Demand for sectional title residential properties remains fairly buoyant, appealing as they do to a wide cross-section of the community. At one end of the spectrum are young people, often newlyweds starting out in life, and at the other elderly couples downscaling from the family home and seeking lower running costs coupled with comfort and security.

Then there is the parental group, who invest in

a sectional title block to provide their children with

accommodation during their university studies,

while keeping an eye on potential capital returns.

Of course, not all sectional title properties are

small, relatively inexpensive apartments. There

are townhouse developments and, in the luxury

market, properties can cost as much as R50 million,

PGP’s national sales executive John Herbst points

out. Herbst adds that the popularity of this type of

property is illustrated by the fact that sectional title

sales constitute a high percentage of all residential

units sold in Johannesburg.

Owners appreciate the security and

convenience offered; many have access control

and the apartment blocks are often situated within

fenced communities offering amenities such as

clubhouses, restaurants, swimming pools, tennis

courts and other attractions. They are ideal for the

”lock up and go”adherent.

“Many sectional title developments offer sound

value for money and a well run complex can offer a

sound return on investment over the long term,” Herbst

claims. And that’s the key to purchasing a unit - one

which is well run and properly managed!

There is no need to be nervous of a sectional

title purchase. South African legislation is

internationally recognised. First promulgated in

1971 it is today very well established. It was drafted

in line with international precedents, specifically

that of New South Wales. New legislation has

recently been drawn up, says attorney Maryna

Botha of Smith Tabata Buchanan Boyes, in terms

of which:

• Theschememanagementprovisionshavebeen

removed from the current Sectional Title Act and

are contained in a new Sectional Title Schemes

Management Act 8 of 2011.

• The Community Schemes Ombud ServiceAct

9 of 2011 establishes an Ombud Service for the

resolution of disputes in all community schemes

(including schemes for retired persons).

Both Acts have been assented to, adds Maryna,

but neither are yet in operation, although this is

expected by the second half of this year.

Prior to the introduction of sectional

title schemes, non-full title properties such

as apartments were administered under the

Shareblock Control Act.“ This was part of the

Companies Act,” recalls Mike Morey, managing

director of PGP’s Property Management Services,

which manages some 135 schemes encompassing

5 500 units. “Shareblock schemes have a board

of directors as opposed to a body corporate; they

still exist but they have become much less popular.

They are something of a dying breed and a number

are going through the legal process of converting

to sectional title.”

Most, if not all, communal building

developments (apartment blocks etc) are governed

by the Sectional Title Act. Free-standing units

in developments are commonly registered by

the developer as Home Owners’ Associations

either established in terms of Land Use Planning

Ordinance with a board of trustees, or registered

as non-profit companies in terms of the Companies

Act with a board of directors. An important

difference from a buyer’s perspective is in terms

of restrictions. ie. in both cases owners pay levies

for the upkeep of common areas etc, but owners

in a sectional title scheme are restricted under the

prescribed and registered rules administered by the

body corporate in what they may do (alterations,

improvements, keeping pets, gardens and so on).

Managing agents, such as PGP’s Property

Management Services, are appointed by Home

Owners’ Associations and by sectional title

scheme’s trustees as set up by the body corporate.

Together with trustees or directors they help set

up a budget which dictates levies. These have to

be approved at an annual general meeting. In

terms of an HOA, for instance, resolutions must be

INTELLECTUAL PROPERTY July 2012 9

SECTIONAL TITLE

Sectional Title

Nature of right Proof of owner/holder’s rights to the property

What can the owner sell, and how are the rights transferred?

Can the owner / holder’s rights be mortgaged?

FreeholdOwner has full ownership of the property (erf, farm)

Title deed, registered in deeds officeOwner sells the property and the transaction must be registered in the deeds office

Yes, existence of mortgage bond is endorsed against title deed of the property

Sectional title

Owner has full ownership of the prop-erty (Unit in sectional title scheme) together with an undivided share in the common property areas

Title deed, registered in deeds office Owner sells the unit and share in com-mon property and the transaction must be registered in deeds office

Yes, existence of mortgage bond is endorsed against title deed of the property

Shareblock

The holder of the shareblock does not own the property, the share-block company does. The holder owns shares (grouped into a ‘block of shares’) in a company that is a shareblock company

Share certificate and use agreement. The latter is usually entered into with the shareholder and grants the shareholder rights of use in respect of a certain unit in a scheme (such as a block of flats) that is owned by the company

Owner sells the shares and rights under the use agreement; rights are transferred by means of cession of share and loan account and cession of rights in terms of use of agreement

No, the holder of the shares and use agreement cannot mortgage them - only immovable property can be mortgaged. The company itself may mortgage the property

passed by 75% of members present who are eligible

to vote (paid up).

Some basic differences between full title,

sectional title and shareblock. (See graph on page 9)

When considering buying into a sectional title

scheme there are certain issues to be aware of

as well as the normal contract terms etc. Always

check these with the estate agent and attorney,

before signing an offer to purchase. For example,

ask to see the body corporate accounts and

budgets. You might discover that a special levy is

to be raised for a project planned in future. Ensure

that insurance is in order and paid up to date. Ask

your attorney to find out whether the developer

has registered rights of extension.

Levies are raised as per the budget approved

by the body corporate and are divided among the

owners in terms of their “participation” quota

which expresses the relationship of floor space of

a unit to total floor space of all the sections in the

scheme. What happens if an owner doesn’t keep

up his/her levy payment? According to Maryna

Botha: “An owner may not be evicted as a result.

However, it is a breach of one’s statutory duty

and the body corporate may approach a court for

appropriate relief.”

Furthermore, pleading that one can no longer

afford to pay levies is not a legal defence, adds

Mike Morey.

Rules of conduct are often the cause of

disputes – especially if you buy without knowing

their ins and outs. These cover a wide range of do’s

and don’ts: A friend of mine considered buying a

garden flat until he read the nine pages of rules

and limitations. These were so draconian that on

walking out he asked the hapless estate agent;

“Do they have Lights Out and Reveille?”

The body corporate can change conduct rules by

drafting a special resolution and inviting all owners

to a general meeting at which they will vote on the

proposed amendments. When the Ombudsman is

in place, one will be able to approach the Ombud

to change a rule deemed unreasonable.

Obviously the trustees appointed by the body

corporate call the shots in terms of house rules,

conduct rules and so on; so should one make a

point of being appointed a trustee? “I generally

encourage anyone to become a trustee”, says

Morey. This can be particularly important if one

is buying into a new development. Botha points

out that the body corporate legally comes into

existence as soon as the first unit in the scheme

has been transferred. So, get in quick appears to

be the rule…

Sectional TitleSECTIONAL TITLE

INTELLECTUAL PROPERTY July 201210

Retirement homes are a growing sector of

the “communal” residential market and pose

many questions for older people buying into these

developments. Such schemes typically include a full

spectrum of lifestyle facilities, security and frail care

services with or without an option of assisted living.

The Housing Development Schemes for Retired

Persons Act 65 1988 was introduced to regulate

these schemes and to afford buyers a degree of

protection relating to both the development and

the ongoing management of such a scheme.

Frequently asked questions about retirement

homes: Answers by Maryna Botha.

q. I bought a flat/house in a retirement

complex, will I get a title deed?

A. It is of the utmost importance to scrutinize

the form of ownership you acquire; your legal

rights and obligations vary greatly with the

different types of schemes. Retirement villages (or

schemes) can be structured as follows:

Sectional Title Ownership will give you

outright ownership of the unit. Registration of

ownership of the unit in your name must be

processed at the Deeds Office and you will receive

a title deed to the property (if mortgaged the bank

will hold this);

Share Block Ownership. Each unit is allotted

a number of shares in the company. These give you

the right to use the residence and the complex’s

facilities but you do not own the dwelling. You

will receive share certificates but not a title deed,

Life Rights. This gives you the right to occupy

a particular dwelling for the rest of your life, but

not ownership. You will not receive a title deed, nor

is the process registered at the Deeds Office. Your

rights are governed by the Housing Development

Scheme for Retired Persons Act.

Full Title Ownership (not typically found in

retirement schemes). The property is registered in

your name and you are liable for such services as

rates, water electricity, security and upkeep levies

which may apply. A homeowners’ association will

be established to maintain common areas in the

village and provide security and other services.

q. I bought so-called Life Rights. What

exactly do I own? What are my rights?

A. You purchase the right to occupy a unit in

the scheme for as long as you live. What happens

upon death is regulated by the contract of sale

between the contractor and the purchaser (so have

SECTIONAL TITLE

INTELLECTUAL PROPERTY July 2012 11

Sectional Title

INTELLECTUAL PROPERTY July 201212

this scrutinized!). Life rights, in other words, link

occupancy rights to the life span of the occupier.

The Act determines that the holder of a life

right has, for all intents and purposes, the same

rights as those conferred upon a lessee in terms of

a registered long lease. Practically this means that

the holder has a real right to occupy the property

for the full term of the interest. Therefore, should

the land/development be sold the holder of the life

right may remain in occupation.

To further bolster the rights of persons

purchasing life rights in retirement schemes, the

Act determines that the real right of the holder will

rank in priority over any other right, whether or not

the right is registered over the property – or when

this right was registered. In other words, the right

of the holder will rank above that of a mortgage

bond holder, holder of a servitude and so forth.

q. Can my spouse stay on in the scheme

when I die?

A. It depends on the form of ownership and

marital status. If you were married in community

of property and the scheme is based on sectional

title, freehold or shareblock, your spouse can stay

on because he or she is legally the joint owner. If

married in community of property and the scheme

is based on Life Rights, it will depend on the terms

of the agreement entered into with the developer.

In most instances this sort of agreement usually

states that the spouse may stay on.

It is advisable that both spouses name

each other as heir of each other’s ownership or

shareholding in the retirement scheme.

If you were married out of community of

property and bought the property or shares jointly

(whether sectional title, freehold or shareblock)

then the surviving spouse will still own half of the

property/shares. It is, however, necessary to ensure

by way of a will that the half share of the deceased

devolves to the survivor.

Where a couple are married out of community

of property and the scheme is based on life rights,

it will again depend on the terms of the agreement

entered into with the developer. If in this case

the ownership or shareholding was in the name

of the deceased only, the surviving spouse must

acquire the ownership/shares from the deceased’s

estate in order to remain living in the property. It

should ideally be bequeathed to the survivor in the

deceased’s will.

Note: The above are only a few of the main considerations. It is

crucial to engage the services of an attorney prior to entering

into any contract.

q. At what age can I buy into a

retirement scheme?

A. Anyone can invest in a retirement scheme,

regardless of age. But, according to the Act, only

persons of 50 years of age and older can reside in

such a scheme – unless all the owners of housing

interests in the scheme consent to the contrary.

So it’s possible for children of retired parents

to purchase an apartment or life right for their

parents in which to live. NB. Checked and approved by: Mike Morey, MD Pam Golding

Property with reference to Property Management Services,

Zerlinda van der Merwe, attorney, Pam Golding Management

Services. Maryna Botha, attorney, STBB

Sectional TitleSECTIONAL TITLE