Legal Compliance

INTRODUCTION

Recently I did a deep dive into all the tasks that trustees need to undertake in order to manage all the legislative and logistical responsibilities of running a successful sectional title scheme. There are a multitude of financial, legal, administrative and physical tasks that need to be planned out and executed by the trustees (possibly with the assistance of a managing agent).

In this series of compliance articles, I will set out checklists for the most important financial, insurance, contractual, administrative and physical statutory responsibilities.

This article will deal with the most important legal responsibilities that need to be undertaken to ensure that your scheme is compliant with the legislative requirements.

THE LEGISLATION CREATING THE RESPONSBILITIES

The Sectional Titles Act 95 of 1986 (the “ST Act”) came into operation on 1 June 1988, and contains the provisions relating to legal and physical creation (registration and land survey matters) of sectional title schemes and matters incidental thereto.

The Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”) came into operation on 7 October 2016. This piece of legislation contains the provisions relating to management and governance of the sectional title schemes, and has Regulations and Annexures (containing the prescribed management and conduct rules) dealing that are also applicable to all schemes.

The Community Schemes Ombud Service Act 9 of 2011 (the “CSOS Act”) also came into operation on 7 October 2016. This piece of legislation has created a statutory alternate dispute resolution mechanism and forum for the regulation of all community schemes. It is supposed to be more accessible, cheaper and faster than approaching the courts. The CSOS can conciliate and give adjudication orders in respect of financial issues, behavioral issues, governance issues, meetings, management services, physical issues and other general issues. The orders have the same effect and can be enforced as if it were and Order of the Court. Furthermore, the CSOS are tasked with taking custody of, keeping and providing public access to scheme documentation. The CSOS must also regulate, monitor and control the quality of all sectional titles schemes governance documentation such as the scheme’s rules. Previously sectional title scheme rules were held at the Deeds Registries Office.

THE CHECKLIST OF LEGAL RESPONSIBILITIES

1. Borrowing and investing money

1. The body corporate may, by special resolution, borrow moneys required by it in the performance of its functions or the exercise of its powers.
2. The body corporate has the power to secure the repayment of moneys borrowed by it and the payment of interest thereon, by notarial bond over unpaid contributions whether levied or not, or by mortgaging any property vested in it.
3. The body corporate has the power to invest any moneys of the administrative fund.
4. The body corporate may, on the authority of a written trustee resolution invest any moneys in the reserve fund in a secure investment with any institution.
5. The body corporate must not make loans from body corporate funds without the authority of a unanimous resolution.

• Refunds and distribution

1. The body corporate must not refund to any member a contribution lawfully levied and paid.
2. The body corporate must not distribute to a member or any other person any portion of the body corporates profits or gains except:
3. upon destruction or deemed destruction of the buildings, or
4. where such profit or gain is of a capital nature.

• Tax considerations

1. Contributions and exclusive use constitutions are exempt from tax.
2. Tax is only payable on income other than contributions and exclusive use contributions.
3. Where the body corporate makes a profit it will be required to pay income tax.
4. Where the body corporate makes a profit of a capital nature, it may be required to pay capital gains tax. For example, if it sells a unit owned in the body corporate’s name.

• Contracting on behalf of the body corporate

1. The body corporate may, on the authority of a written trustee resolution enter into written and signed contracts in respect of its powers and duties under the STSM Act and these rules.
2. The body corporate may, on the authority of a written trustee resolution join organisations and subscribe to services to further its purposes.
3. The body corporate may, on the authority of a written trustee resolution delegate to one or more of the trustees, to a member, agent or an employee such of their powers and duties as they deem fit, and at any time to revoke such delegation.
4. The body corporate has perpetual succession and is capable of suing and of being sued in its corporate name
5. The body corporate may, on the authority of a written trustee resolution approach the Community Scheme Ombud Service for relief.
6. Bodies corporate have the power to purchase or otherwise acquire, take transfer of, mortgage, sell, give transfer of or hire or let units on the authority of a special resolution, and additionally only when essential for the proper fulfilment of its duties.
7. The body corporate has the power to alienate or let common property or parts thereof under a long term lease (for more than 10 years) on the authority of a unanimous resolution of the body corporate.
8. The body corporate has the power to let a portion of the common property to any such owner or occupier by means of a short-term (less than ten years) lease on the authority of a special resolution.
9. The body corporate may enter into a servitude, or other restrictive agreement, either burdening or benefiting the  common property. This can only be achieved on the authority of a special resolution.
10. The body corporate may charge members fees for use of communal facilities such as club houses, gold course memberships, and gym facility use.

CONCLUSION

As I have shown in this article there are an overwhelming number of legal statutory responsibilities that trustees must undertake. Stratafin offers a free Sectional Titles compliance checklist. Click here to access it: https://insights.stratafin.co.za/compliance-checklist

Furthermore Confiance Administrative Solutions addresses the ever-growing demand in the market for transparent and professional sectional title management and administration solutions. Confiance Administrative Solutions can assist in buildings where the trustees do not have the time to manage the property correctly, or are struggling with sectional title administration, internal finances and municipal accounts.

Written By Dr Carryn Durham