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Does sectional title legislation apply to home owners' associations?

Category Property Management

Does sectional title legislation apply to home owners' associations?
Article by Zerlinda van der Merwe​ - Paddocks

By now, you should be aware that the Sectional Titles Schemes Management Act ("the STSMA") and the Community Schemes Ombud Service Act ("the CSOSA") came into operation on 7 October 2016. In our consulting department, we receive many queries from home owners' associations ("HOA's") as to whether the provisions of the STSMA are applicable to these community schemes, whether established in terms of the Common Law, or registered as non-profit companies in terms of the Companies Act.

Does the STSMA apply?

No, the provisions of the STSMA and the Regulations, containing the prescribed management and conduct rules, do not apply to HOA's. However, should there be bodies corporate, forming part of the HOA, these sectional title schemes will be administered and managed in terms of the STSMA.

What does apply?

If the HOA is established as a Common Law association, its constitution and rules (if any), form its governance documentation, applicable to each member of the association. Should the HOA be registered as a non-profit company ("NPC"), its memorandum of incorporation and rules (if any), and the Companies Act, are applicable.

In addition, the CSOSA, its Regulations, and the Schedule to the Regulations: Levies and Fees, are applicable.

How does the CSOSA apply?

Levies

As an owner of an erf within an HOA, your HOA must collect a prescribed monthly levy from you, which will, in turn, be collected from your HOA by the Community Schemes Ombud Service ("CSOS") on a quarterly basis. This levy is calculated as the lesser of R40.00 or 2% of the amount by which the monthly levy charged by the HOA exceeds R500.00.  

Registration

The trustees or directors must further ensure that the HOA is registered with the CSOS and that copies of the prescribed documents, such as the HOA's annual return, annual financial statements, and governance documentation are submitted to CSOS.

Fidelity insurance

The CSOSA further prescribes that each HOA must ensure that it holds the minimum amount of fidelity insurance cover, which is the total value of the HOA's investments and reserves at the end of its last financial year, and twenty-five percent (25%) of its operational budget for its current financial year.

Duties of scheme executives

The CSOSA sets out the duties of trustees or directors, as scheme executives. These include:

- attendance at, and preparation for, all executive and general meetings;

- the taking of reasonable steps to inform and educate themselves about their scheme, and its governance documentation;

- the taking of reasonable steps to obtain sufficient information and advice relating to any matter due to be decided on, in order to make conscientious and informed decisions in their executive capacity; and

- the exercise of an active and independent opinion in respect to these decisions.

Dispute resolution

The CSOS may be approached, should there be a dispute between member/s or tenant/s and the HOA, or the HOA and its member/s or tenant/s, or between members, and all internal remedies have been exhausted. There is a prescribed complaint form to be completed and a process to be followed, in order to obtain the relief sought on one or more of the prescribed grounds, as set out in the CSOSA.

Paddocks have created the Guide to CSOS Applications for Dispute Resolution assist you in understanding the CSOS, learn what types of assistance/orders it can give you, and guide you through the process of preparing a dispute resolution application.

Governance documentation

Lastly, the local Department of Planning and Building Development Management (in whose jurisdiction the HOA is situated) is still the custodian of a Common Law HOA's constitution, and the memorandum of incorporation of an HOA registered as an NPC must still be submitted to the Companies and Intellectual Property Commission ("CIPC").

Article reference: Paddocks Press: Volume 13, Issue 05
Posted In: Paddocks Press Newsletter | 30 May 2018

http://www.paddocks.co.za/articles/
This article is published under the Creative Commons Attribution license.

Author: Zerlinda van der Merwe - Paddocks

Submitted 06 Aug 19 / Views 5760