1.1 The traditional position (until 1997)
A Developer had to wait for monies until registration of completed unit(s) into purchaser(s) name(s).
- The Sectional Title Act made provision for the retention by a Developer of the Right to develop the Common Property in a Sectional Title Scheme in phases for his benefit.
- On completion of the first phase a Certificate of Real Rights is issued in favour of the Developer simultaneously with the opening of the Sectional Title Register.
- The Developer then completes further phases for his own account on the Common Property and after completion of each phase a Sectional Plan of Extension is lodged in the Deeds Office whereupon the new units can only then be transferred to the purchasers thereof and a Developer can at last receive his due remuneration.
1.2 The current position (from 1997)
A Developer can now be paid upon cession of the Real Rights even before construction of the unit on it.
- A Developer is now entitled to "subdivide" his Real Right into portions (for each unit to be erected) and to sell and cede such portions of his Real Right to individual purchasers thereof.
- Mortgage bonds can be registered over such portions of Real Rights.
- The Developer can now receive payment for such Real Right without having to first develop a unit on it.
2. Some of the major legal problems:
2.1 The purchaser does not know what a real right is
- Purchasers, Estate Agents and even Developers believe that erven are being transferred and that,upon registration of the Right in the Deeds Office, the purchaser becomes owner of an erf upon which he can develop the unit.
- Very few agreements contain an adequate description of what a Real Right entails.
2.2 These rights will lapse if not exercised timeously
- All these subdivided rights are subject to the development of the unit on them within the time chosen by the Developer for completion of the total development when he initially reserved the Right to develop at opening of the Sectional Title Register.
- If the unit is not fully developed within this period the Real Right will lapse and revert back to the Body Corporate.
2.3 Developers do not comply with the requirements of the Section 25(2)(A) plan
- At the time of the reservation of the Real Right in favour of the Developer a plan must be lodged describing all the buildings to be developed, their citing, extent and elevational treatment.
- Developers (Purchasers) cannot deviate from these as any owner is entitled to approach the Court for an appropriate order in terms of Section 25(13) enforcing compliance with the original plan.
- The increase in size of any unit requires a special resolution from the Body Corporate and in lieu of Section 25(13) we believe that all other holders of Real Rights should consent as well. All Bond holders must also grant consent except where the deviation is less than 10%.
2.4 Purchase agreement shortfalls
- Agreements must contain an adequate description of the limited nature of the Real Rights purchased.
- An owner of a Real Right only becomes a member of the Body Corporate upon conversion of his Real Right into a Sectional Title.
- Real Right Owners cannot vote except where the Body Corporate deals with the Common Property.
- No legal duty exists upon a Real Right owner to pay the standard levies to the Body Corporate. Only upon completion of a unit is an owner of a Real Right obliged to pay the standard levies. A Real Right owner can at least be expected to pay a limited contribution similar to that paid by the Developer (Section 25(2)(e)).
3. Practical problems
3.1 Essential services
- Due to the vast majority of Real Right developments being on traditional farmland, very few control measures exist in respect of quality control over the essential services.
- The registration of a Real Right can take place without any of the services being installed.
- A Developer must provide the purchaser with full details about the status of these services and only after the individual portion of the common property affected by the Real Rights is fully serviced ought registration thereof be allowed.
- The Purchaser must be informed if there exists any guarantee by the Developer in respect of services after installation.
- The services to be fully compliant with relevant authority requirements.
3.2 Developer to accept responsibility for completion of the unit
- Traditionally a Developer had to ensure the completion of the unit and, although the Real Right may now be ceded to a new purchaser, it still remains a right to develop a Sectional Title Unit on a specified portion of the common property and not a right to own a portion of the land.
- The Developer should remain responsible to the purchaser of the Right to ensure the completion of the unit and the conversion thereof to a full Sectional Title.
- A substantial amount of the purchase price of the Real Right should be held in retention until date of conversion of the Real Right into a Sectional Title.
3.3 Completion periods
- The Developer must commit himself to installing the services and completing the common facilities within specified times.
- The new unit must be completed as soon as practically possible and time limits are essential.
- After completion of the unit(s), conversion to Sectional Title must be dealt with as a matter of priority.
4. Some solutions to rectifying problems experienced with Real Right developments
4.1 New developments
- Obtain the recommended certificates from the professional team as prescribed by the Bank. (Refer Clause 7.1 - 7.4 of Notice to Developers)
- Retain sufficient retention amount until conversion to Sectional Title.
- Ensure compliance with all the Bank's requirements.
4.2 Existing developments
- Conduct a proper audit of state of affairs and, if non-compliant, inform all owners and obtain their co-operation to rectify.
- If required lodge new Section 25(2)(a) plan and Participation Quota Schedule in Deeds Office with consent of all owners.
- Approach the Bank for assistance in rectifying problems.
5. Relevant sections of the Sectional Titles Act
- Section 17 - Owners and holders of Section 25 Real Rights to grant a unanimous resolution in dealing with Common Property.
- Section 16 - Common Property is owned by owners of sections in proportion to Quota.
- Section 32(3) - Quota of a section determines vote and levy payment.
- Section 32(4) - Developer may change votes and levy payment liability of Owner of a section.
- Annexure 8 Rule 62 - Owner of section has 1 vote.
- Section 34 - Share of Developer in buildings and land (common property) is equal to total of Quotas of sections owned by him.
- Section 36(2) - Developer (or Successor in title) ceases to be a member of Body Corporate when he ceases to have a share in Common Property.
- Section 37(1)(e) - Body Corporate to raise levies from owners in proportion to quotas of their sections.
- Section 25(5A)(b) - Owner of Real Right to pay levies to Body Corporate from date of completion of unit.
Prepared by Corrie de Jager
Snyman de Jager
NOTICE TO DEVELOPERS IN RESPECT OF SECTIONAL TITLE SCHEMES TO BE DEVELOPED IN PHASES BY MEANS OF THE RESERVATION OF AND SUBSEQUENT CESSION OF REAL RIGHTS
Developers are cautioned to study the provisions and implications of the relevant legislation and requirements of all authorities for any proposed Real Right Development carefully before commencing with such a development.
Developers are welcome to approach the banks' specialist consultants for assistance in this regard as there is much confusion and many pitfalls can be avoided.
Please take note of the following:
The total development must be completed and the rights converted to Sectional Title within the stipulated time. Failing which, the rights are forfeited to the Body Corporate and everything is lost! It remains a "right" which will lapse if not exercised (developed) and converted from a right to a Sectional Title unit. Sect 25(6)
The development must be done in strict accordance with the Section 25(2)(a) plan initially lodged in the Deeds Office at the time of the opening of the Sectional Title Register. Purchasers of individual rights cannot build what they want where they want on their respective portions of the common property. Any other owner can upset the apple cart by obtaining a court order for proper compliance. (Section 25(13)). There is simply no way past this requirement.
Banks will only finance the sale of Real Rights provided it is a package deal, i.e., the developer must complete (or take responsibility for the completion of) the building on the Real Right and the developer must also attend to the conversion of the Real Right to Sectional Title within the respective time frames as stipulated by the bank.
Bank Valuators will determine the retention amount to be retained until completion of the development and conversion to a Sectional Title Register.
Purchasers must be made aware of the nature of the Real Rights they purchase and for this purpose the agreement of sale must contain provisions dealing with the time frames and consequences as well as the limited nature of these rights, i.e.
- No voting rights until conversion.
- The levy payment obligation must also be correctly addressed to as there exists no obligation on any Real Right owner to contribute fully to the levy fund until after completion of the unit. Sect 25 (5A)(b).
- Any deviation in size (from the original plan) has to be approved by the Body Corporate and, where such deviation is more than 10%, every bond holder in the scheme must also consent thereto. Developer cannot get carte blanche consent from purchasers for future deviations
- In the event of a Real Right development on farmland with traditional "Resort Rights", the Department of Agriculture (i.t.o Act 70/70) may grant permission for the Sectional Title Development subject to such Resort Rights. In these circumstances purchasers must be made aware of the 3-month occupancy restriction which can have a major impact on prospective purchasers' decision to buy.
Due to the specialized nature of Real Right developments, banks will use their own panel of attorneys to attend to the registration of mortgage bonds over Real Rights and developers and their Transfer Attorneys are welcome to approach them for assistance.
In addition to the standard conditions associated with the approval of finance the banks must also be provided with the following certificates:
- A certificate from an architect confirming that the placing and elevational treatment of the buildings comply with the Section 25(2)(a) plan.
- A certificate from the engineer confirming that the services were installed and comply with the relevant specifications of the SABS, National Building Regulations, Local Authority and NHBRC.
- The transfer attorney is to certify that no onerous conditions and restrictions are applicable and that he is not aware of any requirement or condition which may prejudice the bank in the granting of finance.
- The town planner must certify that, from a town planning perspective, all required consents have been obtained and the development complies with all requirements pertaining to such consents.
- Attached is a list of documents associated with Real Right Developments to be provided to the banks:
DOCUMENTS TO BE PROVIDED PRIOR TO CONSIDERATION OF FINANCING
- Original scheme approval by local authorities (i.e. Act 70/70, DFA, Ord 20/86 + conditions of establishment)
- GDACE, EIA Compliance/Exemption (Record of decision),
- Copy of Deed of Transfer
- Site Development Plan
- Layout Plan i.t.o. Section 25(2)(a)
- Sectional Plan
- Real Rights Layout Plan
- Certificate of Real Rights
- Deed of Sale
- Building Plans for unit on Individual Real Rights to be financed
- NHBRC Registration and Enrolment Certificates
- Schedule of Services Installation and Progress Report
- Services Warranty and Handover to Local Authority
- Building Activity Progress Schedule
- Common Facilities to be Erected, Value and Progress Report iro clubhouse, entertainment areas, pool, clubhouse, guard home, entrance, perimeter fencing etc
- Total Development Cost Schedule - land acquisition, essential services, facilities, construction
- Building agreement (if not contained in Deed of Sale)
Extension of schemes
(1) A developer may … reserve the right to erect … within a period stipulated a further building or building.
(2) … the application … shall be accompanied by
(a) a plan to scale of the building or buildings to be erected and on which
(ii) the siting, height and coverage of all buildings
(vi) the typical elevation treatment of all buildings
… are indicated
(c) a schedule of the estimated participation quotas of all the (future) sections in the scheme.
(6) … if a reservation … has lapsed, the right to erect a scheme … shall vest in the body corporate.
(13) A developer or his successor in title … shall be obliged to erect … the Building(s) … strictly in accordance with the documents referred to in Section 25(2) … and an owner of a unit in the scheme who is prejudiced by his failure to comply in this manner may apply to Court, whereupon the Court may order proper compliance with the reservation …