27, has its own title deed, is a real right, and so on) or whether the term also refers to the 'watered down' version created in terms of section 27A via the body corporate rules (not a real right, no title deed, cannot be mortgaged).

The amendment of the definition of "exclusive use area" in section 1 is now amended to specifically say this term applies only to the s 27 (and not the s 27A) rights.

Perhaps we should call the s 27A rights something else so as not to confuse the two. How about body corporate- allocated EUAs or dedicated use areas?

The amendment emphasizes the fact that these two types of rights (if the s 27A version can be called a right at all) are different in nature and should be treated differently. Conveyancers will do well to assist agents in clearly distinguishing in their standard agreements which type of EUA, if applicable, is being 'sold' in a specific instance.

2. Amendment of section 24 dealing with extension of sections
Any owner who in the past wanted to extend a section (for example by building a bay window, or enlarging a bathroom by adding a 2 sq metre shower, or by enclosing a balcony and turning it into a family room) will know how cumbersome the process is.

One problem is that by enlarging a section, one also enlarges its participation quota and as a result the other sections' participation quotas are diminished. This detracts (in theory at least) from the other sections' value, which means if those other sections are mortgaged, the security of the relevant mortgagees is diminished. So, you need to get the consent of your neighbour's bank before you can build your bay window. And if you live in a scheme with, say 70 units, you will (worst case scenario) need to obtain 70 bondholders' consent.

The STA provides some relief in that it currently determines you only need other sections' bondholders' consents if your extension alters the participation quota of a section or sections with more than 5%. But 5% is not all that much, and the legislator has recognized the need to increase this percentage. And also, the wording 'a section or sections' is not all that clear; do you need consent only if your sections pc is deviating with more than 5% or if any other sections pc is so affected?

Now, after the amendment, consent of other bondholders in the scheme will only be required if the deviation in participation quota of any section is more than 10%. Note also the clarification by adding the words 'of any section'.

3. Amendment of section 25: Extension of schemes
Consider the following scenario: Developer XYZ establishes a sectional title scheme with 3 units, and reserves the right to extend the scheme by building 50 more units. Soon these units are built, and the developer lets them out, but the developer fails to have the plan of extension and the resultant transfers registered.

Because the sectional plan showing the new units is not registered and the land concerned is technically still common property subject to a right of extension, the developer only contributes to the body corporate's levy fund at the low rate for undeveloped land. In effect, the body corporate subsidizes the developer in respect of levies.

To address the problem the amendment proposes a new subsection 5A, which makes it obligatory for the developer to register the plan of extension within 90 days of 'completion for occupation' of the relevant unit. If the developer fails, he will still become liable to pay levies for the unit as if the plan of extension was registered.

Moreover, in terms of the new 5A(c) the developer will not be able to transfer the unit unless the due levies have actually been paid to the body corporate. So, the registrar will not be able to accept an s 15B(3) certificate that states, "... provision to the satisfaction of the body corporate for payment has been made."

4. Amendment of section 27(6): Nature of exclusive use area right
Consider the following scenario: Joe Bloggs bequeaths his sectional title unit and exclusive use area to his daughter Joan, subject to a life usufruct in favour of his wife Sara.

After Joe's death the section will be transferred to Joan 'subject to the usufruct in favour of Sara', but how do you handle the EUA? In other words, given the nature of the right, can one register a servitude over an EUA?

The Act provides no solution to this difficulty, hence the amendment. The amendment describes an EUA as a right "over which a mortgage bond, lease contract or personal servitude of usufruct, usus or habitatio may be registered".

The proposed amendment caused a stir, because the addition of the word 'lease contract' creates potential difficulty. The effect is now that an 'outsider' will be able to register a long lease over an exclusive use area, contrary to the intention that only owners in the scheme should have rights to EUAs.

The legislator does not provide the solution. I recommend that attorneys use the opportunity to tell their clients (bodies corporate, managing agents) that if this is a problem for the particular scheme, the body corporate must amend its rules in order to prohibit leases and servitudes being granted to 'outsiders'.

5. Amendment of section 36(7) to increase fine if developers do not comply
A developer is supposed to convene a meeting with the body corporate within 60 days of the body corporate coming into existence. He must give certain documents, information and moneys to the body corporate at this meeting.

In practice developers often do not comply with this, and with a maximum fine of R 1 000,00 provided for the offence, the provision is hardly onerous. The amendment proposes to change that, because the "not exceeding R 1000" part of the section is removed (the implication is that a higher fine may be imposed) and a or to imprisonment for a period not exceeding 2 years part is added.

6. Amendment of Section 47 to avoid 'Double jeopardy'
Consider this scenario: Peter Poorboy owns a section in Hard Times Sectional Title Scheme. He pays his levies regularly every month. But most of the other owners in the scheme do not.

As a result, the body corporate does not pay its rates account, the municipality takes judgment and in terms of section 47 applies to court for joinder of the individual owners as judgment debtors. Peter must in effect 'pay double'. Although the section does allow him to obtain a refund from the body corporate, this is a theoretical consolation.

To eliminate the 'double jeopardy' problem, the section is now amended to say members who have paid their contributions to the body corporate in respect of 'the same debt' may not be joined.

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