Know your facts before buying into a complex
Owning in a sectional title scheme can be fraught with problems
Raw sewage in the corridors and a lift shaft filled with garbage up to the eighth floor is probably the most extreme case of a dysfunctional body corporate and a property investor's worst nightmare. But it illustrates what can happen when owners stop paying levies and don't take enough interest in the management of their property.
It's what happened a few years ago at Ana Capri, a block of flats in Durban's Albert Park, before it was bought by Trafalgar Property Management and is now a test case in body corporate rehabilitation. But it took years and more than R20m to salvage.
Michael Schaefer, a director at Trafalgar, says owning or living in a sectional title scheme is not for everyone and there's "a complete lack of understanding" of the laws governing it.
Attorney Marina Constas, the head of the sectional title and developments department at BBM Law, agrees. "At any time, we've got six attorneys dealing with disputes in bodies corporate."
Quoting "sectional title guru" the late Bob Gould, Schaefer says body corporate disputes tend to be about the three Ps - pets, parking and people.
"People with pets move into a complex that has a no-pets rule and it becomes hugely emotive. But if you buy into a scheme, you must respect the rules.
"Parking is a major issue. There's seldom adequate parking, especially in the older schemes which weren't designed to accommodate lots of cars. And with some of the newer schemes, where developers have tried to maximise space, there is inadequate provision for parking," Schaefer says.
"People can be difficult. When people have no respect for their neighbours, it can be a major source of stress."
But disputes that arise between owners in sectional title can be more complex. "Exclusive-use areas are a massive issue, and most commonly misunderstood by owners, trustees and managing agents," says Coenie Groenewald, the COO at the National Association of Managing Agents.
An exclusive-use area is a part of the common property which an owner is entitled to use and enjoy exclusively. It can be a garage, garden, storeroom, parking bay or balcony."
Owners in a body corporate pay a levy determined by the floor area of their section in relation to the total floor area, sharing costs of maintaining the common property.
Exclusive-use areas don't attract a levy, but owners with exclusive-use areas must make an additional contribution to the body corporate to defray the costs associated with their area. The contribution is determined by the trustees and approved by the members as part of the scheme's budgets.
"I call it the 'elusive exclusive use' because no one really gets the meaning of an exclusive-use area," Constas says. "Just because the agent says the carport or garden is yours doesn't mean you own it."
Attorney Zerlinda van der Merwe, the general manager and specialist community schemes consultant at Pam Golding Property Management Services, says it's vitally important for a prospective buyer to know and understand what they are buying, paying for, and will own in a sectional title scheme.
People with pets move into a complex that has a no-pets rule and it becomes hugely emotiveMichael Schaefer
"We suggest the purchaser request a copy of the sectional title scheme's sectional plans, as well as the registered or approved management and conduct rules, to confirm the legal nature of what is being sold to them. The sectional plans will indicate whether there are registered exclusive-use areas, which will reflect on their title deed in the form of a Notarial Deed of Cession, and the rules will provide for rule-based exclusive-use areas, if any, along with a layout plan and schedule of allocation.
"The buyer will then be able to see whether that parking bay, for example, being sold to them is actually capable of being sold and owned, which it is if it's part of the primary section or a utility section on its own, but not if [it] is unregulated common property, or an exclusive-use area.
"If it's an exclusive-use area, it would be important to understand that as a registered exclusive-use area, it may be bonded and ceded to an owner of another section in the scheme, but as a rule-based exclusive-use area, this would not be possible."
In addition to scrutinising the sectional plan and reading the conduct rules, make sure you have interrogated the financials before you put in an offer.
Schaefer says Trafalgar is rarely asked for the latest audited financial statements of a building it manages, and it's the largest residential property manager in the country.
According to property data company Lightstone, there are 760,000 sectional title units in the market, which does not include the 425,000-odd units in housing estates. Lightstone says property in sectional title has a market value of about R779bn.
While the complex you're looking at buying into may be in an excellent location or on prime property, you need to know that the body corporate is solvent and not indebted to the local authority or involved in litigation.
You also need to know if there is overcrowding in the units and the extent of arrear levies, because you and other owners will subsidise those who don't pay their levies as well as water used by extra occupants.
Constas says you should research the managing agent and ask about overcrowding, arrear levies and any disputes between owners. How your questions are answered will be indicative of the service offered by the managing agent. If you don't get answers, knock on doors to chat to people, she says.
Schaefer says about 95% of all schemes have owners in arrears with their levies.
Also look at the ratio of owner-occupied units to those occupied by tenants. Owners often take better care of their properties.
How to spot a dysfunctional body corporate
• Andre Grundler, who has worked with about 100 dysfunctional bodies corporate in Durban over the past decade, says dysfunctional bodies corporate typically:
• Have buildings that are poorly maintained - with leaking roofs, concrete spalling, noncompliant plumbing and electrical installations, etc;
• Have buildings that are uninsured and uninsurable;
• Do not have audited financial statements;
• Do not hold annual general meetings;
• Have no financial reserves;
• Have not registered and do not comply with the Community Schemes Ombud Service Act;
• Have a substantial levy debt book;
• Are faced with large, unresolved creditor claims, such as for municipal services; and
• Do not maintain proper accounting records or follow Sectional Title Schemes Management Act procedures.