In the penultimate part of this four-part article it was stated that this final part would be dedicated to the procedure to be followed where the section 25 right to extension of the sectional scheme, or part thereof, is affected by the alienation of common property.
Section 17(1) of the Sectional Titles Act 95 of 1986 ("the Act") clearly prescribes that, where the whole of the right referred to in section 25 of the Act is affected by the alienation of a portion of the common property, such right shall be cancelled with the written consent of the holder thereof. Usually this cancellation will be done simultaneously with the registration of the transfer of the portion of the common property.
In this instance the following documentation must be lodged:
For the cancellation of the whole of the section 25 right
- the written consent of the holder of the section 25 right to the cancellation thereof;
- the sectional title deed of the section 25 right;
- all the sectional mortgage bonds (if any) registered over such real right to extend the sectional title scheme by the addition of sections, together with the consent of the bondholder(s) to the disposal of such sectional mortgage bonds in respect of the said affected right;
- the title deeds of any other registered real rights over the section 25 right, if any, for cancellation; and
- a transfer duty receipt for the acquisition of the common property, free from the section 25 right.
Noteworthy is the lacuna in the Act with regard to the procedure to be followed for the cancellation of the section 25 right. The provisio to section 17(1) merely prescribes "… such right shall be cancelled by the registrar with the consent of the holder thereof on submission of the holder thereof on submission of the title to the right." It appears that an underhand consent by the holder, together with the title deed of the said right, will suffice. However, whether this is the correct interpretation is debatable, since a sub-section should not be interpreted in isolation. If textually interpreted, the right may be cancelled upon lodgement of the consent by the holder and the title deed of the right, without considering the possible existence of mortgage bond(s) over such right and the bondholder's position. Furthermore it may be argued that bondholder(s) of bonds over the section 25 right will not enjoy the general protection afforded in section 18 of the Act, since section 18 deals with the cession of rights or transfer of common property or land - the right is to be cancelled - not ceded.
Therefore it may be argued that the interpretation of the provisio to section 17(1) of the Act should be contextual. In such an instance the provisio is merely enabling and protecting in nature: enabling the registrar to cancel the right and protecting the rights of the section 25 right holder. In the absence of clear provisions with regard to the procedure to be followed for the cancellation of the section 25 right in the Act, section 3 of the Act provides that the Deeds Registries Act 47 of 1937 should be applied. Section 68 and regulation 60 of this Act should be applied with the necessary changes.
Presently the correct procedure to be followed seems to be uncertain. The matter will be brought to the attention of the Registrar's Conference to be held later this year [2005]. Until clarity is obtained regarding the correct procedure, conveyancers are advised to follow the procedure approved by the registrar of deeds of the deeds registry where the transaction is to be registered.
For the transfer of the portion of the common property
- a deed of transfer in the prescribed FORM H in Annexure I to the regulations (section 17(3));
- a copy of the unanimous resolution, referred to in section 17, certified by two trustees of the body corporate (sections 17(1) and 17(2) and CRC 18 of 1997);
- a diagram approved by the Surveyor-General if the portion of the common property to be alienated has not yet been demarcated and depicted on an already existing diagram approved by the Surveyor-General (section 17(3)(a) and CRC 18 of 1997);
- all the mortgage bonds over the units and the scheme and related written consents of bondholders as at the date of sale in terms of section 56 and section 57 of the Deeds Registries Act for disposal in respect of the portion concerned (section 18; RCR 35 of 2002; RCR 45 of 2003 and RCR 35 of 2004); and
- all the usual prescribed documentation, e.g. a special power of attorney to pass transfer, a transfer duty receipt, rates clearance certificate for the land, usual documentation pertaining to the subdivision of the land, etc.
With regard to the requirement that all the sectional mortgage bonds over the units and the consents of such bondholders must be lodged, a lengthy debate may be entertained, focusing especially on the latest Registrars' Conference Resolution, RCR 35 of 2004. Although an extremely enticing temptation, the ambit of this article should be respected leaving no room for a personal opinion with regard to the said matter. However, the following situation is simply irresistible and it has to be posed:
The body corporate of a sectional title scheme with 250 units entered into a sale agreement on 23 May 2005. A portion of the common property is sold. The conveyancing firm concerned received the instruction for transfer on 24 May 2005. On 24 May 2005 cancellation of 5 sectional mortgage bonds in respect of 5 of the units; transfer 3 (other) units together with the cancellation of the sectional mortgage bonds over the units and new sectional mortgage bonds are registered in the deeds registry.
The scenario might seem unrealistic taking into account the date of the sale and the date of receipt of instruction. However, the scenario merely illustrates that sectional title mortgage bonds may be cancelled after the signing of the sale agreement, but prior to the registration of the transfer of a portion of the common property.
The question is: Must the conveyancing firm lodge the eight bonds that existed on the date of sale, although now cancelled, together with the bondholders' consent? If not, it will constitute a contradiction of RCR 35 of 2004 and registration might be declined.
Readers' comments will be appreciated - Editor
Common property with a portion of the section 25 right being affected
Section 17(1) of the Act prescribes that if the whole of the right referred to in section 25 of the Act is affected by the alienation of a portion of the common property, such right shall be cancelled with the written consent of the holder thereof. However, section 17 of the Act is silent about the instance where only a portion/part of the right is affected.
Fortunately, section 25(4)(b) of the Act provides for the subdivision of the right to extension of the sectional scheme by the addition of sections. In view of the fact that section 17 of the Act provides for the cancellation of the whole of the right being affected by the alienation of a portion of the common property and the lack of a procedure for the partial cancellation of the section 25 right, the following procedure was introduced by CRC 18/1997, par 7:
- the registered holder of the section 25 right should, by means of notarial deed of cession, cede the affected portion of the section 25 right to the body corporate in terms of section 25(4)(b) of the Act, and
- once the body corporate is the registered holder of the whole of the affected portion of the section 25 right, the body corporate should consent to the cancellation of the said right.
Unfortunately the circular is also silent about the format of the consent to cancellation by the body corporate. Furthermore, surely the transfer duty implications should receive attention: upon cession of the portion of the section 25 right, transfer duty could be payable - the acquisition of the right could attract transfer duty. Another unanswered concern is: what procedure should be followed in the instance where the body corporate is already the registered holder of the whole of the section 25 right and only a portion of the right will be affected by the alienation of a portion of the common property, since the above mentioned procedure will practically be inapplicable? It is trusted that the question will also be answered during the forthcoming Registrars' Conference.
In this instance the following documentation must be lodged:
For the cession and subsequent cancellation of the section 25 right:
- the title deed of the whole of the section 25 right;
- a notarial deed of cession from the registered holder of the section 25 right in favour of the body corporate;
- a transfer duty receipt;
- sub-divisional diagrams as contemplated in section 25(4)(b) of the Act for the portion of the section 25 right ceded;
- all the sectional mortgage bonds (if any) over the section 25 right together with the written consent of the bondholders to the disposal of the bonds in respect of at least the portion of the right to be ceded (i.e. consent to the release of the right to be ceded from the operation of the bond(s) or consent to the cancellation of the bond(s));
- the title deeds of any other registered real rights over the affected portion of the section 25 right, if any, for cancellation; and
- written consent by the body corporate to the cancellation of the section 25 right ceded to the body corporate.
For the transfer of the portion of the common property:
- a deed of transfer in the prescribed FORM H in Annexure I to the regulations (section 17(3));
- a copy of the unanimous resolution, referred to in section 17, certified by two trustees of the body corporate (section 17(1) and section 17(2) and CRC 18 of 1997);
- a diagram approved by the Surveyor-General if the portion of the common property to be alienated has not been demarcated and depicted on an already existing Surveyor-General approved diagram (section 17(3)(a) and CRC 18 of 1997);
- all the mortgage bonds over the units and the scheme and related written consents of bondholders as at date of sale in terms of section 56 and section 57 of the Deeds Registries Act for disposal in respect of the portion concerned (section 18; RCR 35 of 2002; RCR 45 of 2003 and RCR 35 of 2004); and
- all usual prescribed documentation, e.g., a special power of attorney to pass transfer, a transfer duty receipt, rates clearance certificate for the land, usual documentation pertaining to the subdivision of the land, etc.
In conclusion of the analysis of the subdivision of the common property in a sectional title scheme, it must be reiterated that the registration procedure involved could become immensely intricate. It has to be admitted that section 17 of the Act does not clearly prescribe the procedure to be followed and a review of the section in toto is undoubtedly long overdue.
Republished with permission from SA Deeds Journal
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