Sectional Title: New Regulations
Category Newsletter: Article
As I’m sure you are aware, the long wait is now over. The Sectional Titles Schemes Management Act (STSMA) and the Community Schemes Ombud Service Act (CSOSA) are both now in operation and have been since 7 October 2016.
So what does this mean exactly?
From a Sectional Title standpoint, the current Sectional Titles Act, No. 95 of 1986 (STA) still remains in force, however the focus has changed with the introduction of the STSMA. The STA will focus exclusively on the survey, establishment and registration aspects of sectional title schemes while all management related issues have been removed and placed under the STSMA.
As part of the management of sectional title schemes, it will be important for trustees and managing agents to remain aware of certain provisions in the STA as there are a few overlapping provisions between the two Acts but the focus will be primarily on the STSMA.
Key changes that affect you and the management of your scheme
The new Acts and the changes they bring apply to all community schemes such as, but not limited to, sectional title schemes, homeowners associations, property owners associations and shareblocks.
Reserve Fund
Sectional Title Bodies Corporate are now required to establish and maintain a reserve fund to be used specifically for the repairs and maintenance of common property. The regulations to the STSMA set out how to determine the minimum amount of annual contributions to the reserve fund in the current financial year.
Members of Bodies Corporate will contribute towards the reserve fund on a monthly basis based on participation quota of the member’s section or based on a modification of such liability as approved by the members of the Body Corporate in accordance with the STSMA.
It is a requirement for each Body Corporate to open separate bank accounts for the scheme’s administrative and reserve funds, if not done so already. A maintenance plan for the common property must be prepared by the trustees and tabled for adoption by the members at each Annual General Meeting. This plan must address the repairs and maintenance needs of the common property.
Rules
All Sectional Title schemes are now governed by a new set of management and conduct rules; however rules made by a scheme under the STA, to address the scheme’s unique circumstances, will remain valid, unless contrary to the STSMA. Rules made under the Sectional Titles Act of 1971 are subject to different provisions.
Quorums
Determining the correct number of members present to hold a meeting is far simpler now but it will certainly be more difficult to ensure the minimum number of members are present (in person or represented by proxy). In schemes with 4 or more primary sections, a quorum for a General Meeting (excluding where there is a unanimous resolution on the agenda) is constituted by members entitled to vote and holding one third of the total votes of members in value.
Proxies
An individual member may now only act as proxy for a maximum of 2 members, whereas prior to the implementation of the STSMA, there was no limit in place on the number of proxies that an individual could hold.
Voting
All motions at a general meeting must now be adopted by majority vote, calculated in value, in other words, based on the total participation quota of all the sections owned by the particular member. Voting by show of hands, with each section counting as one vote, is no longer permissible.
Prior to the implementation of the STSMA, a member of a Body Corporate was disqualified from voting if he or she was in arrears with his or her levies. Under the STSMA, a court or adjudicator must first issue a judgment or order for the payment of the arrear amounts before the right to vote can be taken away.
Extensions and Consolidations
The STMSA provides an entirely new power for the Body Corporate, namely to extend the time limit of a developer’s right to extend the scheme by way of a unanimous resolution, implemented by means of a notarial agreement.
Additional Insurance
Separate Fidelity Cover for protection against risk of loss relating to any act of fraud or dishonesty is now mandatory for all schemes. Public Liability Insurance up to a minimum of R10m is also required. Schemes are now expected to obtain professional replacement valuations at least once every 3 years.
Auditing
All schemes have to present audited financial statements to a general meeting, irrespective of how many units there are in the scheme.
Community Schemes Ombud Service
The Community Scheme Ombud Service (CSOS) is probably the most noticeable change in terms of the new legislation and the service aims to provide a platform in order to handle disputes amongst members of a scheme, which also includes the collection of arrear levies. All schemes have to be registered with CSOS and members will be required to pay an additional levy to CSOS amounting to no more than R40.00 per month. Members who pay ordinary levies of R500.00 or less are exempt from paying the levy.
The filing and registration of rules and rule amendments and the approval thereof is a mandatory service offered by CSOS. Schemes will also have to submit confirmation on an annual basis that their Annual General Meeting has been held (within the required 4 months of their financial year end) together with a copy of their financial statements.
The Next 90 Days
Requirement 1
To do: Register the scheme with CSOS
When enforceable: 30 days from date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s, Home / Property Owner’s Associations and Shareblocks
Requirement 2
To do: Lodge the schemes governance documentation with CSOS
When enforceable: 90 days from date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s, Home / Property Owner’s Associations and Shareblocks
Requirement 3
To do: File the scheme’s annual return and AFS within 4 months of the scheme’s financial year end with CSOS
When enforceable: 90 days from date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s, Home / Property Owner’s Associations and Shareblocks
Requirement 4
To do: Pay CSOS on a quarterly basis the CSOS levy (fee)
When enforceable: 90 days from date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s, Home / Property Owner’s Associations and Shareblocks
Requirement 5
To do: Insure against the risk of loss of money belonging to the scheme or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by an insurable person
When enforceable: On date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s, Home / Property Owner’s Associations and Shareblocks
Requirement 6
To do: Notify CSOS, the Local Municipality and the Local Registrar of Deeds of the scheme’s domicilium
When enforceable: On date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s only
Requirement 7
To do: Establish a reserve fund, open a separate bank account and prepare budgets in respect of administration and maintenance
When enforceable: On date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s only
Requirement 8
To do: Prepare a written maintenance plan
When enforceable: On date of publication of regulations (7 October 2016)
Applies to: Sectional Title Scheme’s only
Please be advised that all our Portfolio Managers and management staff have undergone training on the new Acts and regulations. It is our responsibility as your Managing Agent to assist your scheme in meeting the abovementioned requirements. Further correspondence will follow shortly to all Trustees with the process and fees involved.
Author: Coastal Property Group
