New Sectional Title Scheme
Over the years, it has become standard practice for developers of sectional title schemes to sell residential
units before buildings have been built or a scheme has been registered in deeds registry. In this instance,
the buyer is protected by the Consumer Protection Act (“Act 68 of 2008”) from any possible improper trade practices;
and deceptive, misleading, unfair or fraudulent conduct of a developer.
Given the fact under such circumstances the buyer is actually purchasing a non-existent unit, the relevant deed
of sale will alleviate the risk by containing the necessary layout plans, scheme rules and a schedule of finishes
outlining the specific materials to be used by the developer in the relevant unit. In addition to that, the relevant
deed of sale will contain, inter alia, a clause regarding levies payable in terms of section 3 of the Sectional
Title Schemes Management Act (“Act No. 11 of 2008), calculated in accordance with the participation quota.
The sectional title scheme will be governed by the prescribed scheme rules which will come into operation when the
sectional title register is opened in the Deeds Registry
A great deal of circumspection must be exercised by a developer when making scheme rules and applying for the opening of a
sectional title scheme. Section 11(2) (d) of the Act draws a red line that a developer must not cross, in terms of which a
developer who alienates a unit before the opening of a sectional title register may not make rules by which a different value
is attached to the vote or liability of the owner of any section, unless the developer has disclosed such intention in all deeds of alienation.
In Body Corporate of Central Square v Beck-Paxton N.N.O. and Others (2021/30916) [2023] ZAGPJHC 22 (17 January 2023)
The developer established a mixed-use scheme, from which it marketed and sold units in the residential section first, entering into sale agreements
with various purchasers, of which the fourth respondent in this case was one of them.
The deeds of alienation declared that a ceiling of 60% of the levies would be apportioned to the residential component,
and the balance to the non-residential component.
However, prior to opening the sectional title register, the developer unilaterally amended the management rules, by amending raising
the ceiling of levies from 60% to 100% of the levies to the residential component. This amendment was approved by the Chief Ombud of
the Community Schemes Ombud Service by virtue of a certificate issued in 2017. Consequently, when the developer lodged the sectional
title scheme for registration in the deeds office in 2017, the application was accompanied by a conveyancer’s certificate in terms of
section 10(2)(a) of the Sectional Title Schemes Management Act, 2011 (“Act No 8 of 2011”) to the effect that the prescribed management
rules applicable to the scheme had been altered due to the addition of a non-residential part of the scheme. It goes without saying that
this amendment adversely affected the fourth respondent through undisclosed amendments to the management rules and was an affront to the
provisions of section 11(2)(d) of the Act.
The Court ruled that the amendment was invalid and unenforceable and that the certificate that had been issued by the Chief Ombud of the Community Schemes Ombud Service in terms of section 10(2) (a) of the Act should be amended to reflect the agreed deed of alienation position.
In conclusion
When a developer exercises their power to amend, substitute or add management rules they must be careful that such change in the calculus does not culminate in shifting
the goalposts in so far as the agreed value or liability for levy contributions is concerned.