By Marina Constas
Legal representatives acting on behalf of developers in opening sectional title registers display a fair amount of dexterity when faced with what could be thought of as boundless discretion when drafting the rules of the scheme. Indeed it has become commonplace to peruse rules that display blatant, and almost disingenuous bias towards the developer, and patent prejudice to the body corporate.
It is necessary to drill down relatively deep into the legislation in order to determine which rules the developer may amend, and which he or she may not even attempt to disassemble.
In terms of s 55(o) of the Sectional Titles Act 95 of 1986 (the Act):
‘The Minister may, after consultation with the sectional titles regulations board, make regulations in regard to –
…
(o) generally, any matter which he considers necessary or expedient to prescribe in order that the purposes of the Act may be achieved.’
In addition to the Act and the regulations, the management rules (Annexure 8) and conduct rules (Annexure 9) complete the quartet. For the sake of this article, the management rules are relevant as these rules create a platform for the developer to launch his or her own set of rules. Section 35(1) and (2)(a) of the Act states that a scheme shall be controlled by way of rules, and that –
‘(a) management rules, prescribed by regulation, which rules may be substituted, added to, amended or repealed by the developer when submitting an application for the opening of a sectional title register, to the extent prescribed by regulation, and which rules may be substituted, added to, amended or repealed from time to time by the unanimous resolution of the body corporate as prescribed by regulation’.
On the face of this section, it would appear that the developer would be able to write up his or her own set of rules. The proviso in the form of the words – ‘to the extent prescribed by regulation’ does reign in any attempt by the developer to do just that, or does it?
There are 43 regulations pertaining to the Act. Having regard to reg 30 it becomes clear on an initial reading of reg 30(1) that the developer may not amend certain rules. The regulation specifically excludes 64 rules. In effect 64 out of 71 management rules may not be amended. Not only may they not be amended, they may not be substituted, added to or withdrawn by the developer on submitting an application for the opening of a sectional title register.
Without delving into too much detail, it is interesting to note which rules have not been excluded, in other words, which rules the developer may happily amend. These are:
Currently the management rule reads as follows:
‘27. No document signed on behalf of the body corporate shall be valid and binding unless it is signed by a trustee and the managing agent referred to in rule 46 or by two trustees or, in the case of a certificate issued in terms of section 15B(3)(i)(aa) of the Act, by two trustees or the managing agent.’
Another rule that can, and is often amended by developers, is r 31(1) – (6). For ease of reference, the rule is quoted verbatim:
‘31. Contrabutions and liability in terms of sections 37(1) and 47 of the Act
31 (1) The liability of owners to make contributions, and the proportions in which the owners shall make contributions for the purposes of section 37(1) of the Act, or may in terms of section 47 of the Act be held liable for the payment of a judgment debt of the body corporate, shall with effect from the date upon which the body corporate comes into being, be borne by the sections.
(2) At every annual general meeting the body corporate shall approve, with or without amendment, the estimate of income and expenditure referred to in rule 36, and shall determine the amount estimated to be required to be levied upon the owners during the ensuing financial year.
(2A) Where the financial year-end and the annual general meeting of a body corporate do not coincide, the budget shall coincide with the financial year of the scheme.
(3) Within fourteen days after each annual general meeting the trustees shall advise each owner in writing of the amount payable by him or her in respect of the estimate referred to in subrule (2), whereupon such amount shall become payable in instalments, as determined by the trustees.
(4) …
(4A) …
(4B) The Trustees may from time to time, when necessary, make special levies upon the owners or call upon them to make special contributions in respect of all such expenses as are mentioned in rule 31(1) above (which are not included in any estimates made in terms of rule 31(2) above), and such levies and contributions may be made payable in one sum or by such instalments and at such time or times as the trustees shall think fit.
(5) An owner shall be liable for and pay all legal costs, including costs as between attorney and client, collection commission, expenses and charges incurred by the body corporate in obtaining the recovery of arrear levies, or any other arrear amounts due and owing by such owner to the body corporate, or in enforcing compliance with these rules, the conduct rules or the Act.
(6) The trustees shall be entitled to charge interest on arrear amounts at such rate as they may from time to time determine’.
Where a developer is opening a register in respect of a mixed use development, namely, commercial and residential, different levy weightings in terms of management r 31(1) are created. This can be effected due to this management rule being made available to amend in terms of reg 30. Commonly, the owners of the business sections are availed of the opportunity to hold increased voting rights, not only due to the participation quote, but due to the amendment of the management rule. Another rule to note, which may be amended, is one that relates to the termination of the contract between a managing agent and the body corporate. The rule deals with the breach of a master/servant relationship, and how a contract can be terminated. My experience is that the developer would rarely amend this clause unless he or she foresees holding a vested interest in the scheme in future. Quorums that reflect in r 57(2) may be amended by the developer, and the rule that speaks to postponing the meeting for a week, at the same time and place when no quorum is present, is also capable of amendment. Finally, the very last management rule, that may be amended, substituted, added or withdrawn is r 71 (1) – (8). This is notable in that developers have the real power to change the course of how arbitrations work today, ensuring that a better process is followed.
Having set out the developers’ limitations, it is legitimate at this point to question the veracity of many body corporates claims that developers have amended, and added to far more rules than are allowed by reg 30. There is a seemingly innocuous portion of reg 30, namely, 30(2), which states in effect that a developer may substitute any Management Rule contained in Annexure 8. The only prerequisite is that the schedule referred to in s 11(3)(b) of the Act must contain a proviso restricting transfer of a unit without the consent of an association where all members of the body corporate of the development scheme shall be members of that association and the functions and powers of the body corporate shall be assigned to that association. This would, in all likelihood, be the case where a body corporate is situated within a homeowners’ association. This is where, I believe, confusion has arisen. In a situation where a developer has added a management rule in a standard sectional title building, which says that the developer reserves the right to advertise on the roof, without compensation to the body corporate, which is contrary to reg 30. The rationale behind the regulation is to curtail the possible prejudice suffered by all the owners, excluding the developer, should the developer include rules that are biased in his favour.
Marina Constas BA LLB (FA Arb) is a Fellow of the Association of Arbitrators and Director at BBM Law Inc Attorneys in Johannesburg.
This article was first published in De Rebus in 2014 (Nov) DR 16.
