Body Corporates - Legal considerations for managing sectional title schemes within layered developments
By Prof. Graham Paddock
In the course of their work, managing agents, trustees, and directors of community schemes often encounter sectional title schemes that are part of “layered” developments.
In such schemes, the developer has imposed a condition under regulation 6(4) of the Sectional Titles Schemes Management Act of 2011 (the STSM Act) or its predecessor, regulation 30 under the Sectional Titles Act of 1986 (the ST Act), that assigns the body corporate’s functions and powers to an overarching management association, often referred to as a “Master Homeowners Association”.
While these provisions were designed for layered schemes comprising a sectional title scheme and other types of community schemes in an integrated development, there is no restriction on their use for a single scheme. Therefore, some developers of a scheme consisting of only one sectional title scheme and no other physical developments have imposed the necessary condition and assigned the body corporate’s powers and functions to the directors of a homeowners association created for the sole purpose of exercising these powers.
There are three important issues that arise in practice with such schemes. Firstly, it is important to note that regulation 6(4) under the STSM Act and its predecessor, regulation 30 under the ST Act, do not permit a developer to dispense with the scheme’s management and conduct rules. While members of a sectional title scheme in this situation may be contractually bound to comply with the governance documents of the “Master HOA,” there must still be management and conduct rules. The developer has the right to substitute any of the prescribed management rules, but there must be management and conduct rules, and these are the provisions that must be considered and interpreted as laws made by and for the body corporate of that scheme in terms of regulation 6(1) of the STSM Act. The power to substitute any particular management rule should not be confused with the right to do away with any rule or abandon the management rules entirely.
Secondly, it is essential to bear in mind that such schemes are still subject to all the provisions of the STSM Act and the scheme’s rules. I have observed “Master HOA” rules that allow trustees to make and withdraw exclusive use rights, impose levies without restriction, and perform other actions that are contrary to the provisions of the STSM Act and the prescribed rules.
Thirdly, when the trustees or directors of a “Master HOA” exercise their delegated powers to perform the body corporate’s functions, they must do so in accordance with the provisions of the STSM Act and the scheme’s management rules. They cannot apply contrary provisions in the Master HOA’s governance documents. In situations where the STSM Act or an unsubstituted management rule requires owner decisions to authorize a body corporate or trustee act, they must first obtain those resolutions before exercising their delegated powers.
While sectional owners in layered schemes may be contractually obligated to abide by the Constitution or Memorandum of Incorporation of a “Master HOA,” and any policies or guidelines its executives make, the executives cannot take actions or impose governance provisions that are contrary to any provision of the STSM Act or the scheme’s unsubstituted management rules.
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Graham Paddock is a specialist community schemes attorney, notary and conveyancer. He has been advising clients and teaching students for over 40 years, and was an adjunct professor at UCT for 10 years.
Article reference: Paddocks Press: Volume 18, Issue 2.
This article is published under the Creative Commons Attribution license.