Archives:

As you will have noted from a previous Newsflash dealing with The Community Schemes Ombud Services Act (the Act) this new legislation came to apply as of the 7th October 2016.

This Act applies to all community schemes which by definition includes sectional title development schemes, shareblock companies, property or homeowners associations and housing schemes for retired persons.

As we mentioned in our previous Newsflash, the office of the Community Schemes Ombud is meant to be self-supporting. This means that the office will be acquiring the funds which it needs to fund its operations from community schemes in terms of annual levies.  The proposed levies in terms of the Act are set out in the Regulations in an escalating table depending on the monthly levy payable to the community scheme by members of the scheme.  The maximum levy payable in terms of the Act is R40.00 per month per member of the scheme.  To enable the Ombud to police all community schemes, all schemes were required (this is not a matter of choice) in terms of Section 59(b)(iii) as read with Regulation 18(3) to register with the Ombud within 30 days of the 7th October 2016. There is a prescribed form for this purpose (Click here: Community Schemes Registration Form), set out in the Regulations to the Act. Failure to register is a criminal offence in terms of Section 34 of the Act and is punishable by fine and/or imprisonment not exceeding 5 years.

Community schemes are therefore advised to register immediately if they have not yet done so.

Milton Koumbatis
15 November 2016

Note:  What follows is of necessity only a brief overview of some very complex new provisions and, particularly if you are a trustee or administrator, it is essential that you familiarise yourself with all the changes.  Contact us if you need any help.

The Sectional Titles Schemes Management Act (“STSM”) applies only to sectional title schemes and replaces the old Act’s Management provisions.  It came into effect on 7 October 2016, together with the related Community Schemes Ombud Service Act (see next article).

The 10 year plan and reserve fund requirements

Bodies Corporate and Trustees in particular need to know about their new responsibilities and liabilities, amongst which is the well-publicised new requirement to prepare a 10-year plan for maintenance, repair and replacement of capital items.  You must support this with a reserve fund sufficient to cover the cost of future maintenance and repair of common property.

The minimum level for this reserve fund has been set at 25% of the previous financial year’s “administrative fund” (the fund for operating costs) levies. If your scheme is short of this requirement (it will be if you have in the past relied on special levies to fund exceptional expenses as they arise), your levies will increase by at least 15% (in addition to any normal annual increase) until you catch up.

Other key changes

1. The Body Corporate must notify (on Form A of the Regulations) the Chief Ombud, local municipality and registrar of deeds of its domicilium citandi et executandi address for service of process
2. Changes to the procedures for the calling and conduct of meetings include a provision that no attendee can act as proxy for more than two members
3. There is a 3 year revaluation requirement for all buildings and improvements, the valuation to be presented to an AGM for approval of insurance schedules
4. A body corporate may charge interest on arrear levies, and other overdue amounts payable to it by a member, compounded monthly in arrear, at the maximum rate under the National Credit Act (Repo Rate + 21%).

Note:  As with the previous article, what follows is of necessity only a brief overview of some very complex new provisions and, particularly if you are a trustee/administrator/director or the like, it is essential that you familiarise yourself with all the changes.  Contact us if you need any help.

The Community Schemes Ombud Service Act (“CSOSA”) came into effect on 7 October, together with the related Sectional Titles Schemes Management Act (see previous article).   CSOSA applies to all “Community Schemes” (residential, commercial and industrial) including –

• Sectional title development schemes
• Home owners associations
• Property owners associations
• Share block companies
• Retirement housing schemes
• Housing co-operatives
• Any other “scheme or arrangement in terms of which there is shared use of and responsibility for parts of land and buildings”.

Community disputes – a new resolution process

If you have lived or worked in any community you will know just how easily disputes can arise, how bitter they can be, and how difficult it can be to resolve them.

A welcome innovation therefore is the new Community Schemes Ombud Service (“CSOS”) which provides an alternate dispute resolution process for anyone party to, or “materially affected by” a dispute.

The range of disputes on which the Service can adjudicate is extensive and covers levy disputes, nuisance complaints, repairs and maintenance disputes, complex meetings, financial, governance and management issues, exclusive use rights and the like – the list is long and widely-worded.  Legal representation in adjudication proceedings is only allowed if the adjudicator and all parties agree or the adjudicator decides that a party cannot deal with the adjudication without legal representation.  Orders may be appealed to the High Court, but only on points of law.

The scheme’s administrators can also ask for an order that a tenant pay rentals direct to them to clear a landlord’s arrears.

The cost of using the dispute resolution service itself is minimal (R50 per application, R100 per adjudication, R8 per copy of a document) but your levies will increase when schemes have to start recovering from you (and paying over to CSOS on a quarterly basis) a Service Levy based on your monthly levies – a sliding scale from zero for levies of R500 p.m. or less, up to R40 p.m. for levies of R2,500 p.m. or more. Download CSOS’s Levy Calculator here http://www.csos.org.za/regulations.html to see what you (and the scheme as a whole) will be paying.  These new levies kick in 90 days from 7 October.

New duties for “scheme executives” and schemes

“Scheme executives” (trustees, directors and anyone else “who exercises executive control of a community scheme”) acquire various duties and fiduciary obligations, including a duty to be informed and educated about the community scheme, its affairs and activities and the relevant legislation and governance documentation.  Governance documentation means any “rules, regulations, articles, constitution, terms, conditions or other provisions that control the administration or occupation of private areas and common areas in a community scheme”.

Schemes must (these are highlights only) –

• Take out fidelity insurance against loss of money through fraud or dishonesty
• Register with CSOS on form CS1, within 30 days of 7 October or incorporation
• Lodge annual returns and (within 90 days of 7 October or incorporation) governance documentation with CSOS.

This Act has been in existence since 2011 and as of 7 October 2016 has now come into operation.

The Act establishes an Ombud Service which:

• provides for dispute resolution;
• regulates, monitors and controls the quality of all affected Scheme governance documentation, for example their constitutions and their rules;
• provides a central repository for governance documentation relating to all the Schemes in the country and to allow public access thereto, either electronically or by other means.

The current Administration of the Scheme is run from offices in Sandton, Johannesburg. There are three provincial offices established i.e. one in Gauteng to address matters in Gauteng, Limpopo and North West; one in Kwa-Zulu Natal to deal with matters in Kwa-Zula Natal, the Free State and Mpumalanga; and one in the Western Cape which deals with matters within the Western Cape, Eastern Cape and Northern Cape.

A remarkable aspect of this Ombud Service is that, apart from the original R40 million allocated by the government to establish the body, it seems intended that it be largely self-funded. It will charge each member of a scheme falling under its jurisdiction a maximum of R40.00 per month.  The actual amount will be “the lesser of R40.00 or 2% of the amount by which the monthly levy charged by the Scheme exceeds R500.00.” Units with monthly levies of R500.00 per unit or less are therefore entitled to a 100% waiver. Once the levy payable exceeds R2 500.00 the fee will be capped at R40.00.

The Ombud Service will also charge for providing its specific services, as set out below.  Its financial affairs however remain subject to oversight and scrutiny in terms of the Public Finance Management Act.

Section 38 of the Act deals with “Applications”. This is where it starts dealing with the procedure to be followed in the event that you are party to a dispute that you wish to have adjudicated by the Ombud Service.

The Act also sets out examples of the relief that you can ask the service to grant. This gives insight into what it is that the service can do.  There are 8 categories.

The first set of examples relate to financial issues and envisages the situation where a member of a Scheme is unhappy with the insurance arrangements which the Scheme has taken out on their behalf.

It also envisages the situation where the Scheme is not managing the finances properly.  It contemplates a person seeking an order in terms of which the Scheme must have its finances audited, or must pay or refund a members contribution “or any other amount”, or requiring a tenant of an owner to pay the rental directly to the Scheme in part settlement of the owners debt.

That the Ombud will have the power to force a body corporate or homeowners association to pay or refund a member indicates that members will have the widest scope to challenge levies or penalties imposed by the Association.  This could cause chaos to the administration of the Scheme, if improperly handled by the Ombud Service.

The second set of examples relates to behavioural issues and deals with nuisance, animals and misconduct relating to the illegal placement or attachment of any article to any property controlled by the Scheme.

The third set of examples relates to compelling the Scheme to create new rules of governance or to set aside existing rules if they are unreasonable or unfair.

The fourth set of examples relates to the convening of meetings or a declaration that a meeting that has already been held was not validly convened or that any resolution passed at such a meeting was void or invalid or unreasonable.

The fifth set of examples relates to disputes between the Scheme and its managing agents and the Ombud Service will have the power to confirm the termination of managing agent’s contract.

The sixth set of examples relates to maintenance and repairs, improvements and alterations. This set of examples also includes the following example:

“an order declaring that an owner or occupier reasonably requires exclusive use rights over a certain part of a common area, that the association has unreasonably refused to grant such rights  and requiring the association to give exclusive use rights to the owner or occupier, on terms that may require a payment or periodic payments to the association, over a specified part of a common area;”

The seventh and final set of examples relates to the wrongful withholding of information or documentation and the Ombud Service will have the power to order a Scheme to make such information or documentation available.

The final line in this section of the Act is a catch all sentence which further expands the jurisdiction of the Ombud Service. It reads:

“in respect of general and other issues – any other order proposed by the chief ombud.”

Members with a gripe against their Association will however not be able to approach the Ombud Service until such time as they have exhausted all internal remedies that might be available in terms of their existing constitution or rules

There are also time limits for certain types of applications, although they are not set in stone.  If a person seeks an order declaring a decision of an association to be void such an application needs to be made within 60 days after the decision has been taken. This period can only be extended by the Ombud Service “on good cause shown”.  There are no time limits for other types of claims so it could be assumed that the ordinary laws of prescription will apply there.

Once a person has successfully lodged an application, the Ombud Service is obliged to give notice of the application to all affected parties and they are invited to make their own written submissions.

The applicant then gets the right of reply to issues raised by the affected parties in their replying papers only.

The first stage of the dispute resolution process is conciliation.  This is where the parties are encouraged by a Conciliator to come to an agreement themselves. If this is unsuccessful the matter is referred to an adjudicator and the parties have the opportunity to agree on who that adjudicator should be. If the parties can’t agree, the adjudicator is appointed by the Ombud Service. The fees of this adjudicator have to be secured in advance by the parties.

According to the Regulations of the Act, the fee payable at application is R50.00 while the fee payable for Adjudication is R100.00. A copy of any scheme governance documents or any other document obtained electronically or provided as hard copy by the Service will be charged at R8.00 per copy.

The regulations go on to say that “[a]ny person or category of persons whose monthly net household (gross income less PAYE) income is below R5 500.00 are entitled to a 100% waiver of application and adjudication fees.” And that “[a]ny person or category of persons who may not qualify in terms of the above criteria may lodge an application for discount and/or waiver for consideration by the Chief Ombud….”

The process which the adjudicator follows will be of an inquisitorial nature, unlike the adversarial process in our courts at present, where the judge or magistrate sits back and allows the parties to present their cases as they see fit. The adjudicators of the Ombud Service will play an active part in the adjudication process.

The Act provides that they must observe the principles of due process of law but that they must also act quickly and with as little formality and technicality as is consistent with the proper consideration of the matter.

The powers of the adjudicator extend to calling other people in to give evidence which might be relevant, calling for other information or documentation and inspecting assets, records documents or places.

As regards legal representation, the point of departure is that the parties to the dispute are not entitled to legal representation during the adjudication process, unless everybody agrees otherwise or if the adjudicator allows such representation, after considering the questions of law which will be raised, the complexity and importance of the dispute or the comparative ability of the parties to represent themselves.

These provisions will however not prevent any party to the dispute having their initial submissions to the adjudicator prepared by their legal representatives.

An adjudicator is able to dismiss an application if it is frivolous, vexatious, misconceived or without substance, or if they have been procedural irregularities.

If an adjudicator makes an award against one of the parties the adjudicator can make the losing party pay the successful party’s costs, to compensate him for losses relating to the application.

The award of an adjudicator is subject to a limited right of appeal.  A person can only appeal on points of law. This appeal must be made to the High Court and must be made within 30 days after delivery of the order. What this means is that the findings of fact that are made by the adjudicator will not be able to be overturned on appeal. It is only if the adjudicator has incorrectly applied the law to the facts, as accepted by the adjudicator, that there will be a right of appeal.

Any order for payment of an amount of money will be treated as if it is an order of court.  There is no jurisdictional limit to the size of the award that an adjudicator can make.

The final portion of the Act obliges every Scheme which falls under the jurisdiction of this Act to pay an annual levy to the Ombud Service. In terms of Chapter three of the regulations of the Act, the levy formula is such that each unit shall be liable for “the lesser of R40.00 or 2% of the amount by which the monthly levy charged by the Scheme exceeds R500.00.” Units with monthly scheme levies of R500.00 per unit or less are therefore entitled to a 100% waiver.

These levies are payable by the Scheme to the Ombud quarterly and shall be collected as of 7 January 2017 – as per the regulations, 90 days after proclamation.

Deon Welz
October 2016

As you might be aware, Body Corporates of Sectional Title Complexes are permitted, if financial circumstances require, to raise special once-off levies.  This is normally done if urgent repairs or refurbishment is required and where the Body Corporate’s savings are either non-existent or insufficient to cover the anticipated cost.  The special levies were catered for in the Sectional Titles Act of 1986 (the Old Act) and are now catered for in a new act called the Sectional Title Schemes Management Act, 2011 (the New Act).  Although this act was created in 2011, it has only now, in October of 2016, become effective.

The New Act caters for special levies in Section 3 (3) and provides that:

“Any special contribution becomes due on the passing of a resolution in this regard by the trustees of the body corporate levying such contribution and may be recovered by the body corporate by an application to an ombud from the persons who were owners of units at the time when such resolution was passed”.

There is nothing remarkable about the above and it is similar to the provisions of the Old Act save that one may now apply to the ombud to recover these funds whilst previously, this would be done by way of court action. How this is to be done in practise remains to be seen once the regulations have been published. If things ended here, there would be no further need for this commentary, but they don’t.  The section in the New Act goes on to say:

“Provided that upon the change of ownership of a unit the successor in title becomes liable for the pro-rata payment of such contributions from the date of change of such ownership.”

Our interpretation of the above section is that it will only apply if the special levy is payable over a fixed period of monthly instalments.  This is often, but not always, the case.  In circumstances where the special levy is payable in one lump sum immediately, it would not be possible to calculate a “pro-rata” portion as such a calculation is only possible if a beginning and an end date is known.  It is also our opinion that the Body Corporate is not merely entitled to apply the pro-rata principle but in fact obliged to do so if the monthly instalment arrangement applies.  Whether this latter opinion is correct or not, remains to be seen as the section is not entirely clear in this regard.  There is, in other words, a school of thought which argues that the Body Corporate is entitled, but not necessarily obliged, to apply the pro-rata principle.

Therefore and by way of example let us assume that a sectional title unit is sold on say the 1st November 2016 and a special levy of R30 000.00 is raised on the 2nd November 2016 which is payable over 12 monthly instalments commencing on the 1st December 2016.  Let us assume further that the transfer to the purchaser is registered on the 1st February 2017 and that the purchaser was obliged and did accordingly take occupation on the 1st February 2017.

It is our opinion that the “proviso” in Section 3(3) means that the Body Corporate is only entitled to recover 2/12 of the levy from the seller and the balance of 10/12 from the purchaser.  In other words it is our view that the Body Corporate cannot, as a condition for issue of a Levies Clearance Certificate for transfer, insist that the whole levy be paid which, until now, has been the practice based on the Old Act.  In other words, Body Corporates who might have allowed the seller to pay the special levy off in instalments were obliged to withdraw the instalment right and insist on full payment as the Body Corporate had no power to recover that levy from the purchaser after transfer. The New Act changes this of course.

Having said the above, we need to make it clear that the abovementioned provision in the New Act regulates the relationship between the Body Corporate on the one hand and the seller and the purchaser on the other hand.  It does not regulate the relationship between the seller and the purchaser.  That relationship is regulated by the terms of the sale agreement concluded between them.  The terms of the sale agreement can accordingly change the effect of Section 3(3) and shift the burden of the instalment based special levy in one direction or another.  That does not mean that the Body Corporate will be affected by this shift in burden.  This shift will only affect the obligations of the seller and/or the purchaser to one another.  The Body Corporate will continue to have the same rights as provided for in the section.

Most sale agreements address the matter of levies in some or other fashion and accordingly special levies also.  Some sale agreements stipulate that the purchaser becomes liable for all levies from date of occupation of the property (if occupation occurs before transfer) and some sale agreement stipulate for such obligation to vest when transfer occurs.  In terms of our example, as stated above, let us assume that the sale agreement stipulated that the purchaser is only liable for levies raised after the date of transfer.  In terms of the Old Act and using the same example, we would have advised the seller that even though the levy could be paid off in twelve instalments, it became a lawful obligation to pay on the 2nd November 2016 and accordingly falls in its entirety on the shoulders of the seller.  This advice would have been consistent with the behaviour of the Body Corporate which would have insisted upon full payment of the whole special levy as a condition of issue of a levies clearance for transfer. (In this regard see the previous paragraph). The seller would accordingly be obliged to pay the entire levy to the Body Corporate even though the Body Corporate has the right to recover part of it from the purchaser.

In the light of Section 3(3) the above result is not likely to be particularly welcomed by the seller.  The seller will, in other words, argue that if the Act allows and obliges the Body Corporate to recover the special levy pro rata, it is unfair and improper for the sale agreement to oblige him to pay the whole amount.  The seller will accordingly turn his guns onto the person who prepared the sale agreement, in other words, in most cases, the estate agent.

We would accordingly recommend that the levies clause in standard Sectional Title sale agreements be reviewed and that a new sentence be inserted reading as follows:

“Notwithstanding anything to the contrary stipulated for in this sale agreement, it is agreed between the parties that if a special levy is pro-rated by the Body Corporate as contemplated in Section 3(3) of the Sectional Title Schemes Management Act, 2011 the Purchaser will be liable for such portion which is payable after date of registration of transfer and the Seller liable for such portion for periods prior thereto.”

Estate agents should of course be alert to the existence of special levies which are being paid off in monthly instalments and should inform purchasers of the obligation which they will inherit.  Purchasers should of course be alert to the same danger and make sure that proper enquiries are made about this issue before they purchase.  In this regard we trust that it is clear that if the purchaser does not wish to inherit the obligation to continue with payments of the special levy and if the purchaser expects the seller to settle the entire levy amount, that issue should be addressed in the sale agreement and our recommended clause, as stated above, appropriately amended.

Milton Koumbatis
13 October 2016

“The concept of chivalry is beyond his comprehension and lies dead and buried in his mind, if it ever existed” (Part of the Court’s scathing assessment of the husband in the judgment below)

Generally, our laws hold us to the agreements we make with each other, but there are limits.  A recent High Court judgment, dealing with a bitterly-fought divorce dispute, illustrates.

A Senior Advocate, having been through in his words a “very, very, very costly” divorce once, and having in mind no doubt the old proverb “once bitten, twice shy”, decided not to be bitten again when he re-married.  His new wife was a much younger “attractive trophy” wife who at the time was, said the Court, both gullible and naïve.

Seeking to protect his wealth from this second wife in the event of another divorce, the husband included in their ANC (Ante nuptial Contract) a provision that, in return for certain donations at the time of marriage, she was precluded from claiming maintenance for herself.  The prohibition against maintenance for the wife was widely worded – it would apply in the event of the marriage being dissolved in whatever manner and for whatever reason, and regardless of the conduct of the parties.  No attempt was made to prevent any maintenance award for any dependent children born of the intended marriage.

The wife was heavily pregnant at the time and she was “prevailed upon by the husband to accept this clause and to believe him when he said that he wanted to be a father to their child that was to be born”.

When the marriage broke down (24 years and 2 children later), the husband sought to enforce the terms of the ANC, including the “no maintenance” clause.

“No Way, Jose!”

The Court however awarded her the personal maintenance she asked for – R30,000 per month plus free accommodation.

The “no maintenance” clause, held the Court, was unreasonable, unfair, void and unenforceable.  It “deeply offends the core constitutional values of this country” said the Court, and “generally any purported ouster of the jurisdiction of the Court which deprives a party of a legal right or remedy is per se against public policy”.

That, incidentally, was only part of the wife’s victory – the ANC incorporated the accrual system, and she also received a full half of the husband’s estimated R22m in assets in terms thereof.  This despite his denials that his estate had shown any accrual and despite what the Court found to have been active attempts on his part to subvert the wife’s accrual claim and to conceal assets.

NATIONAL ENVIRONMENTAL MANAGEMENT:
BIODIVERSITY ACT 10 OF 2004 ; ALIEN AND INVASIVE SPECIES REGULATIONS, 2014
Published under Government Notice R598 in Government Gazette 37885 of 1 August 2014.

CATEGORIES OF LISTED INVASIVE SPECIES

• Species which must be combatted or eradicated.
• Species which must be controlled.
• Species which require a permit.

Section 29.  Sale or transfer of alien and listed invasive species

1. If a permit-holder sells a specimen of an alien or listed invasive species, or sells the property on which a specimen of an alien or listed invasive species is under the permit-holder’s control, the new owner of such specimen or such property must apply for a permit in terms of Chapter 7 of the Act.
2. The new permit-holder contemplated in sub-regulation (1) will be subject to the same conditions as the permit-holder who has sold the specimen of an alien or listed invasive species, or the property on which a specimen of an alien or listed invasive species occurs, unless specific circumstances require all such permit conditions to be revised, in which case full reasons must be giving in writing by the issuing authority.
3. The seller of any immovable property must, prior to the conclusion of the relevant sale agreement, notify the purchaser of that property in writing of the presence of listed invasive species on that property

INVASIVE SPECIES CLAUSE:
“The Seller hereby records that to the Seller’s best knowledge and belief there are no Listed Invasive Species mentioned in terms of the Regulations to the National Environmental Management: Biodiversity Act 10 of 2004 upon the Property.  It is however recorded that as the Seller is not sufficiently qualified to identify such Species that the Purchaser accepts the risk inherent in purchasing the Property with any Listed Invasive Species which might be thereon.”