Sectional Title Schemes Management Act (the “STSM Act”) and Proposed Regulations

Legislation

1. Background and Status

1.1. The Sectional Title Schemes Management Act, 2011 (the “STSM Act”) was published in 2011, to commence on a date to be determined by the Minister.

1.2. The STSM Act could not practically commence prior to the finalisation of its Regulations. On 2 October 2015, the proposed Regulations were published for public comment for a period of 30 (thirty) days.

1.3. It is important to note that, at the time of writing, the proposed Regulations were open for public comment, whereas the STSM Act itself was not. The STSM Act would be enacted substantially “as is” once the Regulations had been finalised. Accordingly, the matters set out below should be treated as proposed and not yet enforceable law.

Sectional Titles Act (the “ST Act”) compared to the STSM Act

2. Legislative Purpose and Scope

2.1. The principal legislative intention is the migration of management-related provisions from the Sectional Titles Act, 1986 (the “ST Act”) to the STSM Act.

2.2. Certain provisions have been transferred substantially unchanged; others have been amended; and additional provisions have been introduced.

Key Provisions of the STSM Act

3. Definitions

3.1. The STSM Act introduces certain additional definitions and amends some existing definitions previously contained in the ST Act.

3.2. Of particular relevance to schemes is the treatment of abstentions in the context of unanimous resolutions: an abstention will no longer be counted as a vote in favour. The practical effect is that it may become materially more difficult to obtain a unanimous resolution.

4. Bodies Corporate

4.1. A developer who fails to convene the first general meeting (often referred to as the inaugural meeting) in the manner prescribed will, upon conviction, be liable to both a fine and imprisonment (whereas previously the sanction was framed as either/or).

5. Functions of the Body Corporate

5.1. The STSM Act introduces the concept of a reserve fund, which is expanded upon in the proposed Regulations.

5.2. The Chief Ombud must be notified of any change to the body corporate’s domicilium (service address).

6. Liability for Contributions

6.1. The proposed framework contemplates recovery of levies and special levies by application to the Ombud. While the procedure presently enabling schemes to pursue defaulters through conventional legal proceedings appears to be removed, there are references elsewhere in the STSM Act and Regulations to court judgments and orders, creating uncertainty as to whether court-based recovery is wholly excluded.

6.2. Special levies, upon transfer of a unit, will be dealt with similarly to ordinary levies: liability will accrue pro-rate to the new owner from date of registration of transfer.

7. Powers of Bodies Corporate

7.1. A special resolution will be required for the body corporate to purchase, sell, or let units.

7.2. A special resolution will be required to authorise borrowing.

7.3. A unanimous resolution will be required to extend the duration of any right contemplated in section 25.

8. Meetings of the Body Corporate

8.1. Where a special or unanimous resolution is to be considered, notices must still be delivered by hand or sent by registered post; however, notice may additionally be transmitted by fax or email (as supplementary means, not replacements).

8.2. A proposed limitation of two proxies per person is introduced, raising concerns as to the effect on achieving a quorum.

8.3. The proposals also contemplate voting “in number” as one member/one vote (as opposed to one section/one vote), regardless of the number of sections owned. This appears to be tempered in the proposed Regulations, which provide that voting is to occur in value (by participation quotas / nominated values).

8.4. Where a unanimous resolution adversely affects any owner, that owner must provide written consent within 7 (seven) days after the resolution is passed.

8.5. Relief in circumstances where unanimous (and special) resolutions cannot be passed is shifted from the courts to the Ombud.

9. Rules

9.1. A developer may amend the management or conduct rules when applying for opening of the sectional title register; however, such amendments will now require Ombud approval.

9.2. Amendments to management or conduct rules by the body corporate must be lodged with the Ombud for approval. Rules will only become enforceable from the date on which the Ombud issues a certificate of approval.

9.3. The body corporate must have the rules available at trustee and general meetings.

9.4. It is clarified that exclusive use rights may be conferred in either management or conduct rules.

9.5. Certain prior rulings under the 1971 legislative regime (Schedules 1 and 2) are referenced, but the position appears uncertain and requires clarification.

10. Duties of Owners

10.1. Owners must notify the body corporate of any change in occupancy of the section.

11. Administrator

11.1. Any judgment creditor may apply for the appointment of an administrator; the previous “not less than R500” limitation is removed.

11.2. The application is specified to lie in the Magistrates’ Court.

11.3. The appointment is for a fixed period; the Magistrates’ Court prescribes powers and duties; and the administrator must address the underlying issues as soon as reasonably possible.

11.4. The administrator must convene and preside at meetings and must lodge notices and minutes with the Ombud.

11.5. The administrator must report to the Ombud every 3 (three) months (or as otherwise directed).

11.6. The Magistrate may remove/replace the administrator, extend the period, and amend the appointment terms.

STSM Act Regulations (Proposed)

12. Additional Definitions

12.1. The Regulations distinguish between:

• Primary sections (e.g., flat/house/office); and

• Utility sections (e.g., garage/storeroom/domestic quarters, where constituted as a section).

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13. Reserve Fund: Minimum Contributions

13.1. The Regulations prescribe minimum reserve fund levels, determined broadly by reference to:

• year-end reserve fund balance; and

• total contributions to the administrative fund for the preceding financial year.

13.2. The prescribed contribution outcomes are, in summary:

• Below 25%: reserve contribution must be 15% of the total contributions budgeted for the administrative fund for the forthcoming year.

• Above 100%: no prescribed minimum; discretion applies.

• Between 25% and 100%: budgeted reserve must equal the portion of budgeted administrative contributions specifically attributable to repairs and maintenance.

13.3. There is an unresolved question as to consequences if a scheme does not establish or fund a reserve fund as contemplated.

14. Insurance Requirements

14.1. The Regulations prescribe insurable risks, with certain amendments and expansions (including subsidence), which may have premium implications.

14.2. The omission of cover for loss of occupation / loss of rent (previously referenced) is noteworthy.

15. Prescribed Forms

15.1. Prescribed forms are introduced, including:

• notification of the body corporate’s service address (domicilium);

• notification of rule changes; and

• a prescribed proxy form.

15.2. The Regulations also specify which prescribed management rules a developer may amend when applying for opening of the register.

Prescribed Management Rules (PMRs)

16. Definitions

16.1. “Accounting Officer” is removed. This raises practical questions for schemes that have amended PMR 40 to permit appointment of an accounting officer.

16.2. New definitions are introduced, including definitions relating to the Ombud service and the reserve fund.

17. Service Address

17.1. “Service address” replaces the concept historically referred to as domicilium.

17.2. The body corporate must determine the service address (previously trustees).

17.3. Trustees may designate alternative service addresses (including fax/email).

17.4. Changes take effect upon lodgement with the Ombud (previously the Registrar of Deeds).

17.5. A member’s default service address is that of the primary section, but may be substituted by written notice.

17.6. An occupier’s service address is the physical address of the section.

18. Trustees

18.1. The minimum requirement of two trustees is removed, though other rules still require at least two trustees for certain purposes.

18.2. Schemes with fewer than 4 sections: all members are trustees ex officio.

18.3. Schemes with more than 4 members: owners of primary sections determine the number of trustees to be elected.

18.4. Schemes with exactly 4 members raise an interpretive issue requiring clarification.

19. Qualification and Disqualification

19.1. The requirement that the majority of trustees be owners or spouses of owners is removed.

19.2. Disqualification/cessation grounds are expanded, including unsoundness of mind, dishonesty-related offenses (in RSA or elsewhere), imprisonment without fine option, and removal from trust office for misconduct involving fraud/misappropriation.

19.3. Levy arrears disqualification is re-framed to require a judgment or order for payment—raising practical enforcement concerns.

20. Trustee Meetings and Decisions

20.1. Trustees must meet, though no minimum frequency is stipulated.

20.2. Trustees must act consistently with body corporate resolutions and trustee resolutions, apply funds according to the approved budget, compile minutes, and distribute minutes within 7 (seven) days.

20.3. Authority to sign documents must be conferred by trustee resolution.

20.4. Attendance at trustee meetings is broadened (members, bondholders, future development right holders, and managing agent may attend and speak), subject to exclusion where privacy or the interests of the body corporate may be compromised.

20.5. Meetings may be held telephonically or by equivalent means, subject to accessibility, mutual communication, and identity confirmation.

21. Quorum and Interim Resolutions

21.1. If no quorum is present within 30 minutes, trustees present (not fewer than two) may adopt interim resolutions, effective only once confirmed at a properly quorate meeting or by unanimous written trustee resolution.

22. General Meetings (Owners’ Meetings)

22.1. Notice must also be given to holders of future development rights.

22.2. Notice requirements are expanded (agenda, documents or summaries, proxy form).

22.3. Certain attendees (bondholders, future development right holders, managing agents) may not propose motions and may be excluded from parts of meetings where appropriate.

22.4. Provision is made for urgent meetings on 7 days’ notice (with specified limitations), and for shorter notice with unanimous written consent.

Financial and Governance Provisions (Selected Highlights)

Given the extent of the proposed changes, the following are particularly material:

• Financial year-end proposed as 30 September (unless otherwise resolved), with limits on trustees’ ability to alter same.

• Reserve fund earmarked for implementation of a compulsory Maintenance, Repair and Replacement Plan (MRR Plan) over a 10-year horizon, including formula-driven funding principles.

• Budgeting and notices: strict timelines for notifying contributions and issuing final demand processes, including mandated dispute resolution information.

• Records and POPIA concerns: extensive record-keeping obligations (including ID numbers, contact details, tenant information) and prescribed inspection/copying rights, raising data-protection and privacy questions.

• Managing agents: special-resolution appointment of an executive managing agent; prescribed fiduciary and reporting duties; management agreement capped at two years with termination rights.

• Improvements and utilities: refined categories of necessary vs non-necessary improvements; metering provisions; and prepaid metering subject to notice and constitutional access-to-services considerations.