- He Pleasures and Pitfalls of Sectional Title Ownership
- January 12, 2013
- Law Firm: Norton Rose Canada LLP - Montreal Office
You are standing on the balcony of a flat overlooking the ocean and imaging yourself sitting on a deck chair sipping your favourite drink. Beneath you is a lush green garden with colourful flower beds, a play park for children and a sparkling blue swimming pool. You have already calculated that if you cut back on some luxuries, you can afford to buy the flat.
Before you sign the offer to purchase, there are a number of issues which you need to consider. As with almost everything in life, owning a sectional title unit has its advantages and its disadvantages. This article aims to point out some of the pleasures and pitfalls of sectional title ownership and to assist you to make an informed decision.
When you purchase a sectional title unit, you become the sole owner of the unit but you share ownership of the common property with other owners whom you may never have met. These owners might have a completely different understanding of the meaning of a quiet party or the proper behaviour of pets or children. They might also not regard the prompt payment of levies as a number one priority.
The management of the scheme
The consequences of buying a sectional title unit do not end with the purchase. An owner is obliged to pay levies according to the size of the unit and owner who has a smaller unit pays lower levies. The levies are calculated in accordance with the budget which is prepared annually by the trustees or agent.
You should scrutinise the budget, the financial statements of the body corporate and the minutes of the meetings held by the trustees of the body corporate for the following reasons:
You have to ensure that all owners are paying the levies on time. If owners fail to pay the levies the scheme soon falls into disrepair, as the body corporate will not be able to pay its creditors or maintain the building and common property. A large amount owing on arrear levies should immediately trigger a warning bell and might be an indication that the scheme is not managed properly.
The trustees have to insure the buildings and keep them insured at replacement value. Sectional title schemes are often under insured as the trustees fail to increase the insurance on a regular basis, to keep the levies down. The insurance policy has to specify the insured value of each unit. An owner can increase the insured value but will be liable for the additional premium on that owner’s unit.
The trustees must establish a fund which is sufficient for the proper upkeep, repair and maintenance of the building and also provide for future expenses. The trustees can also claim payment of special levies to cover specific needs of the scheme. For example, the owners might have agreed to install a new swimming pool or to upgrade the security system, or it might be that the trustees did not budget properly as a result of which owners can be caught on the back foot and called to contribute an additional amount. The special levies become payable by owners once a resolution has been taken by the trustees. You should ensure that you will not suddenly have to find the money for an unforeseen special levy. Check the minutes of the meeting of the body corporate and obtain a warranty from the owner from whom you are buying your unit that no special levies are payable, or that the seller will be liable for the payment of such a levy.
Exclusive use areas
The balcony on which you are standing might be part of the unit or might be an exclusive use area. An exclusive use area forms part of the common property and it may be ceded or allocated to an owner for exclusive use by that owner. The rules of the scheme often provide for a lesser levy on exclusive use areas, which can be attractive in the case of large areas such as gardens or large terraces. But be warned, the levies on these areas can be exorbitant. An exclusive use area can only be ceded to an owner of a unit in the scheme and you cannot for example sell your garage to your friend in the sectional title scheme next door.
Parking is always a bone of contention in sectional title schemes and insufficient parking can cause considerable friction between owners. Peruse the sectional title plans to ensure that there are sufficient visitors parking bays. If the management treats parking bays as exclusive use areas, ensure that you understand the nature of your right to a bay. If it is an exclusive use area, is it allocated to you in terms of the rules of the scheme. In that event it is inextricably linked to the unit, or will it be ceded to you, and you will hold it in terms of a notarial deed which can be ceded to another owner in the scheme.
Improvements to the unit
You can change the interior of the unit as you like, but your ability to extend the unit or change the exterior is limited. If you want, for example, to enclose the balcony and make it part of the unit, you will have to obtain a special resolution from the owners. If you want to change the exterior of your unit, you have to comply with the rules of the scheme, failing which the trustees have the power to stop you. All sectional title schemes are governed by management and conduct rules. Most of the management rules are prescribed and cast in stone. They provide for matters such as the appointment of trustees, annual general meetings, voting rights and the provisions relating to the effective management and convenient living. The rules have evolved in time and are there to protect rights of owners and to ensure that sectional title schemes are properly managed.
You should peruse the management rules and the conduct rules. It might be that you are an animal lover and have two dogs, a cat and a budgie. The standard conduct rules provide that an owner may not without the consent of the trustees keep an animal on the property. Certain schemes do not allow for animals at all or only animals of a certain size. This would immediately affect your decision about the purchase of the unit. You might want to have a braai on the balcony every night during summer, but the rules might well provide that you are not allowed to do so, or that you can only use a gas braai. The rules can also be quite prescriptive regarding the use of the swimming pool and you might not be able to invite your family for a Sunday lunch because you are only allowed to invite two guests to the swimming pool area.
The value of your vote at the meetings is determined by the size of your unit, and the smaller your unit the less value your vote has. The prescribed management rules provide for the protection of minorities, but you can still be outvoted by the majority of the other owners. You are therefore not in full control of your unit as would have been the case had you owned a freehold property.
The other owners
It is wise to do some research and ask questions about the conduct of the other owners. You might not want a neighbour who has a party every night, or conversely, a very difficult owner who complains about every move you make.
Owning a sectional title unit clearly has its pleasures - you do not have to mow the lawn or clear the swimming pool on a Saturday and costs such as insurance, repair and maintenance are shared between owners. Sectional title units are usually more affordable than free standing properties and provide a good opportunity to put your toes in the property waters. But do your homework and beware of the pitfalls.