Where did community schemes start? How did it start? Was the dreaded apartheid era a catalyst? Let us explore the journey of shared living environments from a rudimentary start to a sophisticated system of choice.
Under apartheid, segregation was mandated by law. Blacks could not live in “white” areas but had to live in townships or in impoverished rural areas know as bantustans. Very little housing was built for Africans by the apartheid regime. As a result, when the ANC led government came to power there was only one formal brick house for every 43 Africans, compared to one for every 3.5 whites. The urban backlog alone was estimated as at least 1.3 million units in 1994. To meet population growth, 130 000 houses had to be built every year. In 1993 only about 50 000 houses were built. Between 7.5 and 10 million people lived in informal housing such as shanties in squatter camps and back yards of Black township houses. In the 1980s, as part of the struggle against apartheid, township residents organised rent and services payment boycotts.
The context in 1994 was outlined in the White Paper on a New Housing Policy and Strategy for South Africa. It highlighted the conditions prevailing at the time with particular focus on the poor. It was estimated that over 66% of South Africa’s population was functionally urbanised. The remaining 34% of the total population resided in rural areas, many of whom would spend part of their working lives in the urban areas (Government Digest, 2004: 16).
Approximately 58% of all households had secure tenure whereas an estimated 9% of households lived under traditional, informal/inferior and/or officially unrecognised tenure arrangements in rural areas. An additional estimated 18% of all households were forced to live in squatter settlements, backyard shacks or in overcrowded conditions in existing formal housing in urban areas, with no formal tenure rights over their accommodation. This pattern of insecure tenure is without a doubt one of the prominent features and causes of South Africa’s housing crisis in 1994.
Today, millions of people still live in shanties and squatter camps. The government estimates that an additional 2 to 3 million homes are required to meet their needs.
Initially there was extensive development of Townships by Government – despite this, informal settlements and overcrowding increases. From 1960 development slowed down as the focus shifted to homeland development. Townships were segregated physically, socially and economically from towns, residents become progressively isolated and poorer as access to economic opportunities, and urban amenities were restricted. Civil society becomes increasingly militant. International sanctions and boycotts are applied.
Boarding houses and the infamous hostels during the apartheid era were unpleasant precursors to shared living in South Africa.
In 1971, the Sectional Titles Act ushered in a new era in home-ownership in South Africa. The Sectional Titles Act was effected on 19 June 1971 and promulgated on 30 June 1971. The Act was finally proclaimed to come into operation almost two years later on 30 March 1973. For the first time in the history of South African law, home owners were able to purchase a section of a building, such as an apartment, with full ownership rights on that section (Van der Merwe 2014, pp.1–9; Woudberg 1999, p.3; Nel 1999, p.1; Shrand 1972, p.1; Paddock 2008, pp.1–3).
According a recent general household survey issued by Statistics South Africa, there are currently around 714 000 households living in flats or apartments and roughly a further 233 000 households living in town house complexes, adding up to approximately 947 000 households living in sectional title schemes.
The concept of shared living has grown in popularity and many embrace the concept as a viable means of living, given the bourgeoning problem of urban land space and secure living.
A new alternative which has emerged recently in the UK and may find its way to South Africa, is “co-buying” – when friends purchase a property together. By pooling resources with a group of friends, buyers are able to purchase a home in a better location than if they each bought a home on their own.
There has been growing popularity for some time now in many generations living together in a single home or in several homes on a single property – allowing for shared costs, assistance with child care and greater security. The new co-buying trend sees shared ownership shift beyond families to co-living
with friends. But rather than sharing rent, friends are opting to buy a home together. The option of becoming a mortgage-mate is particularly appealing to those already sharing a rental property with housemates.
According to M&S Bank in the UK, there has been an increase in the number of people co-buying homes. Following research which suggested that the “majority of millennials” would take out a mortgage with two or more people to get a foot on the property ladder, the bank launched a “mortgage for four” last year.
While mortgage brokers London & Country have detected a small increase in applications by groups of three or four, this increase does not include mortgages taken out by two friends or whether a buyer has the backing of their parents – the so-called “Bank of Mum and Dad”.
According to FNB there is no limit on the number of people who can be included in a mortgage agreement and they agree that a co-buying trend in South Africa is certainly emerging, however this not necessarily the case further afield. In the UK, Nationwide, the country’s largest mortgage lender, stipulates a limit of two people per mortgage.
The trend is not without risks, however. For example, if one of the co-buyers wants to move on and the other co-owners cannot afford to buy them out, they could be forced to share the property. Or if one of the co-buyers were to stop paying, the financial institution would have the right to demand full payment from whoever they can reach.
These problems could, however, be addressed by co-buyers formalising their obligations towards each other by drawing up a deed of trust or some kind of other legally-binding contract. So, while it’s a great idea, be sensible, think of it as a business agreement and keep your friendship intact.
Sectional Title Schemes Act:
The Sectional Titles Amendment Act No. 11 of 2010 contained the final amendments to the 1986 Sectional Titles Act before the split thereof into three separate statutes. The original 1986 Act contained a number of problems regarding the examination, approval and filing of scheme rules and dispute resolution.
The Sectional Titles Schemes Management Act No. 8 of 2011 (also referred to as the STSMA), incorporates all governance and management provisions regarding sectional titles. These sections were taken out of the 1986 Act and amended and adapted to create the STSMA. The remainder of the Sectional Titles Act No. 95 of 1986 (STA) was amended by the Sectional Titles Amendment Act No. 33 of 2013. The 1986 Act now contains only technical registrations and survey provisions. The Community Schemes Ombud Service Act No. 9 of 2011 (also referred to as the CSOSA) provides a dispute resolution mechanism for sectional title and other community schemes.
The Sectional Titles Schemes Management Act (STSMA) has been signed into law and became effective on 7 October 2016. As a result, trustees of sectional title schemes will have to reassess the levy contributions from owners each month. Every sectional title scheme comprises of three elements, owners’ sections, exclusive use areas and common property.
Owners’ sections are the houses within a scheme that are individually owned and are registered in the name of the owner. These areas can sometimes include gardens, storerooms or garages.
This legislation repeated previous laws, which required a body corporate to maintain common property, essentially the land and all improvements other than the owners’ sections shown on the sectional plans. At the same time it introduced a new provision, which required a body corporate to establish a reserve fund in addition to the administrative fund ‘to cover the cost of future maintenance and repair of common property’ (see s 3(1)(b) of the Act).
What needs to be done from an administration perspective:
The Act gives no further details of the reserve fund. It was left to the regulations, which includes a new set of Management Rules to work out. Management requires a body corporate to prepare a maintenance plan for ‘major capital items’ over the next ten years. The plan is to be tabled at each annual general meeting (AGM) and owners are required to approve contributions to the reserve fund.
Attention must be given to two constraints against the imposition of prescribed contributions.
Firstly, the proposed annual contributions to the reserve fund are voted on by owners at the AGM. If the majority of the owners do not accept or cannot afford the amounts to be contributed there is nothing that can be done to enforce payment. Trustees who have done their best to introduce a budget will have discharged their fiduciary responsibility.
While schemes registered after 7 October 2016 must observe the Act and its Regulations, schemes registered under the Sectional Tiles Act 95 of 1986 retain most of their Management Rules and these do not require a maintenance plan.
The CSOS Act:
The Community Schemes Ombud Service Act (CSOSA) has also been signed, and became effective on the same date as the STSMA. Each community scheme, which includes sectional title schemes, share block companies, home or property owners’ associations, housing schemes for retired persons and housing co-operatives, is required to fund the Community Schemes Ombud Service (CSOS) and must collect a prescribed monthly levy from every unit and pay it to the CSOS on a quarterly basis. The levy will be based on a sliding scale according to levies paid by the owners. The current prescribed maximum CSOS levy is R40 a month.
The main function of the Community Schemes Ombud Service (CSOS) will be to assist in dispute resolutions and control sectional title governance. The service will be available to all with a minimal administration fee and it will also be funded via the CSOS levy. With the current backlog and prohibitive costs of going through our normal courts this will be a welcome change and will offer a speedy and cost effective dispute resolution alternative. The findings of the CSOS will have the same effect as a court judgement.
The Act as amended introduced the following important amendments:
Retirement Villages Act:
In South Africa, people looking to buy into a retirement village have a lot of choice when it comes to purchase models. There are three broad options:
Freehold and sectional title:
The governance structure in a freehold development is a homeowners’ association (HOA). In a sectional title scheme, it’s a body corporate. Legislation is in place for both of these options, but essentially, these retirement villages are self-managed by residents. The developer of the estate usually departs after the last unit is sold and residents are required to serve on the governance structure and either run the village themselves, or appoint and pay a third-party managing agent to do so.
Rental and share block schemes:
In rental schemes, governance lies with the landlord. In share block schemes, however, the residents are shareholders and must run their village collectively. The risk with this model is that it may be difficult to reach a consensus on important decisions.
residents do not have to take on the administration and financial management of the estate. The Housing Development Schemes for Retired Persons Act No 65 of 1988 provides the flexibility for Life Right developers to put a management and governance structure in place. Life Right holders are able to express their interests and aspirations via a residents’ committee, without having to take on estate and financial management.
Implications of the Companies Act on HomeOwners Associations (HOAs):
Looking further at the issue of accessibility, the Act consists of 225 sections (the previous legislation had twice as many) and they are clearly labelled. The South African version of the business judgment rule is worth looking at in detail. The Act provides that a director is protected against actions for breach of the duties of care, skill and diligence and the duty to act in the best interests of the company in relation to a matter where that director has:
(a) taken reasonably diligent steps to become informed about the matter,
(b) either had no conflict of interest in relation to the matter or complied with the rules on conflicts of interest and
(c) had a rational basis for believing, and did believe, that his decision was in the best interests of the company.
In acting as such, a director may rely on information given by and actions taken by persons such as employees and advisers who that director reasonably believes to be reliable and competent.
These provisions mark a step towards greater accountability on the part of directors – no more initialing at the bottom right of each page without looking at the content, at least not without risk! The Act is divided into nine Chapters and it has five Schedules. The Regulations are divided into eight Chapters and they have 3 Annexures. Finally, there are a set of Forms and Notices.
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