By now you will have been made aware of the commencement of the Sectional Title Schemes Act, 2011 and the Community Schemes Ombud Service Act, 2011 both of which came into effect on 7 October 2016.
We are currently busy registering all Body Corporate, Home Owner Associations and Share Block Companies under our management to ensure that we fulfil the requirements as laid down by these Acts.
We wish to highlight some of the most important changes brought about by the Sectional Titles Schemes Management Act (“STSMA”) and the Community Schemes Ombud Service Act (“CSOSA”).
The changes brought about by the new Management Rules in terms of STSMA and CSOSA are comprehensive and it is of importance for owners of Sectional Title units and members of Home Owner Associations / Share Block Companies to study the changes that now regulate their co-habitation with other owners.
In particular it is of importance that Trustees of Body Corporates as well as Home Owners Associations study the impact that the new legislation has on their management of the affairs of Body Corporates and Home Owners Associations.
The following is noteworthy:
LONG-TERM MAINTENANCE, REPAIR AND REPLACEMENT PLAN
Section 3 (1) (b) of STSMA provides for the establishment and maintenance of a reserve fund by Body Corporates, reasonably sufficient to cover the costs of future maintenance and repair of common property. This fund is further dealt with in Regulation 2, and Management Rule 22 deals with the reserve fund and a Long-Term Maintenance, Repair and Replacement Plan for common property.
The amount of money required for the reserve fund is stated to be equal or greater than 100% of the total levy contributions during the previous financial year. Regulation 2 contains a formula in accordance with which the reserve fund must from time to time be contributed to by members in order to reach and maintain the 100% requirement.
The Long-Term Maintenance, Repair and Replacement Plan that a Body Corporate must prepare and present at every Annual General Meeting is a 10-year itemized plan. The items to be included in the plan include “major capital items” defined to be wiring, lighting and electrical systems, plumbing, drainage and storm water systems, heating and cooling systems, lifts, carpeting and furnishings, roofing, interior and exterior painting and waterproofing, communication service supply systems, parking facilities, roadways and paved areas, security systems and facilities, and any other community and recreational facilities.
VOTING AT GENERAL MEETINGS OF BODY CORPORATES
Section 6(5) of the Act provides for the so called proxy restriction, and states that a person must not act as a proxy for more than two members. Since a proxy holder does not need to be a member of a Body Corporate, members will therefore have to appoint third parties as proxy holders and the current practice whereby multiple proxies are provided for the Chairman of the Trustees can no longer be followed.
As in the past, voting at meetings of the Body Corporate can be calculated either by way of P.Q. (Participation Quota) or by a show of hands (in number). Section 6(6) contains a curious provision whereby, when a vote is calculated in number instead of P.Q., a member owning multiple sections will only have one vote. In respect of contentious issues, it can therefore be expected that members will in such instances vote by P.Q.
Management Rule 20 that deals with voting at general meetings and provides that a member is not entitled to vote where he / she refuses to pay the Body Corporate any amount due by that member only after a court order or adjudicator has given a judgment or order for the payment of that amount. Provision is now also made that a member who persists in the breach of any of the Conduct Rules of the Scheme may also not vote after a court order or adjudicator has ordered that member to refrain from breaching such rule.
Management Rule 20 further contains certain peculiar provisions in respect of resolutions passed under certain circumstances, effectively providing for time frames for the implementation of certain resolutions.
The Act and the Management Rule contain new peculiar stipulations in respect of unanimous and special resolutions that entitle members who feel that they are aggrieved by such resolutions or the failure to pass such resolutions to approach the Ombud for relief.
NOTICE OF GENERAL MEETING
Management Rule 15(1) now provides that notice of a general meeting must also be given to all registered bondholders and the holders of future development rights. Provision is not made for how a Body Corporate will obtain the details of registered bondholders and holders of future development rights. This information is normally not readily available from public records and mechanisms will have to be put in place to ensure that members who have bonds registered over their units and the developer or persons to whom the developer disposes of development rights to should provide the Body Corporate with their particulars in order for notice to be given to them.
In order to meet the requirements of the legislation it will be necessary for Body Corporates to adopt “order rules”, normally referred to in Home Owners Associations’ constitutions as “Personal Information Obligations”. For the time being it is proposed that all owners be requested to provide details of bonds registered over their units, if applicable. The particulars required for this will be the physical, postal, fax and electronic mail address of the bondholders, as well as the account number allocated to the bond.
Bondholders are also given additional rights in terms of Management Rule 15 to attend general meetings and speak on any matter on the agenda, but they are not entitled to vote. Also if the members resolve that the presence of bondholders at a specific meeting would unnecessarily interfere with the interest of the Body Corporate or any person’s privacy, bondholders may be excluded from such meeting.
INSURANCE
Management Rule 23 deals with insurance policies of a Body Corporate and contains a number of new risks that a Body Corporate must be insured against. These risks include risks specified by mortgage bondholders, specific risks resolved by members that the Body Corporate should insure against, public liability insurance in respect of bodily injury, death or illness of a person on or in connection with the common property and damage to or loss of property sustained as a result of an occurrence happening at or in connection with common property.
Regulation 15 in terms of CSOSA deals with fidelity insurance and is applicable to both Body Corporates and Home Owners Associations. This section requires them to insure against the risk of loss of money belonging to the Body Corporate or Home Owners Association, or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by persons who have control over such monies. This Regulation also contains a formula in terms of which the minimum fidelity insurance must be calculated.
All in all it is submitted that taking into account the new rules dealing with insurance, all Body Corporates and Home Owners Associations should revisit their insurance to ensure that it complies with the new rules.
ADMINISTRATIVE AND RESERVE FUNDS TO BE KEPT SEPARATELY
All Body Corporates have a legal obligation to maintain a reserve fund. Management Rule 24 now provides therefore that the administration and reserve funds must be kept separately in separate bank accounts.
It may be appropriate for Home Owners Associations to also take note of the requirements applicable to Body Corporates, as in terms of the Regulations of CSOSA they are required to promote “good governance” of the affairs of the Home Owners Association. In this regard it can be expected that the benchmark against which good governance will be measured will be as prescribed in terms of the Body Corporate legislation.
ROLE OF OMBUD APPOINTED IN TERMS OF CSOSA IN TERMS OF STSMA
It is by now common knowledge that some of the sections of CSOSA, in terms of various sections of the STSMA, the Ombud can and in certain circumstances should be approached to adjudicate on matters relating to the Sectional Scheme even where there is no dispute.
The STSMA Regulations contain an Annexure “Complaint Form” to be completed by a member and “Record of Body Corporate Decision Form” to record the decision of the Body Corporate in respect of a complaint. Of note is the requirement that an internal complaint resolution mechanism must be followed when a complaint is made. The Regulations are silent on what this procedure should entail and it is proposed that all Body Corporates will have to consider implementing a complaints’ procedure.
REGISTRATION OF BODY CORPORATES & HOME OWNERS ASSOCIATIONS IN TERMS OF CSOSA AND LEVIES
The purpose of this Act is stated to provide for dispute resolution mechanism in “Community Schemes”. Community Schemes will include both Body Corporates and Home Owners Associations. As such, insofar as Body Corporates are concerned, the Act replaces the arbitration dispute resolution mechanism provided for in the old Management Rule 71 in terms of the Sectional Titles Act, 1986. To accomplish its objective the new Act provides for the compulsory registration of Community Schemes with the Board of Service. The Chief Ombud is the officer of the Board of Service who performs the powers, duties and functions in terms of the Act relating to Community Schemes. The settlement and adjudication of disputes, defined as a dispute in regard to the administration of a Community Scheme between persons who have a material interest in that scheme, of which one of the parties is the Association (Body Corporate or Home Owners Association), occupier or owner, acting individually or jointly.
The actual registration of Community Schemes in terms of CSOSA is a complex and involved procedure. Information filed with the Board of Service must be updated from time to time, periodical payments made and annual financial statements of the Body Corporates/Home Owners Associations must also be filed.
The activities that the Board of Service and the Ombud perform in terms of the Act are in part funded by a levy that every member of every Community Scheme must pay. Section 59 of the Act empowers the levying of the contributions on members of Community Schemes and the details of the calculation of the amounts due by individual members are contained in the Regulations issued in terms of CSOSA.
In practice, in respect of Body Corporates or Home Owners Associations with more than four members, it is foreseen that it will be extremely difficult to comply with the registration and levy requirements in terms of CSOSA without employing the services of a managing agent. Also, with the increase in the tasks of managing agents in terms of the legislation, an increase in their fees is unavoidable.
THE PRESENTING OF DISPUTES TO THE OMBUD FOR RESOLUTION/ADJUDICATING
A dispute will normally arise when a complaint has not been resolved to the satisfaction of the parties involved. Any of the parties involved in the complaint (including a Body Corporate or Home Owners Association) can then declare a dispute to the Ombud.
The procedure in terms of which a dispute must be presented to the Ombud, especially in the case of Home Owners Associations, will be informed by practice directives to be issued by the Chief Ombud. To the best of my knowledge no such directives have yet been issued to date, although the Ombud has for some time now informally being receiving and considering disputes.
As mentioned above, reference to formulating resolution mechanisms in dealing with internal complaints will have to be formulated for every Body Corporate and Home Owners Associations. Although some standardization of such procedures is possible, it will have to be practical and workable for a specific Body Corporate or Home Owners Association. In practice this will necessitate that the specific needs and profile of the members in the Body Corporate / Home Owners Association be taken into account. For instance, in Plettenberg Bay a large number of Body Corporate / Home Owners Association members utilize their units and houses only during the holiday season, and are not readily available in Plettenberg Bay for the greater part of the year. This will have to be taken into account where internal complaint resolutions are designed for local Body Corporates / Home Owners Associations.
The Act categorizes different types of disputes that can be dealt with in terms thereof by the Ombud by way of mediation or formal adjudication by adjudicators appointed by the Ombud. In this regard the Act provides therefore that an adjudicator may, if appropriate, make an order that an application is frivolous, vexatious, misconceived or without substance, and in such instance may order costs against the complainant to compensate the person / Association against whom the complaint was made for loss relating from the application. It is clear that this mechanism is intended to ensure that disputes will not be declared by troublesome persons without good reason.
I trust that the above information will assist you in the changes brought about by the new legislation and we hope to work hand in hand in conforming to all requirements.