It is more important than ever to understand what living in a complex or gated community entails, as more South Africans move from self-contained homes to post-boom living.
Lucia Erasmus, expert in real estate law at Cliffe Dekker Hofmeyr, spoke about how corporate bodies, owners’ associations or mixed-use developments finance the fees.
According to Erasmus, the fee is a contribution to the general expenses. The two most common types of fees are due to the sectional title corporate system and dues collected by the homeowner’s association from its members.
Extortion due to a legal entity
Under the law governing sectional titles in South Africa, the fee to be charged by a residential property owner is determined in terms of a “unit participation quota”, Erasmus said.
The Sectional Title Scheme Management Act states that the area of ​​the property as a percentage of all units in the community is used as a basis for determining the level of the contribution, Erasmus said.
According to this calculation, the larger your housing unit in the community, the higher the tax you must pay to the body corporate.
Things get more complicated when the corporate entity consists of commercial, office, retail or residential premises. This arrangement is called a “mixed-use” scheme, Erasmus said.
These schemes often introduce rules to protect the respective interests of owners of different categories based on use, to ensure that owners of one category of units do not subsidize costs that belong exclusively to another category, the expert said.
For example, if the elevator is intended only for use by the owners of the residential premises, then any costs associated with the maintenance and replacement of the elevator must be allocated and covered only by the owners of the residential premises.
The real estate expert pointed out that the cost that belongs to a certain category, for example, the difference, can be distributed to pay the owners of the category of objects.
When the amount is distributed, it will be subject to the same calculations as the residential units, where it is expressed through the size of the unit as a percentage of the combined size of all (residential) units, Erasmus said.
She said the governance structure needs to be carefully thought through to ensure the rules provide clear guidelines for cost sharing.
Fees set by the owners’ association
If the land plot, on which the plot scheme is developed, is located in the estate or is part of the territories subject to the association of owners, the owners need to familiarize themselves with the founding documents of the association of owners,
The association of principal owners can be a non-profit company, a voluntary association or a completely different association. The association, in terms of its constitution, defines the communal features of the estate that will be used by all members of the owners’ association, Erasmus said.
These can include parks, golf courses, dams, roads, gates and access control.
The constitution will determine whether an individual unit owner or a body corporate is a member of the owners’ association and will determine how fees are distributed, Erasmus said.
“The fees will cover expenses related to common facilities owned or operated by the owners’ association and will also be included in the budget to be approved by the directors or members.”
Stabilization funds
Some pension systems and other lifestyles have introduced a separate fee stabilization fund aimed at keeping fees below inflation, Erasmus said.
“A member of a scheme with a stabilization fund must normally make a lump sum payment to the body corporate or owners’ association on the sale of the member’s share or property.”
The lump sum payment is usually a percentage of the difference between the sale price of the unit or property at the time the member disposes of the unit or property and the purchase price of the unit or property when the unit or property was purchased.
As long as the member lives in the scheme, he will enjoy the benefit of a lower and more stable fee.
According to Erasmus, the problem arises when there is a significant increase in value before the unit or property is sold, and the participant feels disinclined to contribute to the levy.
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