Response to article

In an article entitled Exclusive use areas - Suggestions for a better procedure in the August 2005 De Rebus, the author raises interesting issues regarding the current procedure of dealing with exclusive use areas (EUAs) and suggests alternative procedures.

It must be stated from the outset that reacting to what other authors have written is uncharacteristic of me, but it does often happen that some authors write about some things that are, indeed, worthy of commenting on.

The issues herein will be discussed under the headings used by Mr Christie in the article referred to above and I will quote the relevant passage (in italics) in full and then a reaction to them.

Some of the problems and disadvantages with the procedures for dealing with EUAs in terms of section 27:

EUAs need to be disclosed on transfer duty receipts and on miscellaneous certificates, resulting sometimes in rejection queries by the Deeds Office.

It is indeed correct that EUAs must, as per section 2 and the definition of property in Act 40 of 1949, be disclosed in transfer duty receipts. It is also correct that rejection queries have to be raised by the deeds office where EUAs are not disclosed in transfer duty receipts, because section 12 of Act 40 of 1949 prohibits a registrar of deeds from registering the cession of an EUA unless proof of payment of transfer duty is furnished to her or him. The aspect discussed above does not seem to me to have any bearing on a procedure dealing with an EUA in terms of section 27 of the Sectional Titles Act. It must be noted that the provisions of the Transfer Duty Act are applicable, not because the EUA is held by means of a separate title deed, but because it is property within the purview of the definition of property in the Transfer Duty Act.

As the Act provides that EUAs can be held only by the owner of a unit in the scheme, there is no logical reason for requiring a separate title for the EUA.

The issue here is not per se the number of title deeds, but is about the nature of the title deeds that relate to EUAs, which Mr Christie correctly refers to as quasi personal servitudes. The reason why section 27 prescribes a cession by means of a notarial deed can, however, be found in section 16 of the Deeds Registries Act. The relevant portion is quoted for the reader's convenience:

"Save as otherwise provided in this Act or in any other law the ownership of land may be conveyed from one person to another only by means of a deed of transfer executed or attested by the registrar, and other real rights in land my be conveyed from one person to another only by means of a deed of cession attested by a notary public and registered by a registrar." (my underlining)

It is submitted that it is doubtful that the mere fact that an EUA can only be held by an owner of a unit can constitute a good enough reason to justify departure from the principles encapsulated within section 16.

Where an EUA has been overlooked for some or other reason at the time of transfer of the unit, s 27(4)(b) provides that the EUA vests in the body corporate. Rectifying this omission by ceding the EUA from the body corporate requires a unanimous resolution of the members of the body corporate which can be time consuming and costly. Where such a cession is registered the EUA will not be subject to any bond registered simultaneously with the transfer of the unit. A collateral bond over the EUA may be necessary, resulting in further expense.

I find it difficult to agree with the statement that says, A collateral bond over the EUA may be necessary resulting in further expense. Where A purchased a section from B and registers a sectional mortgage bond over such a section and later obtains cession from the Body Corporate of an EUA of which B was a previous holder, there would be no specific reason for the registration of a collateral bond over the said EUA. The registration of a collateral bond however is occasioned by the need to grant further security in addition to an already registered bond and not necessarily by the acquisition of an EUA. In other words, the need for the registration of a collateral bond may arise even if the owner of a section has not acquired an EUA and, conversely the acquisition of an EUA cannot, per se, constitute the need for the registration of a collateral bond.

EUAs result in an owner always having at least two holding deeds. When those deeds are lost or destroyed a separate application needs to be made for the missing deed of transfer as well as the missing cession of EUA, resulting in more expensive advertisements in terms of regulation 68 and liability for two Deeds Office registration levies (at present R225,00 per lost deed).

The above statement is indeed a reality of the South African registration system. It is, however, imperative to state that this issue does not only arise in respect of EUAs. For example, it occurs in cases of marriages out of community of property where a spouse has acquired the share of the other spouse. In this case, because the provisions of section 45 of the Deeds Registries Act cannot be applied, a new title deed in respect of such share must be registered and this results in such spouse having two separate title deeds in respect of the relevant property. Secondly, it is important that there is currently an element of relief because the advertisement procedure is no longer applicable.

It seems overly pedantic to require an owner who has, under the authority of a special resolution of the members of the body corporate, extended his section, now to have to go through the procedure of cancelling the existing EUA and taking cession from the body corporate of a reduced EUA which requires a unanimous resolution.

In the above regard, it is important to note that the Sectional Titles Act only enables owners to extend the limits of their sections, but does not oblige them to do so. If an owner chooses to effect extensions that affect an EUA, then what could be wrong in compelling such owner to comply with the Sectional Titles Act? It must be borne in mind that the EUAs are part of the common property and it appears from section 17 and 27 that dealings that affect the common property must be sanctioned by a unanimous resolution. The extension of a section results in the reduction of the common property and I fail to understand why the legislature preferred that this process should be sanctioned by a special resolution and not a unanimous resolution as in the case of sections 17 and 27.

Where EUAs are delineated on the sectional plans by unanimous resolution of the body corporate there is nothing in the Act providing for the issue to the body corporate of a certificate of real right for those EUAs as is done where a developer reserves the EUAs.

The above statement is perfectly correct. Section 27(3) of the Act deals with this matter. The delineation of exclusive use areas as contemplated by the section is, indeed, tantamount to the extension of a scheme and this matter should be addressed in section 25. The anomaly pointed out by Mr Christie will be brought to the attention of the relevant authorities.

A better solution
The proposal, however, is that EUAs should be treated as conditions of title by incorporation into, or endorsement against, the holding title of the relevant unit as is the procedure with other servitudes and with leases. Once an EUA has been endorsed against the holding title it will thereafter simply be carried forward as a condition of title in future transfers of the unit.

The above proposal is one of the reasons why I deemed the article by Mr Christie worthy of a reaction. One of the reasons cited by the said proposal is the cost factor relating to the preparation of notarial deeds.

Firstly, as conceded by Mr Christie, this procedure cannot entirely eliminate the preparation of notarial deeds. Mr Christie correctly points out that notarial deeds will have to be prepared when an owner of a section transfers an EUA to another owner.

Secondly, when an owner of a section wishes to mortgage an EUA without mortgaging the section, then such owner would need to apply for a certificate of registered title in respect of such EUA and a procedure for the same will have to be put into place, since there is none currently. This would lead to a situation whereby such owner is possessed with two title deeds, a position which the proposal seeks to reverse.

Thirdly, this approach will inextricably link an EUA to a unit thus changing its intrinsic value of being a personal servitude and render it a praedial servitude. This would create practical problems.

For example, if A purchases three sections in a scheme from three different sellers and three EUAs from three other different cessionaries, then the approach suggested by Mr Christie would pose a problem of incorporating the said EUAs into the title deeds of the various sections. The registration of notarial deeds in favour of A, on the other hand, would not pose such a problem as this procedure does not require the linking of any of the EUAs to any particular section.

Lastly, a possibility exists that an EUA could erroneously be omitted as a condition in a deed and that would be disastrous.

While it is conceded that the preparation of a notarial deed is indeed a costly exercise, it is, on the other hand, submitted that financial considerations do not outweigh the problems posed by the proposal.

Alternatively, the prescribed form for a transfer (form H) could be amended to include a paragraph dealing with EUAs in order to ensure uniformity in the description of EUAs.

The above-mentioned alternative does indeed not pose the risks presented by the former, but it is not in line with the provisions of section 16 of the Deeds Registries Act. I am, however, not in a position to express an opinion regarding the viability or otherwise of the proposal as this requires in-depth research, the time for which I unfortunately do not have at present.

Mr Christie is invited to respond to the letter. - Editor of the SA Deeds Journal