Sectional title – check the finances

Anyone who is considering buying a flat or a complex under sectional title should carefully check the financial status of the scheme before going ahead with the purchase according to Johan Le Roux, marketing director of Propell a company that funds 330 local sectional title schemes with 15 000 units.

Le Roux says that all too often an unsuspecting buyer may buy a unit in a sectional title scheme and may be told that the levy is, say, R700 a month. When the sale is concluded, the buyer discovers that a special resolution was passed by the body corporate increasing that levy by a factor of two or three.

“There is always a danger that people can buy a unit in a sectional title scheme without examining the financial standing of that scheme,” says Le Roux. “Estate agents are sometimes guilty of selling units without doing the necessary research and homework and without advising their clients about the dangers that surround inefficiently-managed section title schemes,” he says.

Le Roux stressed that if a scheme raises a special levy, this does not necessarily mean that its trustees for the managing agent have been incompetent.

Referring to the role of Propell in sectional title schemes, Le Roux says that the company is able to provide funds and assist in a sectional title scheme’s monthly cash flow requirements and can collect levies from owners on behalf of the managing agent or the trustees.

In a separate development, sectional title specialist, Mike Spencer warns that trustees of a body corporate must work within the rules of that body corporate and often make a mistake when it comes to properly maintaining the buildings.

“One area where trustees frequently make a bad mistake is on the exterior maintenance of a building or complex. Rule 37 says that the body corporate (and therefore the trustees) must establish a fund sufficient for the repair, upkeep, control, management and administration of the common property,” says Spencer.

He says that over the years, some trustees have tried to lower the levies by insisting that owners repaint the outside of their own units but this is outside of the provisions of Rule 37 and must not be allowed.

“Trustees have to set a budget, used to calculate the levy repayments, that is sufficient to cover the repainting or other maintenance costs of the outside of all the units. They do not have a choice,” he says.

“Recently, when visiting a unit owner by a foreigner, we noticed that the outside of this property was in a poor condition but all the other units had been freshly painted. Looking at the financial statements for the past year, it was clear that no money had been spent on maintenance by the body corporate.

“I suggest that the trustees for this scheme had been grossly negligent and should be held personally liable because Rule 37 clearly states that the body corporate must maintain the exterior of all units in the complex,” says Spencer.

“Trustees have to be very careful when making decisions to cut corners on the levies charged. It can only be done if everyone agrees to the changes. Otherwise trustees need to stick to the rules,” says Spencer.

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Sectional Title

One of the ‘issues’ with which sectional title trustees and their managing agents have to deal with time and again is the contentious subject of where the sectional title owners’ responsibilities end and where those of the trustees start.  The issue is complicated by trustees also being owners of sectional title units who provide their time and service free of charge.

Firstly, the owner is responsible for the maintenance and cleanliness of the interior of his section.  This includes some items such as the doors and windows, but it does not include the exterior and its maintenance.

Secondly, the owner is also responsible for insuring all movables and content in his section, but the permanent fixtures such as doors and windows are covered by the Body Corporate’s building insurance policy.

There is one exception. If the geyser which serves his section is located outside the unit, as is often the case, it remains the responsibility of the sectional title owner to maintain such a geyser.

Thirdly, the owner has the responsibility for paying the levies.  In some cases, says Bauer, owners renting out their units have assumed that the tenant will pay these – but that is not the case.

Fourth, the owner is responsible for seeing that everyone who lives in or visits his unit – including his tenant and the tenant’s family – complies with the Conduct Rules of the scheme.  It is not, as is often thought, the trustees’ or managing agents’ duty to keep occupants or tenants in line in this matter, says Bauer.  The trustees’ duty is simply to warn the owner if rules are broken and to keep on doing so until he takes action.  The owner, for his part, may after issuing several verbal or written warnings to his tenant, be forced to terminate the lease and in some cases forcefully evict the tenants.

This responsibility of the owner of the sectional title unit, adds Bauer, is particularly important when it comes to exercising the right to use the common property such as gardens, parking areas and swimming baths.  The owner has to see, that his family or his tenants behave appropriately in these areas.

Fifth, a particularly important owner responsibility is to prevent the unit being used unlawfully, ie, for any purpose or in any way that is contrary to the intentions of the scheme’s developers and/or the prescribed Management Rules.  (These intentions are often shown or implied on the sectional plan or defined in the registered rules of the scheme.)  It could, for example, be wrong to run a business from a unit and it would certainly be wrong to sublet space in it on a short-term basis without the permission of the owner.  It would also be wrong to allow the tenant to have more than the prescribed number of occupants (a common and very serious offence) or to use the unit for commercial entertainment.

Sixth, a rule that is often overlooked is that the Body Corporate must be notified by the owner both of changes in ownership and of mortgages relating to the unit.  The owner must also ensure that the Body Corporate is given up-to-date information on the address at which he resides and can be contacted.

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za