COSA Good News for Sectional Title Schemes

In a first for the residential property market a Sectional Title Schemes Management Act (STSMA) and Community Services Ombuds Service Act (CSOSA) have been signed by the Minister of Human Settlements and the President has signed the Proclamation Notice for these Acts.

“This is a good news for sectional title property owners and tenants as they’ll finally have access to an independent ombudsman to appeal to in the case of a dispute – a far less time consuming and more affordable option than going to the High Court”, says Bruce Swain, MD of Leapfrog Property Group.

The ombud will be able to adjudicate complaints in terms of financial or behavioural issues, matters involving work on private and common areas, issues regarding scheme governance and management services.

The establishment of these Acts mean that community schemes (which include body corporates, retirement villages and homeowner’s associations) will need to make a number of critical changes in terms of fees and levy collections as well as filing of schemes’ governance documentation within 90 days from the date of publication of the Acts. The registration of schemes will need to take place within 30 days.

Important changes:

Create a maintenance plan and reserve fund

Establish a ten-year maintenance plan and reserve fund. Body corporates will now be required to create the decade long maintenance plan as well as a separate reserve fund to cover the expected costs. The current suggestion is to set aside an additional 25% of the budgeted annual levy. “While this additional levy will initially put added financial pressure on home owners, I believe that proper maintenance will be of benefit to everyone in the long run. Many body corporates mismanage their complexes which leads to badly maintained common areas, which end up costing more to fix”, believes Swain. 

Contribute to funding for the Ombud

Pay an extra quarterly levy as part of the funding for the Ombud. The levy, payable by community schemes which include body corporates, retirement villages and homeowner’s associations, will comprise of 2% of the normal levy value, capped at R40. In cases where the normal levy is less than R500, the properties will be exempt although owners will still have access to the services offered by the Ombud. 

Register the domicile

Community schemes will hence forth be required to register the domicile with the chief ombud, the local municipality and the local registrar of deeds so that any notices of disputes can be served to one address.

Proxies limited

There will be a limit to the number of proxies held per person – it will no longer be possible to hold proxies for more than two people.

Register the scheme with CSOSA

All community schemes have to be registered with CSOSA and will be required to send regular copies and reports on the scheme’s financial health, as well as an audited annual report.

Certification required

Changes to rules and levy contributions have to be certified in writing.

Appoint a managing agent

A managing agent must be appointed to manage the property by the scheme’s trustees. “While many body corporates and trustees do an excellent job at managing their property, there is a large number that don’t – to the detriment of the entire scheme. This is a very positive move as it will ensure greater compliance, financial sustainability, and hopefully fewer disputes”, believes Swain.

“In recent years we have seen a trend with the banks to decline bonds based on the mismanagement of the schemes financials; the sellers are then unable to sell to anyone aside from a cash buyer, who may decide to walk away from the sale if the financials of the scheme aren’t good”, explains Michelle Cohen, Principal of Johannesburg North East.

Take out fidelity insurance

Every scheme will need to take out fidelity insurance to cover itself against misappropriation of funds and fraud. A minimum amount is prescribed.

Swain says that, “All in all the creation of CSOS is a very positive step for community schemes in that it will do much to regulate the industry – ultimately protecting sectional property owners and their investments”.