Management, conduct and house rules
By Judith van der Walt
Every sectional title scheme is governed by a set of rules comprising management and conduct rules. If the developer does not make new rules when opening the sectional title register, the management and conduct rules prescribed by the Sectional Titles Act of 1986 ("the 1986 Act") automatically applies to the scheme. After the opening of the register, the members of the body corporate are entitled to amend the management rules by unanimous resolution and the conduct rules by special resolution. Subject to further procedural requirements imposed by the 1986 Act, the amendments to the management and conduct rules will only come become enforceable once the new rules have been filed in the scheme's register at the Deeds Registry where the register is held.
It is therefore clear that all management and conduct rules have to be filed in the scheme's register before they can be enforced, irrespective of the fact that they have been amended or adopted by unanimous or special resolution. The question now arises: what about house rules? Can the members of the body corporate make house rules?
It is quite a common occurrence to find a management rule (or a "Schedule 1 Rule") applicable to sectional title schemes registered under the provisions of the Sectional Titles Act of 1971 ("the 1971 Act"), empowering the trustees to make house rules. The scope of these house rules is usually limited to rules in connection with the health, safety and cleanliness of the common property. Any house rule which purports to deal with a section for example, is therefore not enforceable but house rules do not have to be filed in the scheme's register at the Deeds Registry to be enforceable.
The rules prescribed in terms of the 1986 Act do not empower the trustees to make house rules. However, there is no prohibition against empowering trustees to make such house rules but such power must be embodied in a new management or conduct rule. If trustees were empowered to make house rules under the 1971 Act, they are still entitled to so irrespective of the fact that the 1986 Act does not allow for it.
In many circumstances, house rules create confusion. The reasoning behind the obligation to file rules in the Deeds Registry is to make the rules freely available to any interested party. On inspection of the register, any interested party will be able to establish immediately what rules apply to the scheme. If trustees are empowered to make house rules they can adopt new house rules at their trustee meetings as they see fit without informing owners of the new house rules and without taking into account the views of a certain majority of owners.
I do not ever suggest to or encourage trustees to make house rules. I believe that the issues often dealt with in house rules are better dealt with in conduct rules. The process of adopting rules by unanimous and special resolution is more inclusive and transparent and encourages good governance in a sectional title scheme.
Judith van der Walt is an attorney, notary and conveyancer at Paddocks, a specialist sectional title firm operating throughout South Africa.
Find property for sale in South Africa.
Monday, September 8, 2008
Monday, September 1, 2008
Buying into a Sectional Title Scheme – What You Don’t Know Can Hurt You!
By Jennifer Paddock
___________________________________________________________________________________
Jennifer is a lawyer and consultant at Paddocks, a specialist sectional title firm. For further information, please call 021 674 7818 or visit www.paddocks.co.za .
Introduction
The rise in popularity of sectional title ownership over the last two decades is a testament to the fact that sectional title ownership is fast becoming the preferred home ownership option for both resident owners and buy-to-let investors. Modern lifestyle demands the ability to enjoy the benefits of facilities such as good security, gymnasiums, communal pools and the like. However, individual ownership of these benefits proves costly both in terms of time and money due to the corresponding maintenance obligations attached to such amenities. In sectional title ownership, these benefits can be enjoyed whilst the maintenance and financing of such amenities is shared by all owners of the scheme.
Despite its advantages, sectional title ownership is notoriously considered more complex than conventional title ownership and for good reason… Buying into a sectional title scheme is a commitment by the new owner to form part of a community which is governed by legislation and rules and which has financial and administrative obligations which must be met. As an investor it is important for you to know exactly what you are buying, what your management obligations will be, what costs you will be responsible for after transfer and what rules you will be bound by before putting pen to paper. In sectional title ownership, ignorance is not bliss because what you don’t know can hurt you. So read on before you sign a sectional title deed of sale…
What exactly are you buying?
You will often hear people speaking of buying a “flat”, an “apartment” or a “townhouse” when referring to what they buy in sectional title schemes, yet technically all of these terms do not describe what they are in fact buying. When you buy into a sectional title scheme you are buying a composite thing called a “unit”. A unit consists of a section together with a share in the common property. A section is an area which you own exclusively (such as a townhouse or apartment) to the median line of the walls, floors and ceilings. The common property is an area which you will co-own with all other section owners and includes all areas of the scheme which are not included in the sections such as driveways, entrance foyers, stairs, lifts, gardens, swimming pools and so on.
As a buyer, you may also benefit from exclusive use rights allocated to your section which allow you to use a portion of the common property to the exclusion of all other owners, for example a parking bay. Exclusive use rights may be allocated to a section by either being formally registered on the sectional plans of the scheme (in terms of section 27 of the Sectional Titles Act 95 of 1986 “the Act”) or more informally by passing a rule which gives the owner of a section the right to use such an area (in terms of section 27A of the Act). If you have been allocated exclusive use rights in terms of section 27 or section 27A it is important to understand that although you have the right to use an area of the common property exclusively, that does not mean that you exclusively own that area. It remains part of the common property and is therefore still owned by all the owners of sections, however no other owner has the right to use it besides you.
Before signing a sectional title deed of sale it is important for you to obtain and analyse a copy of the registered sectional plan of the scheme. Ask yourself the following questions: is the extent of the section described in the deed of sale the same extent shown on the sectional plan? Are any and all exclusive use areas allocated to me in the deed of sale allocated to the section which I am buying on the sectional plan? Asking these questions will help to prevent the all too often experienced headache when a unit owner finds out after transfer has taken place that what he thought he was buying (in terms of his deed of sale) is not in fact allocated to him on the registered sectional plan. Ask the estate agent, managing agent or seller for a copy of the registered sectional plan, alternatively find the sectional plan you are looking for on Sectional Titles Online( www.sto.co.za).
Your participation in the management of the scheme
Buying a unit in a sectional title scheme comes with automatic membership to the governing body of the scheme, called the ‘body corporate’. Membership is mandatory so even if you are a buy-to-let owner you, as owner, are the member of the body corporate and not your tenant. The body corporate is an association of owners which exists to run the scheme from a financial and administrative point of view and maintain the common property. Owners elect a board of trustees to carry out the body corporate obligations at every Annual General Meeting (“AGM”) and in many schemes the trustees contract with a managing agent to assist them in this regard.
What costs will you be responsible for?
All costs related to your section, which you own exclusively, are for your own account. Remember that you only own your section to the median line of its floors, walls and ceilings and therefore the foundations, ‘outer-skin’ and roof of the building are common property and are therefore not your exclusive financial responsibility. All costs related to the common property, which is co-owned by all owners, as well as all payments for the general running of the scheme are paid by the body corporate from its levy fund. These costs include insurance of the buildings to their full replacement value, maintenance and repair of the common property, wages of staff employed by the body corporate and so on. The body corporate estimates its expected expenditure each year, takes this budget to the AGM for approval and once approved, divides the estimated expenditure between the owners (generally in accordance with each owner’s ‘participation quota’ – a calculation which determines the fraction of each owners contribution in relation to their floor area) to work out each owner’s ordinary levy. Each owner is then liable to pay such contribution, generally in monthly instalments.
If a necessary expense arises during the course of the year for which the body corporate did not budget, the trustees are entitled to raise a ‘special levy’. The trustees can decide whether the special levy is to be paid in one lump sum or in instalments and owners have no choice but to pay it. Owners whose levies are in arrears will be unable to vote on general resolutions at general meetings and will also be charged interest on these arrear amounts. The trustees are entitled to institute levy collection procedures in the Magistrates Court to recover the outstanding amounts from such owners.
As a prospective buyer, it is vital that you find out not only what ordinary levies you will be responsible for (ask to see a copy of the seller’s levy statements) but also to ascertain whether there are any anticipated special levies on the horizon. You can find this out by asking the trustees or the managing agent. You can also inspect the common property carefully to establish if there are any obvious defects which are going to require expensive repairs or maintenance work. A substantial special levy, for example to replace a lift in the building, could have you reaching far deeper into your pockets than you ever expected because once you’re an owner you have to pay special levies raised. Do everything you can to find out about special levies before putting pen to paper and then at least you have the choice of investing despite the risk of extra expense.
Other expenses for your account are rates (which by mid-2008 will be payable directly to Municipalities by all sectional owners), water and electricity (these are sometimes included in your levies depending on whether the scheme has implemented separate water and electricity meters or not), maintenance of geysers serving your section (whether or not they are situated on common property) and contributions towards maintenance of your exclusive use areas.
How do the rules of the scheme restrict the use of your unit?
Every sectional title scheme is governed by the Act but each scheme may have different management and conduct rules which are in place to regulate the way the scheme is run and the way in which the owners and occupiers behave. All owners and occupiers are bound by the scheme’s rules so even if you are a buy-to-let investor you are responsible for ensuring that your tenants are aware of the rules (you are obliged to attach a copy of the scheme rules to your written lease agreement) and abide by them. The rules of a scheme can be incredibly restrictive and therefore it is essential that you read and understand the rules before committing to being bound by them when buying into the scheme. If you own pets, check the rules to see if pets are allowed in the scheme – resident-owners regularly suffer enormous heartache when they buy into a scheme, move in and are given notice that the scheme’s rules do not allow pets. Buy-to-let investors likewise may need to ascertain whether short-term letting is restricted as many schemes have rules which do not permit leases of less than three to six months.
Any changes which you wish to make to the common property will need trustee and/or body corporate approval. If you want to place an air conditioning heat exchange unit or a satellite dish outside your section, these first need to be approved by the body corporate. Remember that anything outside of your section is common property and therefore co-owned by all owners of sections so even minor changes to it need prior body corporate approval. If you have an exclusive use balcony area which you wish to enclose, you cannot simply get approval of your building plans by the local authority and go ahead with the enclosure, you need to get the trustees to sign your building plans before the local authority will approve them. In short, sectional title ownership involves a community aspect which restricts an owner’s use far more than conventional title. In sectional title your interests are not the only interests that are to be considered and the body corporate constitutes an additional layer of governance to which conventional title is not subject.
You may get a copy of the rules from the estate agent, the managing agent, the seller or your local Deeds Registry. Check them to see if there are any rules which you are not happy to abide by. It must be noted that rules are not absolute and can be amended, substituted or deleted, but the procedures and levels of agreement amongst owners required to achieve this often make it difficult to do so.
Things to look out for:
The financial status of the body corporate
The body corporate is responsible for maintaining and repairing the common property and if the body corporate is in debt, your investment could suffer dramatically. The financial position of the scheme and any reserve funds can be checked by obtaining a copy of the financial statements adopted at the last AGM of the body corporate– ask the estate agent, seller, trustees or managing agent for a copy of these and inspect them.
Is the scheme subject to future development rights?
If the developer or the body corporate have future development rights to extend the scheme, these rights must be disclosed in every deed of sale for units in that scheme. If you sign a deed of sale and find out afterwards that the developer or body corporate hold future development rights which were not disclosed in your deed of sale, you are entitled to walk away from the contract.
Are you buying off-plan?
It is not unusual to buy a unit in a sectional title scheme before the scheme has been registered or even before the building has been built. If you are buying ‘off-plan’, as sales of this nature are often called, the latest date of completion must be stipulated in the deed of sale. You should not pay any money directly to the developer until the certificate of completion has been issued. Money may be held in trust, either by an attorney or an estate agent, on the developer’s behalf until the certificate of completion is issued, but the developer is not entitled to receive any consideration until then.
Conclusion
Knowledge is power. If you are buying into sectional title, the more you know about this type of title, the more likely you are to protect your investment. So before you buy, take the time to investigate the scheme fully and once you’re a sectional title owner keep your finger on the pulse of the body corporate by attending meetings. Consider becoming a trustee, or even the chairperson so that you are able to maintain control and are not hit with any nasty surprises.
This article is courtesy of Jennifer Paddock published in the Paddocks Press newsletter and permission to publish has been granted from the Paddocks Publishing division.
Find property to buy or sell in South Africa.
By Jennifer Paddock
___________________________________________________________________________________
Jennifer is a lawyer and consultant at Paddocks, a specialist sectional title firm. For further information, please call 021 674 7818 or visit www.paddocks.co.za .
Introduction
The rise in popularity of sectional title ownership over the last two decades is a testament to the fact that sectional title ownership is fast becoming the preferred home ownership option for both resident owners and buy-to-let investors. Modern lifestyle demands the ability to enjoy the benefits of facilities such as good security, gymnasiums, communal pools and the like. However, individual ownership of these benefits proves costly both in terms of time and money due to the corresponding maintenance obligations attached to such amenities. In sectional title ownership, these benefits can be enjoyed whilst the maintenance and financing of such amenities is shared by all owners of the scheme.
Despite its advantages, sectional title ownership is notoriously considered more complex than conventional title ownership and for good reason… Buying into a sectional title scheme is a commitment by the new owner to form part of a community which is governed by legislation and rules and which has financial and administrative obligations which must be met. As an investor it is important for you to know exactly what you are buying, what your management obligations will be, what costs you will be responsible for after transfer and what rules you will be bound by before putting pen to paper. In sectional title ownership, ignorance is not bliss because what you don’t know can hurt you. So read on before you sign a sectional title deed of sale…
What exactly are you buying?
You will often hear people speaking of buying a “flat”, an “apartment” or a “townhouse” when referring to what they buy in sectional title schemes, yet technically all of these terms do not describe what they are in fact buying. When you buy into a sectional title scheme you are buying a composite thing called a “unit”. A unit consists of a section together with a share in the common property. A section is an area which you own exclusively (such as a townhouse or apartment) to the median line of the walls, floors and ceilings. The common property is an area which you will co-own with all other section owners and includes all areas of the scheme which are not included in the sections such as driveways, entrance foyers, stairs, lifts, gardens, swimming pools and so on.
As a buyer, you may also benefit from exclusive use rights allocated to your section which allow you to use a portion of the common property to the exclusion of all other owners, for example a parking bay. Exclusive use rights may be allocated to a section by either being formally registered on the sectional plans of the scheme (in terms of section 27 of the Sectional Titles Act 95 of 1986 “the Act”) or more informally by passing a rule which gives the owner of a section the right to use such an area (in terms of section 27A of the Act). If you have been allocated exclusive use rights in terms of section 27 or section 27A it is important to understand that although you have the right to use an area of the common property exclusively, that does not mean that you exclusively own that area. It remains part of the common property and is therefore still owned by all the owners of sections, however no other owner has the right to use it besides you.
Before signing a sectional title deed of sale it is important for you to obtain and analyse a copy of the registered sectional plan of the scheme. Ask yourself the following questions: is the extent of the section described in the deed of sale the same extent shown on the sectional plan? Are any and all exclusive use areas allocated to me in the deed of sale allocated to the section which I am buying on the sectional plan? Asking these questions will help to prevent the all too often experienced headache when a unit owner finds out after transfer has taken place that what he thought he was buying (in terms of his deed of sale) is not in fact allocated to him on the registered sectional plan. Ask the estate agent, managing agent or seller for a copy of the registered sectional plan, alternatively find the sectional plan you are looking for on Sectional Titles Online( www.sto.co.za).
Your participation in the management of the scheme
Buying a unit in a sectional title scheme comes with automatic membership to the governing body of the scheme, called the ‘body corporate’. Membership is mandatory so even if you are a buy-to-let owner you, as owner, are the member of the body corporate and not your tenant. The body corporate is an association of owners which exists to run the scheme from a financial and administrative point of view and maintain the common property. Owners elect a board of trustees to carry out the body corporate obligations at every Annual General Meeting (“AGM”) and in many schemes the trustees contract with a managing agent to assist them in this regard.
What costs will you be responsible for?
All costs related to your section, which you own exclusively, are for your own account. Remember that you only own your section to the median line of its floors, walls and ceilings and therefore the foundations, ‘outer-skin’ and roof of the building are common property and are therefore not your exclusive financial responsibility. All costs related to the common property, which is co-owned by all owners, as well as all payments for the general running of the scheme are paid by the body corporate from its levy fund. These costs include insurance of the buildings to their full replacement value, maintenance and repair of the common property, wages of staff employed by the body corporate and so on. The body corporate estimates its expected expenditure each year, takes this budget to the AGM for approval and once approved, divides the estimated expenditure between the owners (generally in accordance with each owner’s ‘participation quota’ – a calculation which determines the fraction of each owners contribution in relation to their floor area) to work out each owner’s ordinary levy. Each owner is then liable to pay such contribution, generally in monthly instalments.
If a necessary expense arises during the course of the year for which the body corporate did not budget, the trustees are entitled to raise a ‘special levy’. The trustees can decide whether the special levy is to be paid in one lump sum or in instalments and owners have no choice but to pay it. Owners whose levies are in arrears will be unable to vote on general resolutions at general meetings and will also be charged interest on these arrear amounts. The trustees are entitled to institute levy collection procedures in the Magistrates Court to recover the outstanding amounts from such owners.
As a prospective buyer, it is vital that you find out not only what ordinary levies you will be responsible for (ask to see a copy of the seller’s levy statements) but also to ascertain whether there are any anticipated special levies on the horizon. You can find this out by asking the trustees or the managing agent. You can also inspect the common property carefully to establish if there are any obvious defects which are going to require expensive repairs or maintenance work. A substantial special levy, for example to replace a lift in the building, could have you reaching far deeper into your pockets than you ever expected because once you’re an owner you have to pay special levies raised. Do everything you can to find out about special levies before putting pen to paper and then at least you have the choice of investing despite the risk of extra expense.
Other expenses for your account are rates (which by mid-2008 will be payable directly to Municipalities by all sectional owners), water and electricity (these are sometimes included in your levies depending on whether the scheme has implemented separate water and electricity meters or not), maintenance of geysers serving your section (whether or not they are situated on common property) and contributions towards maintenance of your exclusive use areas.
How do the rules of the scheme restrict the use of your unit?
Every sectional title scheme is governed by the Act but each scheme may have different management and conduct rules which are in place to regulate the way the scheme is run and the way in which the owners and occupiers behave. All owners and occupiers are bound by the scheme’s rules so even if you are a buy-to-let investor you are responsible for ensuring that your tenants are aware of the rules (you are obliged to attach a copy of the scheme rules to your written lease agreement) and abide by them. The rules of a scheme can be incredibly restrictive and therefore it is essential that you read and understand the rules before committing to being bound by them when buying into the scheme. If you own pets, check the rules to see if pets are allowed in the scheme – resident-owners regularly suffer enormous heartache when they buy into a scheme, move in and are given notice that the scheme’s rules do not allow pets. Buy-to-let investors likewise may need to ascertain whether short-term letting is restricted as many schemes have rules which do not permit leases of less than three to six months.
Any changes which you wish to make to the common property will need trustee and/or body corporate approval. If you want to place an air conditioning heat exchange unit or a satellite dish outside your section, these first need to be approved by the body corporate. Remember that anything outside of your section is common property and therefore co-owned by all owners of sections so even minor changes to it need prior body corporate approval. If you have an exclusive use balcony area which you wish to enclose, you cannot simply get approval of your building plans by the local authority and go ahead with the enclosure, you need to get the trustees to sign your building plans before the local authority will approve them. In short, sectional title ownership involves a community aspect which restricts an owner’s use far more than conventional title. In sectional title your interests are not the only interests that are to be considered and the body corporate constitutes an additional layer of governance to which conventional title is not subject.
You may get a copy of the rules from the estate agent, the managing agent, the seller or your local Deeds Registry. Check them to see if there are any rules which you are not happy to abide by. It must be noted that rules are not absolute and can be amended, substituted or deleted, but the procedures and levels of agreement amongst owners required to achieve this often make it difficult to do so.
Things to look out for:
The financial status of the body corporate
The body corporate is responsible for maintaining and repairing the common property and if the body corporate is in debt, your investment could suffer dramatically. The financial position of the scheme and any reserve funds can be checked by obtaining a copy of the financial statements adopted at the last AGM of the body corporate– ask the estate agent, seller, trustees or managing agent for a copy of these and inspect them.
Is the scheme subject to future development rights?
If the developer or the body corporate have future development rights to extend the scheme, these rights must be disclosed in every deed of sale for units in that scheme. If you sign a deed of sale and find out afterwards that the developer or body corporate hold future development rights which were not disclosed in your deed of sale, you are entitled to walk away from the contract.
Are you buying off-plan?
It is not unusual to buy a unit in a sectional title scheme before the scheme has been registered or even before the building has been built. If you are buying ‘off-plan’, as sales of this nature are often called, the latest date of completion must be stipulated in the deed of sale. You should not pay any money directly to the developer until the certificate of completion has been issued. Money may be held in trust, either by an attorney or an estate agent, on the developer’s behalf until the certificate of completion is issued, but the developer is not entitled to receive any consideration until then.
Conclusion
Knowledge is power. If you are buying into sectional title, the more you know about this type of title, the more likely you are to protect your investment. So before you buy, take the time to investigate the scheme fully and once you’re a sectional title owner keep your finger on the pulse of the body corporate by attending meetings. Consider becoming a trustee, or even the chairperson so that you are able to maintain control and are not hit with any nasty surprises.
This article is courtesy of Jennifer Paddock published in the Paddocks Press newsletter and permission to publish has been granted from the Paddocks Publishing division.
Find property to buy or sell in South Africa.
Friday, August 29, 2008
Sectional Title Property: Fidelity Cover
TRUSTEES NEED TO TAKE CLOSER LOOK AT FIDELITY COVER
By Mike Addison
Mike Addison is an expert on sectional title insurance and is the director of Addsure. See www.addsure.co.za
Recently, the question of fidelity cover has arisen on the STO website and others. Here follows more or less what our thinking is in terms of insuring the body corporate I terms of PMR 29(2)(b). In a nutshell, trustees are supposed to see to it that the body corporate has fidelity cover, a sum, if any, to be determined by the body corporate at a general meeting. In other words, it should be decided at an AGM how much cover is needed for Fidelity.
Fidelity Cover is additional cover against the loss of money or property stolen by an employee. Thus, if you have a specifically designed sectional title policy, you may automatically be provided with say R20,000 or R50,000 cover – this essentially covers the body corporate should a trustee or employee be found to have stolen money and/or other property belonging to the insured or for which they are responsible.
Under normal circumstances, the managing agent is NOT considered to be an employee.
Here’s the interesting part:
If the body corporate funds are held / managed via the managing agent's trust account then such funds ARE covered by the Estate Agents Affairs Board Fidelity Fund.
If the funds are held in the body corporate’s own bank account and the trustees sign such cheques i.e. control their own funds, then the body corporate should or may need to purchase additional fidelity cover. This can be expensive though, in my view. R100,000 costs approximately R2,500 per annum (2.5%).
If the funds are NOT held in trust, then the Estate Agents Affairs Board (EAAB) does not cover - see EAAB website for more detail. The EAAB Fidelity fund will apparently still cover losses where managing agents are NOT registered as long as the money was held in trust or supposedly held in trust. This is busy being tested – we as insurance advisors, the affected bodies corporate and NAMA are watching this with keen interest after a recent debacle where a Cape Town Managing Agent went into liquidation and its affairs are being wrapped up.
The difficult one is where the Managing Agent and the trustees jointly sign - here it is difficult to say who is controlling the money. What if both a trustee and a Managing Agent together collude and run off with the money? We are suggesting covering all bases under these circumstances and that will include suggesting to the Managing Agent that they themselves take additional FG cover via their own commercial policies i.e. over and above. Also take the aforementioned.
Just to add a further cat among the pigeons, we are now also strongly recommending Professional Indemnity cover for Managing Agents although this is nowhere stipulated as a requirement. This further protects the body corporate clients. The same case I mentioned - such cover could certainly have helped - depends on outcome though. If it is found that accounting error causes a loss rather than dishonesty, professional indemnity policy rather than Fidelity cover is what should respond.
Dr Jooste, chairperson of the National Association of Managing Agents (NAMA) recently wrote an article for Paddocks Press, in which he deals with the trust account aspects according to the Estate Agents Affairs Act. Of course, there are some areas that need to be clarified and made clearer for the many untrained trustees out there. There is in fact more to it than that. The dynamics of the body corporate, the relationship and experience of the Managing Agent, the Managing Agent 's internal systems, checks and balances should all be considered.
Some suggestions:
Get yourself a Managing Agent who is registered with the EAAB or can show that they have applied for registration particularly if your money is held in trust
Support managing agents who are members of the National Association of Managing Agents (NAMA).
Check your body corporate management rules and make sure whether or not there is a specific rule amendment in this regard
Check bank account system and insure accordingly – if own bank account for example, refer to general meeting and insure according to decision taken
Definitely obtain written advice from your insurance broker/advisor in this regard referring to PMR 29 2 (b) in particular – this is an insurance need where advice is required.
This article is courtesy of the Paddocks Press August 2008 edition.
Buy or sell property in South Africa.
By Mike Addison
Mike Addison is an expert on sectional title insurance and is the director of Addsure. See www.addsure.co.za
Recently, the question of fidelity cover has arisen on the STO website and others. Here follows more or less what our thinking is in terms of insuring the body corporate I terms of PMR 29(2)(b). In a nutshell, trustees are supposed to see to it that the body corporate has fidelity cover, a sum, if any, to be determined by the body corporate at a general meeting. In other words, it should be decided at an AGM how much cover is needed for Fidelity.
Fidelity Cover is additional cover against the loss of money or property stolen by an employee. Thus, if you have a specifically designed sectional title policy, you may automatically be provided with say R20,000 or R50,000 cover – this essentially covers the body corporate should a trustee or employee be found to have stolen money and/or other property belonging to the insured or for which they are responsible.
Under normal circumstances, the managing agent is NOT considered to be an employee.
Here’s the interesting part:
If the body corporate funds are held / managed via the managing agent's trust account then such funds ARE covered by the Estate Agents Affairs Board Fidelity Fund.
If the funds are held in the body corporate’s own bank account and the trustees sign such cheques i.e. control their own funds, then the body corporate should or may need to purchase additional fidelity cover. This can be expensive though, in my view. R100,000 costs approximately R2,500 per annum (2.5%).
If the funds are NOT held in trust, then the Estate Agents Affairs Board (EAAB) does not cover - see EAAB website for more detail. The EAAB Fidelity fund will apparently still cover losses where managing agents are NOT registered as long as the money was held in trust or supposedly held in trust. This is busy being tested – we as insurance advisors, the affected bodies corporate and NAMA are watching this with keen interest after a recent debacle where a Cape Town Managing Agent went into liquidation and its affairs are being wrapped up.
The difficult one is where the Managing Agent and the trustees jointly sign - here it is difficult to say who is controlling the money. What if both a trustee and a Managing Agent together collude and run off with the money? We are suggesting covering all bases under these circumstances and that will include suggesting to the Managing Agent that they themselves take additional FG cover via their own commercial policies i.e. over and above. Also take the aforementioned.
Just to add a further cat among the pigeons, we are now also strongly recommending Professional Indemnity cover for Managing Agents although this is nowhere stipulated as a requirement. This further protects the body corporate clients. The same case I mentioned - such cover could certainly have helped - depends on outcome though. If it is found that accounting error causes a loss rather than dishonesty, professional indemnity policy rather than Fidelity cover is what should respond.
Dr Jooste, chairperson of the National Association of Managing Agents (NAMA) recently wrote an article for Paddocks Press, in which he deals with the trust account aspects according to the Estate Agents Affairs Act. Of course, there are some areas that need to be clarified and made clearer for the many untrained trustees out there. There is in fact more to it than that. The dynamics of the body corporate, the relationship and experience of the Managing Agent, the Managing Agent 's internal systems, checks and balances should all be considered.
Some suggestions:
Get yourself a Managing Agent who is registered with the EAAB or can show that they have applied for registration particularly if your money is held in trust
Support managing agents who are members of the National Association of Managing Agents (NAMA).
Check your body corporate management rules and make sure whether or not there is a specific rule amendment in this regard
Check bank account system and insure accordingly – if own bank account for example, refer to general meeting and insure according to decision taken
Definitely obtain written advice from your insurance broker/advisor in this regard referring to PMR 29 2 (b) in particular – this is an insurance need where advice is required.
This article is courtesy of the Paddocks Press August 2008 edition.
Buy or sell property in South Africa.
Friday, August 1, 2008
Estate Agents in the Current Market Conditions
Estate Agents still need to up their game
By Jennifer Paddock
____________________________________________________________________________________
With the introduction of the FET Certificate in Real Estate, which is registered at an NQF level 4, estate agents throughout South Africa need to up their game. All estate agents will be required to obtain the FET Certificate in Real Estate by 2010 if they want to continue to be eligible to obtain a Fidelity Fund Certificate.
In the past, an estate agent has been able to qualify as such by working as a candidate estate agent under a principal estate agent for a period of one year. After twelve months and without passing the Estate Agency Affairs Board examination, this candidate agent was able to work as a principal estate agent and even open his or her own estate agency.
The advent of the FET Certificate in Real Estate will not allow candidate agents to become principal agents in this manner and is bound to raise the standards of professionalism within the industry. Buyers and sellers will become accustomed to a higher standard of knowledge on the part of their estate agents and therefore agents will have to fight harder to keep themselves a cut above the rest.
For estate agents, selling property in the current and future property markets may be no easy feat. With interest rates heading skyward and buyers becoming more and more astute, the pressure is on for good estate agents to differentiate themselves from the so-called 'rats and mice' in the industry. Says Jennifer Paddock, a sectional title lawyer at Paddocks, “The competitive advantage necessary to achieve this comes in the form of education.” Of course every estate agent will have to pass the FET Certificate - but this basic training will not stand out as extraordinary in light of the fact that every other estate agent will also have it.
Jennifer highlights that an important area in which many estate agents are under-qualified is the area of sectional title property sales. These sales differ tremendously from sales of conventional property in many ways and an estate agent with a certification in sectional title property sales will allow them to handle these sales in a more professional and efficient manner than the non-certified estate agents. There is no better time to get ahead of the pack. Knowledge is power and estate agents can empower themselves in their business through further education.
The University of Cape Town‘s Sectional Title Specialist Realtor Certificate Course, presented in conjunction with Paddocks, has proven to be extremely popular in the real estate industry. This is a part-time course, is ideal for full-time employees and is presented nationally. Should you be interested in receiving a University certification in sectional title sales, please contact Christina on 021 674 7818 or chistina@paddocks.co.za. Alternatively, visit www.paddocks.co.za.
Jennifer Paddock is a lawyer and consultant at Paddocks, a specialist sectional title firm, operating through-out South Africa. Visit www.paddocks.co.za or call 021 674 7818.
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
By Jennifer Paddock
____________________________________________________________________________________
With the introduction of the FET Certificate in Real Estate, which is registered at an NQF level 4, estate agents throughout South Africa need to up their game. All estate agents will be required to obtain the FET Certificate in Real Estate by 2010 if they want to continue to be eligible to obtain a Fidelity Fund Certificate.
In the past, an estate agent has been able to qualify as such by working as a candidate estate agent under a principal estate agent for a period of one year. After twelve months and without passing the Estate Agency Affairs Board examination, this candidate agent was able to work as a principal estate agent and even open his or her own estate agency.
The advent of the FET Certificate in Real Estate will not allow candidate agents to become principal agents in this manner and is bound to raise the standards of professionalism within the industry. Buyers and sellers will become accustomed to a higher standard of knowledge on the part of their estate agents and therefore agents will have to fight harder to keep themselves a cut above the rest.
For estate agents, selling property in the current and future property markets may be no easy feat. With interest rates heading skyward and buyers becoming more and more astute, the pressure is on for good estate agents to differentiate themselves from the so-called 'rats and mice' in the industry. Says Jennifer Paddock, a sectional title lawyer at Paddocks, “The competitive advantage necessary to achieve this comes in the form of education.” Of course every estate agent will have to pass the FET Certificate - but this basic training will not stand out as extraordinary in light of the fact that every other estate agent will also have it.
Jennifer highlights that an important area in which many estate agents are under-qualified is the area of sectional title property sales. These sales differ tremendously from sales of conventional property in many ways and an estate agent with a certification in sectional title property sales will allow them to handle these sales in a more professional and efficient manner than the non-certified estate agents. There is no better time to get ahead of the pack. Knowledge is power and estate agents can empower themselves in their business through further education.
The University of Cape Town‘s Sectional Title Specialist Realtor Certificate Course, presented in conjunction with Paddocks, has proven to be extremely popular in the real estate industry. This is a part-time course, is ideal for full-time employees and is presented nationally. Should you be interested in receiving a University certification in sectional title sales, please contact Christina on 021 674 7818 or chistina@paddocks.co.za. Alternatively, visit www.paddocks.co.za.
Jennifer Paddock is a lawyer and consultant at Paddocks, a specialist sectional title firm, operating through-out South Africa. Visit www.paddocks.co.za or call 021 674 7818.
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Wednesday, June 4, 2008
Things to Know About Sectional Title
SECTIONAL TITLE
This article is courtesy of C & A Friedlander Attorneys.
Sectional title schemes provide an ideal opportunity for developers to reap considerable profits in the real estate market. Such developments can comprise residential units, offices, shops, commercial and industrial units and especially mixed schemes - the possibilities are endless.
The developer plays an essential role in the creation process of a new sectional title scheme. Much of the success of a development depends on his performance during these initial stages.
Developers should pay attention not only to the physical aspects of the scheme but also to their role in creating a viable and harmonious community of owners. Each project is unique and therefore requires, amongst other things, its own set of rules, formula for allocating participation quotas and exclusive use areas.
In practice, prospective developers are usually lay businessmen without the necessary knowledge of their function in the scheme. They therefore need to be assisted by qualified attorneys and conveyancers with expertise in sectional title matters. It is only then that developers and the public can truly take advantage of the numerous opportunities inherent in the sectional title industry. (For an in-depth article on the subject see Van Schalkwyk & Van Der Merwe “A Critical Analysis of the Role of the Developer in Sectional Title Developments” 2008 (2) TSAR 222.)
We hope that this information will be useful to you and should you require any further assistance please do not hesitate to contact us!
This article is courtesy of C & A Friedlander Attorneys.
Thursday, May 22, 2008
Managing your Investment Portfolio
How do I make the most of the high interest rate situation?
A press office feature released by Mazars Moores Rowland has given some valuable advice on how to make the most of the high interest rates. The current situation can benefit you if you do a reshuffle of your current investment portfolio, making adjustments with “an eye on tax efficiency, cost effectiveness and wealth enhancement”.
Marius Fenwick, a financial advisor with Mazars Moores Rowland says that depending on your age and current portfolio mix, the improved yields that result from higher interest rates may produce greater tax liability. The key to avoiding this is knowing where to start shuffling your portfolio.
The advisor suggests, “Take a look first at your retirement annuities and consider moving some underlying investments into a money market fund where yields are now close to 12%. The interest earned within the annuity won’t be taxed”. This doesn’t mean that all the underlying investments should go into a money market fund though.
According to Fenwick, for long-term growth you need to invest in equities, which is an asset class that has outperformed bonds and property over time. “And remember too, that once the interest rate cycle peaks and turns down, the stock market will start to run,” he adds. This approach is said to make sense particularly for living annuitants in a somewhat volatile market.
Say that you’re drawing down 8% of your annual investment value as a pension. Putting some of the underlying investment into a money market fund at a yield of about 11.5% will mean that fewer equity units within the annuity will have to be sold to produce the desired income from the drawdown of 8%.
“It may be worth considering shuffling the portfolio to ensure two years’ worth of income will be generated from an allocation to a money market fund while the rest is invested in a balanced portfolio and allowed to produce an inflation-beating real return over time,” believes Fenwick.
Of course, there will be those whose tax rates are such that an interest-bearing investment in their own individual rights will not be efficient. Individuals and trusts of a high net worth (including a 40% flat tax rate) would benefit from considering an investment in dividend income funds, which are yielding up to 9,4% tax-free after fees – and preserving capital at the same time, this according to the financial advisor.
For those who are willing to put money away for a period of 5 years, a lump sum investment in an endowment product built on an interest-bearing instrument will produce around 9.3% return, which is tax-free and guaranteed for the full term.
The pressure exerted on our currency by high interest rates may make offshore investment a sensible option. Part of your portfolio shuffle should include a look at offshore-linked funds and an additional investment outside of the country, either directly or through an asset swap.
Fenwick also stresses that while prices in the listed property sector have dipped significantly in an environment of high interest rates, property fundamentals still remain sound. This option is particularly popular as an income producer for retirees.
Those who invest in property should remember that it is a long-term investment that produces a steadily rising income and that they should continue through the period of volatility, rather than secure a loss on their investment by selling shares prematurely.
Also, given that the performance of listed property tends to track that of bonds, “the time for bonds to shine will come again” and consequently, so will the opportunity for investors to consider income funds with bond exposure.
The trick is not to try and time the market and to get your selection of asset classes right, rather than your choice of asset managers. A solid-performing and balanced portfolio is said to be the solution and it is advised to let your advisor make the calls on asset classes over the long term.
The information in this article is courtesy of Claire Densham (“Making the most of high interest rates”, Mazars Moores Rowland, Itinews, 16 May 2008).
If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.
Thursday, May 8, 2008
Insuring Property in South Africa
What do I need to know when insuring my property?
What do I do when property has been lost or stolen?
- Make a police report, providing a statement and list of all the stolen articles. Remember to keep the case number.
- If you have had a pre-loss assessment or valuation done then your task will much easier, as you’ll be able to do a “stock-take”.
- Report the claim to your insurer.
- You will need a quote for the lost or stolen items. An assessor is usually appointed to deal with larger claims.
- Insurers may decide either to replace the goods or to pay you out for them.
- If you are underinsured then average may apply: you will be paid out only for the amount insured and if the insurer does apply the average then this payment has to be in cash.
What do I do if I have a car accident?
- Stop immediately and turn off the engine.
- Phone an emergency number and report your location and any injuries.
- Render any assistance to the injured persons while waiting for an ambulance to arrive.
- Do not move the vehicles if there are no injuries. If they are obstructing traffic then mark the positions of the vehicles and move them off the road, if this possible and not dangerous.
- Even if you are at fault, do not make any statement.
- If police are at the scene, try to obtain a reference number and the name of the officer, otherwise report the accident at your nearest police station within 24 hours and make a statement.
- You are obliged to give your name and address, as well as your insurance details to the other party.
- You will need to provide your insurers with information about the other party, witnesses and the accident, so make sure you gather as much information as possible before leaving the scene of the accident.
How much should I insure my home for?
- Always insure your home and its contents for their replacement value.
There are various insurance options available at different brokers, so it’s important that you shop around for the deal that is best suited to your personal situation.
If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
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