Life Rights - Part Two in a series of 'Life Rights' articles written by Prof Graham Paddock
Here is Part Two in the series of 'Life Rights' articles written by Prof Graham Paddock.
CLICK HERE for part 1 of this 5 part series
UNDERSTANDING LIFE RIGHTS: LRMA Establishment, Nature, Members & Levies
Article by Graham Paddock
Introduction: The Housing Development Schemes for Retired Persons Act of 1988 (‘the Act’) regulates life right contracts and provides a framework for management of life right retirement schemes. All life rights schemes where the retirees do not own sectional title units or hold shares in a share block company must have a life right management association (‘LRMA’). For the text of the Act’s regulations click here.
Establishment of LRMA and managing agent: When the developer enters into the first binding life right agreement, a LRMA comes into existence for the scheme with the developer and all current life right holders as members (Reg. 7(a)). At the same time there must be a managing agent for the LRMA, initially appointed by the developer. Thereafter the LRMA can terminate the managing agent’s appointment at any time before its annual renewal (Reg. 6).
Nature: The Companies Act of 2008 does not apply to the LRMA’s formation or management. A LRMA continues to exist despite changes in its membership and is capable of suing and being sued in regard to any contract it enters into, any exercise of its powers or performance of its functions and any other matter in regard to the life rights scheme management and infrastructure (Reg. 7(b) to (d)). If the LRMA is a common law association, the provisions of the common law will apply to its constitution.
Duties: The duties of a LRMA are set out in Reg. 8(1).
- Insurance: Insure the scheme buildings against fire and against any other risks the members agree by special resolution. On request by any member, produce the insurance policies and receipts for premium payments.
- Maintenance and repairs: Maintain the scheme’s common property and all accommodation to keep it serviceable, and comply with any local authority order requiring such work. Keep all machinery and equipment used in connection with the common property and all pipes, wires, cables and ducts that serve the common property or any accommodation in serviceable condition.
- Administration: Control and manage the common property for the benefit of all its members, enforce its conduct rules and keep a register of members.
Powers: Reg. 9(1) sets out the powers of a LRMA.
- Funding: Establish an administrative fund for the repair, upkeep, control, management and administration of the life right scheme, including reasonable provision for future maintenance and repairs, utility supplies, insurance premiums and to cover other LRMA liabilities. Determine, raise and recover levies from members. Borrow money needed to perform duties or exercise powers and provide security. Invest its money. Prohibit transfers of life rights while amounts are outstanding.
- Administration: Appoint a committee which must perform all powers and duties subject to members’ directions and restrictions. Appoint employees. Make rules regulating members’ conduct (they must be reasonable and apply equally to all members in respect of similar accommodation). Acquire movable property needed to operate the scheme. Open and operate current and savings accounts. Enter into agreements with any person for the supply of services and utilities. Expand the scheme’s facilities and services. Do all things reasonably necessary to enforce the conduct rules and control, manage and administer the life rights scheme.
Levies: Members’ liability for levies is governed by Reg. 14.
- Calculation: Each LRMA member is liable for levies, being a share of the approved administrative fund budget calculated on the basis of the square meterage of their life right accommodation relative to the total floor area of all the accommodation in the scheme. The developer is liable to pay levies, on the same basis as life right members, for any housing interest that is not currently held by another person.
- Amendment: A life right scheme developer is entitled to make rules that change the calculation of each member’s percentage share of the scheme’s common expenses. These changes must be made before the LRMA comes into existence and must be disclosed in all life right sale agreements, failing which they are invalid.
These regulations apply to and must be reflected in the LRMA’s governance documents—typically a constitution and any management provisions in life right agreements. Its members can only be the life rights holders and developer. It cannot amend or extend its duties and powers, as it can only make conduct rules. At least initially, it must have a managing agent.
When compared to a sectional title body corporate that is governed by the Sectional Titles Schemes Management Act of 2011, a LRMA does not have a separate reserve fund with prescribed minimum balances—its administrative fund must include reasonable reserves for future maintenance and repairs. There is no provision in the regulations for ‘special levies’ and ordinary levies can only be raised by members, unless the committee is specifically authorised to do so.
The next part of this series will focus on the LRMA committee, management and meetings.
Courtesy: Graham Paddock
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 18.
This article is published under the Creative Commons Attribution license.