In sectional title development the reservation of the real right to extend (s25(1)) and subsequent subdivision thereof and cession of portions have become popular, constituting an ever increasing trend.
The limited duration of such a reserved right forms one of the crucial characteristics of the real right to extend the scheme by addition of sections and exclusive use areas - an issue quite often overlooked by the oblivious acquirer of such a right. The regrettable reality is that the right lasts for a limited period only. If the right is not exercised within the period stipulated, the holder thereof will find him-/herself legally almost empty-handed.
Usually a developer would have reserved the section 25 right simultaneously with the opening of the sectional title register, if the extension of the scheme were so intended. With the 1997 amendment of the Sectional Titles Act 95 of 1986 section 25(6A) was included, affording the developer the opportunity to reserve, subsequent to opening of the sectional title register, such right to extend the scheme. However, section 25(6A) contains two radical restrictions, namely: "If no reservation has been made by a developer in terms of subsection (1) and the body corporate has not yet been established, …". (author's accentuation)
In 2007 the Conference of Registrars of Deeds was approached with the following question:
Where a developer has reserved a right of extension, but such right of extension has lapsed due to effluxion of time, may such developer, prior to the establishment of the body corporate reserve a further/another right of extension, given the wording of section 25(6A) of Act No. 95 of 1986, viz: "Where no right of extension was reserved."
The Conference resolved that such reservation was permissible, provided application was made in terms of section 68(1) of the Deeds Registries Act, 47 of 1937 for the noting of the lapsing of the expired right. Unfortunately the published resolution does not bear any reference to the substantiating authority or an explanation for the somewhat broader interpretation of the said part of the relevant procedural legislation. Since the question posed focused only on the scenario where the developer of the scheme was still holder of the whole of the reserved real right (no subdividing cessions), the resolution addressed said scenario, to the exclusion of the scenario where the right was subdivided and portions ceded. Although the correctness of RCR 45/2007 could well be disputed, such debate will not be entertained at this stage.
The question at stake is whether RCR 45/2007 could remedy the quandary of a holder(s) of a portion(s) of the right when the right has lapsed without being exercised.
From a registration perspective the first possibility to consider would be that:
- Each holder of a portion of the real right must comply with RCR 45/2007 with reference to the section 68(1) Act 47 of 1937 procedure;
- Each holder of a portion of the expired right must comply with section 25(6A), obtaining as developer of the specific portion of the real right, a certificate of real right for said specific portion.
From a practical perspective this could be considered a viable and equitable, and relatively cost effective, solution. The holders already had paid the developer of the scheme for the right; they had received title for their rights; they even might have commenced with the building process; and if encumbered by sectional mortgage bond, the bondholder will not be deprived of the security and … after all, who would be prejudiced?
However, from a legal and theoretical perspective this possible solution cannot be supported. Firstly it could be debated whether the reference to "developer" in section 25(6A) includes a cessionary of a portion of the right, which will not be elaborated on here. Secondly, even if so included, since the cessionary could be deemed the developer's successor-in-title, the cessionary of a portion of the right has absolutely no interest or share in the sectional title scheme, once the portion of the right has expired, whilst the developer of the scheme on the other hand, still retains interest and share in the sectional title scheme. Therefore, the holder of the expired portion of the right has no locus standi to invoke section 25(6A).
From a registration perspective the second possibility to consider would be that:
- Each holder of a portion of the real right must comply with RCR 45/2007 with reference to the section 68(1) Act 47 of 1937 procedure;
- The developer of the sectional title scheme must invoke section 25(6A), obtaining a certificate of real right for the whole of the right (as per RCR 45/2007);
- The developer must notarially cede each of the portions of the real right to each of the previous holders.
From a practical perspective this could be regarded a viable, although expensive, solution, however the process should be scrupulously managed and the holders' position should be secured. Once the developer becomes holder of the "newly" reserved and registered right, very little (other than costly legal procedure) prevents a deceiving developer from dealing with the right in a way other than ceding the portions to the previous holders.
From a legal and theoretical perspective this possible solution can be supported, only if RCR 45/2007 is deemed correct and legally valid and provided the necessary underlying contractual agreements have been procured, forcing the developer of the scheme to cede the portions of the right to the previous holders.
Fortunately the vast majority of holders of portions of the right to extend do exercise the right within the prescribed period. Nevertheless, prospective holders of portions of the right to extend should explicitly be made aware of the importance to exercise the right timely.
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