Two special types

1. Exclusive Use Rules
In terms of the Sectional Titles Schemes Management Act, No. 8 of 2011 (“the STSM Act”) an exclusive use area is “a part or parts of the common property for the exclusive use by the owner or owners of one or more sections”¹ and it is possible to make a body corporate rule that confers exclusive use rights, as it was under the Sectional Titles Act, No. 95 of 1986 (“the 1986 ST Act”).²Such a rule may either be made as a management or a conduct rule, and accordingly it may be made by either a unanimous or a special resolution of the body corporate.³

The concept of exclusive use of a portion of common property is peculiar to sectional title. A rule that confers such rights is a body corporate law⁴that records an arrangement between the unit owners, who own all the common property in undivided shares,⁵ to the effect that only one or some of them will use a defined part of the common property, known as the exclusive use area, for a specified purpose. This arrangement must be seen against the background of the statutory requirement that the body corporate must levy additional contributions from the holder of an exclusive use right so that it recovers at least its costs incurred in maintaining, insuring and supplying water or electricity to such an area.⁶

An exclusive use rule must:

• confer exclusive use rights on one or more members of the body corporate,
• specify a particular purpose for the use of each exclusive use area, and
• include a scale layout plan showing the location of each exclusive use area.⁷

Such a rule may also include provisions:

• regulating the use of the exclusive use area for the specified purpose,
• specifying what, if any, movable items may be stored or kept in the exclusive use area,
• regulating changes to the external appearance of the exclusive use area,
• requiring the payment of additional contributions to defray the body corporate’s costs incurred in insuring and maintaining the exclusive use area,
• regulating the body corporate’s and the member’s respective roles in maintenance and repairs in the area, bearing in mind the body corporate’s statutory obligation to maintain all the scheme’s common property, and
• regulating any other aspect that arises directly from the use and enjoyment of the exclusive use area, for example the installation, servicing and maintenance of an item such as an air-conditioning unit, gas cylinder, water tank or solar panel, the trimming of tree branches and roots or the maintenance of a fence between exclusive use areas.

If an exclusive use rule provides that the holder of the rights to that area must pay a contribution that bears no relation to the body corporate’s costs in regard to that area, then

that aspect of the rule is not regulated by sections 10(7) and (8), but is a participation quota modification rule, dealt with below.

2. Participation quota modification rules
This type of rule must modify one or more of the variable effects of the participation quotas. The rule may:

• allocate a different value to a section owner’s vote, and/or
• modify the liability of the owner of any section to make contributions to the body corporate’s expenses or its unsatisfied judgment debts.

However, if such a rule adversely affects any owner, a body corporate can only make that rule if the adversely affected owner gives prior written consent.⁸

While the allocation of actual participation quotas amongst the sections in the residential segments of a mixed scheme must be in accordance with their measured floor areas,⁹ this type of rule can, subject to consumer protection provisions,¹⁰ be used to modify the contribution liability and/or voting rights that attach to sections in any part of the building, including those that are put to residential use.

There are a wide range of circumstances in which it may be reasonable for a rule to require that voting values or owner liabilities should be allocated other than in accordance with the participation quotas of sections or their measured floor areas. Any type of modification is possible, as long as the rule is reasonable and applies equally to all owners.

Contributions for exclusive use balconies as if they were sections
A rule made by a developer may require that the holders of exclusive use rights to balconies on the middle and upper storey floors of a seaside high-rise building be levied contributions on the square meterage of those areas as if they were sections, i.e. at the same rate as the dwelling units, because of their substantial contribution to the market values of the holders’ units.

Contributions for exclusive use garages at a percentage of the section rate
A rule often made by developers requires that the holders of rights to exclusive use parking garages, which have no participation quotas, be levied contributions on the square meterage of their garages calculated at a percentage, e.g. 40 percent, of the rate levied on the dwelling sections.

Contributions to lift maintenance and replacement on a use/availability basis
A rule may exempt the ground floor section owners from contributing to the costs of maintenance, repair and replacement of a lift and require that these costs be recovered only from the owners on the higher floors. Such a rule may also divide the liability for the costs relating to the lift among the upper owners proportionally on the basis of how many stories they must travel in the lift to reach their dwelling.

Exit levies / levy stabilization funds in retirement schemes
It is not unusual to find a rule that makes provision for an “exit levy” or “levy stabilization fund”, particularly in a retirement development. Members during their lifetime or their deceased estates are obliged to pay the body corporate a set percentage of the unit’s sale price or the profit made on the sale. The payment is credited to the scheme’s administrative or reserve fund and serves to reduce the contributions the body corporate needs to levy on the remaining owners. In my view such a provision cannot be validly included in a body corporate rule because it is in the nature of a servitude and this means that it must and can only be registered as a title deed condition. However, in practice this type of provision is often included in the governance documentation of all types of retirement development schemes, including sectional title schemes.

Financial and administrative segmentation of components in a mixed scheme
The most complicated examples of this type of rule are found in mixed-use schemes, where rules frequently provide for the owners in different “segments” of the scheme to have as much autonomy in decision-making and ring-fenced financial responsibility as is permissible under the STSM Act. The developer may make rules that divide the scheme into residential, commercial, retail, parking garage and hotel segments. The rules typically provide that wherever a proportion of scheme expenses that can be attributed to a particular segment, that proportion must be recovered from the owners of units in that segment. Any scheme expenses which are common to all segments are usually recovered from all owners.

The developer can be creative and, subject to financier approval and market acceptance, allocate expenses in accordance with other criteria. So, for example, the commercial segment owners could contribute to its expenses in proportion to the assessed value of their properties, as re-valued from time to time. If the hotel segment includes rooms that are separate sections, the owners could contribute to the hotel segment’s running costs in proportion to the income earned from letting their rooms. The owners of retail units could contribute to their segment’s expenses in proportion to their retail sales turnovers.

The administrative functions of the body corporate in a mixed scheme may also be segmented, with the owners in each segment having different voting values for decisions that affect only their segment and those that affect the entire scheme. Owners in each segment can, in effect, be given the right to elect their own trustees. The trustees and the owners for and in each segment can be given the right to take decisions in regard to issues and expenses that affect only the segment they represent, subject to the consensus requirements and resolutions required in terms of the STSM Act.

Where an expense or issue affects a number of segments, but not all of them, the authority to take the decision and the funding obligation can be aligned with ownership of units in the appropriate segments. Decisions that affect all segments can be taken by all owners and expenses that affect all segments can be funded by all owners.

Graham Paddock
Cape Town
September 2020

Notes

1. Definition in Section 1 of the STSM Act.
2. Section 10 (7) and (8) of the STSM Act and the repealed s 27A of the 1986 ST Act.
3. Section 10 (7) read with 10(2) of the STSM Act.
4. Regulation 6(1) under the STSM Act.
5. Section 2(c) of the 1986 ST Act
6. Proviso to section 3(1)(c) of the STSM Act.
7. Section 10(7) and (8) of the STSM Act read with repealed s 27A of the 1986 ST Act.
8. In terms of section 11(2) of the STSM Act and formerly the repealed section 32(4) of the 1986 ST Act
9. Section 32(1) of the 1986 ST Act.
10. Section 11(2)(b), (c) and (d) of the STSM Act.