Submission on Ombud and Sectional Title

01 November 2015
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Submission

to the Director-General

Department of Human Settlements

 

on the two sets of Draft

Community Schemes Ombud Service Regulations

under the

Community Schemes Ombud Service Act 9 of 2011

 

and the Draft

 Sectional Title Schemes Management Regulations

under the

Sectional Title Schemes Management Act 8 of 2011

 

 


About the Free Market Foundation

The Free Market Foundation is an independent public benefit organisation founded in 1975 to promote and foster an open society, the rule of law, personal liberty, and economic and press freedom as fundamental components of its advocacy of human rights and democracy based on classical liberal principles. It is financed by membership subscriptions, donations and sponsorships.

 

Draft regulations published for comment

On 2 October 2015 the Minister of Human Settlements issued three notices annexing draft regulations:

Under the Community Schemes Ombud Service Act 9 of 2011:

draft Ombud Service Regulations;[1]  and

draft Fees and Levies Regulations;[2] and

Under the Sectional Title Schemes Management Act 8 of 2011:

draft Sectional Title Schemes Management Regulations.[3]

 

The notices invited anyone wishing to comment or make representations on the draft regulations to submit them within 30 days (that is to say, by Sunday 1 November 2015).

 

The Free Market Foundation hereby submits its comments on these three sets of draft regulations.

 

Executive Summary

The Free Market Foundation’s affiliate the Good Law Project (GLP) under the chairmanship of Mervyn King was asked by Ministers of Justice to identify good practices for alternative dispute resolution agencies. Input was received from the CCMA and others. We commend the GLP’s Alternative Dispute Resolution Guidelines as a helpful aid. The guidelines stress that, while ADR aims to deliver a just decision by a quicker procedure than the courts, ADR adjudicators must always decide disputes according to applicable law, not on their view of what is “equitable”.

 

Adjudicators must apply fair procedure. ADR adjudicators should not make findings on evidence a party is unaware of and was given no opportunity to respond to. Where facts are in issue that may affect the outcome, an oral hearing is necessary to achieve a just decision.

 

It is of fundamental importance that an adjudicator be properly trained and sensitised to the consideration that the law must be applied. Minimum requirements for qualifications, experience, competence and ethical standards of ADR agents and ombuds will ensure protection of consumers and confidence of disputing parties in ADR processes.

 

We note that the Community Schemes Ombud Service Act 9 of 2011 has not yet been brought into operation. However, the Board of the Ombud Service has already been appointed and has met, personnel are being recruited, and now draft regulations under the act are being considered. We confirm it is legitimate to take these steps prior to commencement of the Act to enable it to come into operation (in terms of the Interpretation Act).

 

We note that the Act’s stated purpose is to provide a Service to resolve dispute regarding the administration of community schemes and applies to every sectional titles development scheme, share block company, home owners’ association, housing scheme for retired persons, or housing co-operative. No one may contract out of the Act.

 

We approve of the Act’s requirement that adjudicators and conciliators must have suitable qualifications and experience and must act independently and impartially.

 

We are concerned that the Service could prove an undue financial burden on community schemes (and thus indirectly on all unit owners) as the general taxpayer. The Service will not only raise compulsory levies from schemes, but can be funded by appropriations by Parliament, loans, and subsidies from State organs.

 

The Act can be criticised as a paternalistic interference in the private affairs of scheme communities.  A healthier approach than government nannying, and one that would foster self-determination, is to encourage owners and occupiers aggrieved by maladministration to familiarise themselves with their scheme governance, attend meetings, speak and vote.

 

While the range of prayers for relief that an adjudicator can grant under the Ombud Service Act appears comprehensive and well-considered, we recommend that there be stronger guidelines for ombuds to encourage complainants to exhaust their internal remedies before turning to the government Service. The act says an ombud “may” require an applicant to provide evidence that an internal dispute resolution mechanism has been followed. This should be reinforced in the regulations.

 

Aspects of the Act are reasonably sound. The ombud must reject the application if satisfied the dispute should be dealt with in a court or other tribunal.  If there is a reasonable prospect of a settlement, he must refer it to conciliation. If that fails it is referred to an adjudicator. The adjudicator must observe due process, and act quickly with little technicality consistent with proper adjudication. Legal representation is not allowed unless all consent, or the adjudicator considers that legal issues and factual complexity are such that it would be unreasonable to expect a party to deal with the case without representation. There appeals lie to the high court on questions of law.

 

Although not published for comment, we refer also to the Code of Conduct for Conciliators and Adjudicators 2015 that has been issued by the Service. Commendably it says that conciliator and adjudicators must be impartial, and adjudicators must apply the law. However, we strongly urge that the Board review the Code’s statements that adjudicators should resolve cases by applying law “and equity”, and that adjudicators should strive to ensure that reasons are prepared promptly having regard to “balancing the rights and interests of the parties” and “public interest factors”. These could mislead adjudicators into thinking they can apply policy, equity or “common sense” in deciding a case rather than objective law.

 

Confusingly, the draft Ombud Service Regulations say the compulsory levies payable by schemes will be calculated according to a “levy factor” to be set by gazette notice, although the Act says the calculation must be in regulations proper. Indeed, the levies are set in regulations, but unhelpfully in the separate Fees and Levies Regulations.

 

The Levies Regulations exempt units valued under R0,5m from levy payments. Units worth R1m must pay R25.50pm. Units over R2,25m pay R68 pm. This is effectively a redistribution tax imposed on owners of costlier units for the benefit of cheaper ones.

 

Well-run schemes are being forced to subsidise the badly-run. Owners who administer their scheme properly and have no need for an external complaints body are compelled to pay. This will cause resentment and bringing the legislation into disrepute.

 

The new Sectional Title Schemes Management Act deals with body-corporate meetings. It says, where a unanimous resolution would have an “unfairly” adverse effect on a member, the resolution is not effective unless “that member” consents in writing in seven days.  This is unworkable. It will not be clear which unanimous resolutions have an “unfairly” adverse effect on which members, and resolutions will be in limbo without the required consents.

 

A sectional-title scheme must have the management and conduct rules prescribed by regulation. The rules may, “subject to the approval of the chief ombud,” be substituted or amended by a developer submitting an application for opening a sectional title register. We warn that the assessment of rules is a skilled task and requiring trained personnel.

 

A Management Rule will cap interest rates that bodies corporate can charge owners who default on levies, to the maximum rate under the Prescribed Rate of Interest Act (currently 9%.) This limit will encourage non-payment.  Not paying levies is easily obtainable credit. Other owners, who may also experience financial pressure, are obliged indirectly to extend credit to the defaulter. If the body corporate is compelled by non-payments to get a loan, this will be at a higher rate of interest, serviced by diligent payers. Removing the right to impose meaningful penalty interest will have a negative effect on the sectional-title property market.

 

Unfairly, the Ombud Service itself will charge interest on unpaid levies at a rate 1% higher than the current prime rate (now 9.5%), so can charge 10.5%.

 

Two internal-remedy forms are appended (unreferenced) at the end of the draft Sectional Title Schemes Management Regulations: a Complaint Form to a body corporate, and a Record of the body-corporate’s decision. The regulations should expressly deal with them.

 

Alternative dispute resolution Guidelines

The Good Law Project[4] was asked by Ministers of Justice after 1994 to look at alternative dispute-resolution (ADR) processes in South Africa because of the many dispute-resolution tribunals and ombuds that have been created by legislation. A committee was formed under guidance of retired Judge Mervyn King[5] to carry out the study. Input was received from commissioners of the Commission for Conciliation, Mediation and Arbitration (CCMA, the dispute-resolution body established by the Labour Relations Act 66 of 1995), the Arbitration Foundation of South Africa and others.

 

The committee produced Alternative Dispute Resolution Guidelines, and commends them as a helpful aid for all the alternative dispute-resolution agents in South Africa who resolve disputes on a daily basis.[6]  It is recommended that the Guidelines should always be considered when an ADR process is designed, determined or implemented for the purposes of dispute resolution.

 

Adjudicators must apply Law

The Guidelines say that alternative dispute-resolution proceedings should be quicker and cheaper than the standard process. Another benefit to a more relaxed and pliable system of dispute resolution is that the technicalities of the adversarial legal system may be avoided.

 

But there are major problems with alternative dispute resolution procedures where poorly understood processes are followed by adjudicators with poor training. The biggest problem with an alternative dispute resolution process lies in the fact that the thing that holds us all together as a functioning society – namely the law – may be overlooked when matters are adjudicated. The real problem is that some adjudicators postulate themselves as judges of Solomonic wisdom who do not need legal rules by which to adjudicate.

 

A clear distinction must always be drawn between substantive law and procedural law. The substantive law is the body of rules that have emerged from jurisprudence and precedent by which the rights and obligations of disputants are determined. The legal rules must always be clear and they must always be applied, because to ignore them will lead to anarchy and a failure of the rule of law and a failure of justice in the case. While the procedure may have to be adapted to the circumstances of the instant matter, justice must be delivered however the process may be expedited, or the system will ultimately fail for lack of legitimacy.

 

In ombud schemes and arbitrations the expressed or unexpressed premise always is that the adjudicator will apply the law, and not what the adjudicator personally likes or dislikes. It is essential in designing an ADR system to be reminded that the law is not simply an adjudicative tool. It is also a tool by which parties arrange their affairs. It is at once forward-looking and backward-looking. It looks forward when parties come together and decide on the terms of any arrangement. The parties need to know what the law is and how it will be adjudicated should a dispute arise.

 

ADR is an alternative means of resolving a dispute according to existing law, not according to a form of alternative law. Where an ADR process is in any way imposed on disputing parties or is mandatory, the parties must be assured that the outcome of the dispute will be determined through the application of existing substantive law, as opposed to the subjective discretion or whim of the ADR agent, that the procedure will fairly enable them to present their cases properly, and that justice will prevail.

 

An ADR agent cannot decide a matter on “equitable grounds”. The courts do not administer a system of equity as distinct from a system of law. Justice can only be administered in accordance with principles of law.[7]

 

The mandate in terms of which an ADR agent derives authority to determine the outcome of a dispute should require the decision-making process to involve an objective, rational assessment of the facts and evidence in accordance with the law, not the application of policy, equity, “common sense” or whims.[8]

 

Adjudicators must apply fair procedure

An ADR agent’s mandate to conduct an ADR process should include appropriate rules of fair procedure to ensure that parties are afforded a proper opportunity to present their cases, particularly where a dispute involves the complexity of both factual and legal issues.

 

Except in the few cases when the arbitrator is justified in proceeding ex parte, both sides must be heard and each in the presence of the other. However immaterial the arbitrator may deem the point to be, he should be very careful not to examine a party or witness upon it, except in the presence of the opponent. If he errs in this respect he exposes himself to the gravest censure and the smallest irregularity is often fatal to the award.[9]

 

The person who may be prejudiced by the evidence ought to be present to hear it taken. Although arbitration is usually regarded as a somewhat informal procedure, certain legal principles still govern the procedure, one of which is that no evidence may be given or produced before the arbitrator or the umpire in the absence of any one of the parties.[10]

 

ADR agents should not make findings on evidence gathered that the investigated are unaware of and are given no opportunity to respond to. The right to have knowledge of the evidence and to respond to it is necessary for a fair legal process. It is improper to arrive at a conclusion on disputed facts by only referring to contradictory written statements. Where facts are in issue that may affect the outcome, an oral hearing is necessary to achieve a just decision.[11]

 

Notwithstanding this, if the matter in dispute is solely a question of law, that is there are no facts in dispute between the parties, there would be no benefit in holding an oral hearing. In such cases the ADR agent may rely on written submissions to make a determination solely on a matter of law where the parties to the dispute agree on the facts and the issues in dispute.

 

Even where facts are in dispute there may still be no need for an oral hearing, if those facts in dispute are not of a material nature and credibility of witnesses is not at issue. Then, as an alternative to oral evidence the ADR agent may determine the dispute of fact based on affidavits or what may be considered the equivalent thereof.

 

However, if there is a material dispute of fact between the parties and the credibility of witnesses is possibly at issue then the obtaining of oral evidence via a hearing may be indispensable for justice. In such cases, the parties must be afforded the opportunity to test, challenge, and confront each other’s respective versions by way of cross-examination.

 

An ADR agency should have the prerogative to refer matters to the courts where they involve a serious dispute of fact and credibility of witnesses may be at issue. Where the ADR agency’s mandate allows for the ADR agent to itself resolve matters involving serious disputes of fact, to avoid an unjust outcome it should also clearly provide that such matters be determined only after affording the parties a fair hearing.[12]

 

Adjudicators should be properly trained

It is of fundamental importance that whoever decides the matter be properly trained and sensitised to the consideration that the law must be applied. The Guidelines may be especially helpful for ADR agents who do not have a legal background.

 

The Short Process Courts and Mediation in Certain Civil Cases Act 103 of 1991 recognises ADR as part of the dispute-settlement processes in magistrates’ courts. The Short Process Court Act recognises two forms of ADR: the first is a form of mediation, and the second is a type of quasi-arbitration in the Short Process Court over which the adjudicator presides. The Act requires that the mediator and adjudicator be qualified advocates or attorneys with at least five years’ experience, or an appointed magistrate with five years’ experience. Unfortunately this very important piece of legislation has not been effectively implemented and is not considered by the legislature when it makes provision for statutory ADR.

 

The objectives of prescribing minimum requirements for the qualifications, experience, competence and ethical standards of ADR agents and ombuds are to ensure:

  1. Protection of consumers and the public affected by the ADR agency’s rulings;
  2. Confidence of the disputing parties in ADR processes;
  3. Transparency and consistency.[13]

 

OMBUD SERVICE ACT AND DRAFT REGULATIONS

 

Community Schemes Ombud Service Act 9 of 2011

This Act has not yet been brought into operation. It will come into operation a date to be determined by the President by proclamation in the Gazette.[14]

 

The Act establishes a Community Schemes Ombud Service.[15] The Board of the Service was inducted on 22 March 2013 and has held a number of meetings, and personnel for the Service were being recruited.[16] It is legitimate to take these steps prior to commencement of the Act:

 

Where a law confers a power to make any appointment or to make or issue any instrument, rules or regulations, or to give notices, or to prescribe forms, or to do any other act or thing for the purpose of the law, that power may be exercised at any time after the passing of the law so far as may be necessary for the purpose of bringing the law into operation at the commencement thereof. Instruments, rules or regulations made or issued under such power shall not, unless the contrary intention appears in the law, come into operation until the law comes into operation.[17]

 

The Service will provide a “dispute” resolution service,[18]  a “dispute” being defined as one regarding the administration of a “community scheme”, between persons with a material interest in the scheme one of whom is the “association” or an “owner” or “occupier”.

 

A “community scheme” means any arrangement with shared use and responsibility over parts of land and buildings, including a sectional titles development scheme, share block company, home owners’ association, housing scheme for retired persons, or housing co-operative.

 

An “association” means any structure responsible for administration of a community scheme. An “owner” is someone with a legally secured right to possession and occupation of a “private area” (any area of the scheme set aside for private occupation or ownership), and includes the owner of a sectional title unit and the holder of shares in a share block company. An “occupier” is someone legally occupying a private area. [19]

 

No-one may waive or limit the exercise of rights in terms of the Act, or act contrary to any provision of it.[20]

 

The Service must be staffed by full- and part-time adjudicators and conciliators with suitable qualifications and experience in community-scheme governance, and suitable qualifications and experience necessary to adjudicate, or conciliate in, disputes under the supervision of an ombud or deputy ombud.[21] An ombud and deputy ombud is appointed by the chief ombud for each regional office[22] established by the Service.[23] Service employees must act independently and impartially in making decisions regarding the resolution of disputes; if an application is referred to an adjudicator, an ombud plays no role regarding the substance of the dispute or the outcome sought by the applicant.[24]

 

The Service acts through its Board[25] consisting of: seven non-executive members appointed by the Minister pursuant to recommendations of a nomination committee (appointed by the Minister) after public notice inviting submissions of names of persons fit for appointment as non-executive Board members;[26] and two executive members being the chief ombud and chief financial officer, appointed by the Board (with Ministerial approval) after public invitation for applications and a competitive process,[27] and who must have suitable qualifications and experience relevant to the Service’s functions.[28] Staff from the public service, or from public entities reporting to the Minister, may be seconded to the Board.[29]

 

The chief ombud heads the Service administration, implements Board decisions and manages employees.[30] The chief financial officer must ensure that the Service has adequate income and liquidity,[31] and that money payable to the Service is properly collected.[32]

 

The Service must defray its expenses from its funds,[33] which consist of levies collected from community schemes with the approval of the Minister and fees for services rendered (based on cost recovery),[34] as well as money appropriated by Parliament,[35] loans raised by the Service,[36] and subsidies or grants from State organs.[37]

 

A party to a dispute or other person materially affected may make application to an ombud praying for specified relief, stating his grounds for seeking the relief, and particulars of persons he considers are materially affected by his application.[38] The specified prayers for relief cover financial, behavioural and governance issues; meetings; management services; works (to private or common areas); and others[39] (see Appendix).

 

An application must include the prescribed fee, or request a discount or waiver.[40] The ombud must reject the application if the ombud is satisfied that the application does not, in his opinion, qualify for the discount or waiver of adjudication fees.[41]

 

The ombud may require the applicant to provide evidence that an internal dispute resolution mechanism has been followed.[42]

 

The Act lays down procedures the ombud must follow in dealing with the application.[43] He must invite submissions from persons he considers materially affected,[44] and give the applicant an opportunity to make a written response to issued raised in submissions received.[45]

 

The ombud must reject the application if satisfied the dispute should be dealt with in a court of law or other competent tribunal.[46] If the ombud considers there is a reasonable prospect of a negotiated settlement, he must refer the dispute to conciliation.[47]  If conciliation fails he must refer it to an adjudicator chosen by the parties or by him.[48]

 

The adjudicator must investigate to decide if it would be appropriate to make an order. He must observe due process, act quickly and with little formality and technicality consistent with properly considering the matter, and consider the relevance of all evidence (but is not obliged to apply the exclusionary rules of evidence in civil courts).[49] He may require the applicant, managing agent or relevant person to give more information or come to his office (subject to notice) for an interview, invite other persons he considers able to assist to make submissions, and (on notice) inspect association records and any private or common area.[50]

 

The applicant and any other relevant person are not entitled to legal representation during the adjudication process unless the adjudicator and all parties consent, or the adjudicator, after considering the nature of questions of law raised, the relative complexity and importance of the dispute, and the comparative ability of the parties to represent themselves, concludes it would be unreasonable to expect the party to deal with the adjudication without legal representation.[51]

 

The adjudicator may make an order dismissing an application he considers frivolous, misconceived or without substance and awarding costs against the applicant up to the maximum prescribed,[52] otherwise he must make an order granting relief, giving reasons and apportioning costs.[53] An adjudicator’s order can be enforced as if it were a court order.[54] There is a right of appeal against an adjudicator’s order to the high court on a question of law.[55]

 

Every community scheme must each year and at other prescribed times pay a levy to the Service in an amount calculated as prescribed, subject to prescribed discounts or waivers, and file with the Service an annual return, its annual financial statements and other information prescribed.[56]

 

Code of Conduct for Conciliators and Adjudicators

A Code of Conduct for Conciliators and Adjudicators 2015 has been issued by the Service. It states that all persons appointed as Conciliators and Adjudicators are bound the values of the Service to will act independently and objectively in undertaking its activities; to strive to execute its functions in an honest, ethical, transparent and reliable manner.[57]

 

A Conciliator or Adjudicator must be impartial and fair to the parties, and be seen to be so.[58]

 

The Code contains “Rules for conducting conciliations and adjudications”:[59] These rules say that, in conducting proceedings, conciliators or adjudicators should give special attention to the right of equality before the law and the right of equal protection and benefit of the law.

 

Adjudicators should resolve all cases before them by findings of fact and by applying the law “and equity” in a fair hearing allowing both parties to be heard.

 

Adjudicators should apply the law to the evidence in good faith and to the best of their ability. The prospect of disapproval from any person, institution, or community must not deter adjudicators from making the decision that they believe is correct based on the law and the evidence.

 

Where written reasons are to be given, adjudicators should strive to ensure that they are prepared with reasonable promptness having regard to all the circumstances, including “balancing the rights and interests of the parties”, “public interest factors”, as well as to the urgency of the matter, the length of the proceeding and its complexity.[60]

 

Regulations

The Community Schemes Ombud Service Act says the Minister must, after consultation with the Board, make regulations regarding the levies payable by schemes to the Service and at what intervals; schemes which may be entitled to fee discounts or waivers; application and adjudication fees payable by persons who make use of the Service; persons who may be entitled to fee discounts or waivers ; rates of interest payable by community schemes on overdue levies and fees; any matter the Act requires or permits to be prescribed; and generally any ancillary or incidental, administrative or procedural matter necessary for proper implementation or administration of the Act.[61]

 

Regulations made must be approved by Parliament before publication.[62]

 

Draft Ombud Service Regulations

The Act says a community scheme must pay to the Service a levy in an amount “calculated as prescribed”.[63] This means that the regulations should prescribe a method of calculating the amount of the levy.

 

Yet the draft regulations say only that the levy is calculated according to a formula, namely the “applicable levy factor” multiplied by the “total local municipal valuation”.[64]

 

The Minister by “notice in the Gazette” may set a “levy factor” (as a decimal fraction) for each of various defined categories of scheme, a maximum levy for a scheme in each category, rates of discount or waivers of levies, and qualifications for discounts or waivers.[65]

 

Any community scheme or person who fails to pay a levy or other amount due to the Service on the date it is due and payable must pay interest on the amount to the Service for the period it remains outstanding at a rate one percent higher than the Service’s primary banker's prime lending rate, compounded monthly in arrears.[66]

 

The regulations also say “the chief ombud’ must by “notice in the Gazette” and after consultation with the Minister, set application fees payable by parties seeking relief and adjudication fees.[67]

 

However, these levies, discounts, waiver qualifications, and application and adjudication fees have been set, not by “notice in the Gazette”, but, confusingly, in separate draft Fees and Levies Regulations:

 

Draft Fees and Levies Regulations

The draft Fees and Levies Regulations say[68] the prescribed monthly levy payable by every unit within a community scheme is:

 

Municipal Valuation of Unit

Monthly Levy Payable

Zero to R 500 000

R   0.00

R 500 001 to R600 000

R   3.40

R 600 001 to R 700 000

R   6.80

R 700 001 to R 800 000

R 10.20

R 800 001 to R 900 000

R 13.60

R 900 001 to R 1 000 000

R 17.00

R 1 000 001 to R 1 250 000

R 25.50

R 1 250 001 to R 1 500 000

R 34.00

R1 500 001 to R 1 750 000

R 42.50

R 1 750 001 to R 2 000 000

R 51.00

R 2 000 001 to R 2 250 000

R 59.50

R 2 250 001 to R 2 500 000

“and above”

R 68.00

 

These draft Fees and Levies regulations also prescribe application and adjudication fees of R50.00 and R100.00 respectively.[69] A person whose monthly net household (gross income less PAYE) income is below R5 500 is “entitled to a 100% waiver” of application and adjudication fees.[70]

 

A person or community scheme who may not qualify in terms of the above criteria may lodge an application for a discount or waiver, for consideration by the chief ombud. [71]

 

SECTIONAL TITLE SCHEMES MANAGEMENT ACT AND DRAFT REGULATIONS

 

Sectional Title Schemes Management Act 8 of 2011

The Community Schemes Ombud Service Act 9 of 2011 (précised above) says the Service must “regulate, monitor and control” the quality of “all sectional titles scheme governance documentation” (and such other scheme governance documentation as the Minister may determine by Gazette notice), and “take custody of”, preserve “and provide public access” electronically or by other means to sectional title scheme governance documentation (and such other scheme governance documents as the Minister determines by notice).[72]

 

The Sectional Title Schemes Management Act was signed into law and published at the same time as the Community Schemes Ombud Service Act. The Sectional Title Schemes Management Act has similarly not yet come into operation. It will come into operation a date to be determined by Presidential proclamation in the Gazette.[73]

 

The Sectional Title Schemes Management Act makes formal and substantive changes to the sectional titles legislation:

 

Formally, the Sectional Title Schemes Management Act deletes the Sectional Titles Act’s provisions dealing with bodies corporate, their functions and powers, and scheme management,[74] and re-enacts those provisions in the Sectional Title Schemes Management Act itself. [75] Thus the Sectional Titles Act’s sections dealing with a body corporate’s functions and powers [76] can now be found in the Sectional Title Schemes Management Act.[77]

 

The Sectional Title Schemes Management Act leaves the Sectional Titles Act to deal with technical aspects of establishing schemes and owning sections (duties of land surveyors and architects, approval of development schemes and sectional plan by surveyor-general, registration of sectional plans and opening of sectional title registers by registrar of deeds, deeds registration, common property and exclusive use rights, servitudes, etc).[78]

 

Substantively, the Sectional Title Schemes Management Act introduces a number of changes: Now, a body corporate must establish a reserve fund reasonably sufficient to cover the cost of future maintenance and repair of common property, but not less than such amounts as may be prescribed by the Minister.[79]

 

Meetings of a body corporate, formerly dealt with in the prescribed management rules,[80] are now in the Sectional Title Schemes Management Act itself.[81] The Act says that, where the unanimous resolution would have an “unfairly” adverse effect on any member, the resolution is not effective unless that member consents in writing within seven days from the date of the resolution.[82] This is probably unworkable, because in many instances it will not be clear which unanimous resolution has a putative “unfairly” adverse effect on a member, and a resolution will not take effect if not consented to in seven days.[83]

 

A scheme must have management and conduct rules as prescribed by regulation. The rules may, “subject to the approval of the chief ombud,” be substituted, added to, amended or repealed by the developer when submitting an application for the opening of a sectional title register.[84] This is a matter of some concern, a practitioner warns: The assessment of rules is a highly skilled task and would require well-trained personnel.[85]

 

Sectional Title Schemes Management Regulations

The draft management regulations prescribe the formula that a body corporate must use to determine the minimum allocation to the reserve fund when it draws up its annual budget.[86]

 

The draft regulations prescribe Management Rules[87] and Conduct Rules.[88]

 

There is a Management Rule that requires a body corporate to prepare a plan for the maintenance, repair and replacement of “major capital items” on the common property within the next 10 years.[89]

 

A Management Rule will cap the interest which bodies corporate can charge owners who default on their levies. It states that the rate may not exceed the maximum rate of interest a year under the Prescribed Rate of Interest Act, compounded monthly in arrears.[90] (If the regulation were introduced now, the cap would restrict the trustees to imposing penalty interest of nine percent.[91]) The corresponding management rule in the current sectional-title regulations has no such cap.[92]

 

(This proposed cap has reportedly been sharply criticised by sectional title specialists. Currently, a body corporate can decide on the rate of interest. Sectional title practitioners say the interest-rate limit protects debtors, without taking into account that non-payment by some owners shifts the financial burden to others:

 

(A low interest rate will encourage non-payment of levies.  Not paying levies is the most easily obtainable and cheapest form of credit available. Other owners, who may also experience financial pressures, are obliged indirectly to extend credit to the defaulter. If the body corporate is compelled due to non-payment, to obtain a loan, this will have to be done at a much higher rate of interest, again mostly serviced by the diligent payers. About 20% of the 800 000 owners of sectional-title property do not pay their levies on time.

 

(According to a provider of levy insurance, removing the right to impose meaningful penalty interest and thus the incentive for owners to pay their levies will have a negative effect on the sectional title property market.[93])

 

Two internal-remedy forms are appended (unreferenced) at the end of the draft Sectional Title Schemes Management Regulations: one is a Complaint Form to notify the body corporate and persons against whom the complainant is making the complaint, who must be a unit owner, occupier or the managing agent). The other is a Record of Body Corporate Decision on the complaint.[94]

 

Public opinion

Blogs posted on property-industry websites (often seemingly from sectional-title owners aggrieved at their body-corporate trustees) appear in the main to support the new Acts.[95]

 

Statements on behalf of property-management companies are supportive. One says, “The industry has long talked of the need for an Ombud service, and later this year we may have one.  It will be interesting to see how it affects the industry and, once tested, how effective these Acts will be.”[96]

 

Some view the Act as welcome regulation of the governance and management of community schemes and the introduction of affordable dispute resolution. Others view it as an intrusion on the private affairs of community schemes.[97]

 

Gary Moore

Consultant to FMF

 

 

 

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Appendix

 

Specified prayers for relief

The Community Schemes Ombud Service Act states[98] that an application to an ombud for relief must include specified prayers for one or more of the following:

 

In respect of¾

Financial issues, an order¾

 

Requiring the association to take out or increase insurance, or take action to recover compensation under the policy;

Declaring contributions levied to be incorrect or unreasonable and adjusting the amount;

Requiring the association to have accounts audited;

Requiring payment or repayment of a contribution or amount; or

Requiring a tenant to pay his lease rentals to the association and not to his landlord until an amount due by the landlord to the association has been paid.[99]

 

Behavioural issues, an order¾

That particular behaviour constitutes a nuisance and requiring the person to refrain;

Requiring an animal’s owner to take remedial action or remove it if satisfied it is a nuisance or hazard or interferes with peaceful use and enjoyment of a private or common area;

Declaring that an animal is being kept in a scheme contrary to the scheme governance documentation and requiring the owner or occupier in charge of it to remove it; or

Requiring removal of articles placed on or attached illegally to a common or private area.[100]

 

Scheme governance issues, an order—

Requiring the association to record a new scheme governance provision consistent with a provision approved by the association;

Requiring the association to approve and record a new scheme governance provision;

Declaring that a scheme governance provision is invalid and requiring the association to approve and record a new scheme governance provision to remove the invalid provision; or

Declaring that a scheme governance provision (having regard to the interests of owners and occupiers) is unreasonable and requiring the association to change the provision.[101]

 

Meetings, an order—

Requiring the association to call a general meeting to deal with specified business;

Declaring that a purported meeting of the executive committee or general meeting of the association was not validly convened;

Declaring that a resolution purportedly passed at a meeting of the executive committee or general meeting of the association was void or invalid;

Declaring that a motion that was considered at a general meeting but not passed had failed due to opposition that was unreasonable under the circumstances and giving effect to the motion originally proposed or a variation thereof; or

Declaring that a resolution passed at a meeting is void on the ground that it unreasonably interferes with rights of an individual owner or occupier or rights of a group of them.[102]

 

Management services, an order—

Requiring a managing agent to comply with the terms of a person’s contract of appointment and any applicable code of conduct; or

Declaring that the association has (or does not have) the right to terminate a managing agent’s appointment and that it is (or is not) terminated.[103]

 

Works pertaining to private or common areas, an order—

Requiring the association to have repairs and maintenance done;

Requiring a person to have repairs done or to reimburse the applicant for repairs done;

Requiring the association to carry out works on common areas for owners or occupiers’ use, convenience or safety, or not carry out specified works;

Declaring that a decision of the association rejecting a proposal to make alterations to common areas is unreasonable, and requiring it to accept the proposal on specified terms;

Requiring the association to acquire specified property for the use, convenience or safety of owners or occupiers, or not to acquire specified property or to dispose of specified property;

Declaring that an owner or occupier reasonably requires exclusive use rights over a specified part of a common area and that the association has unreasonably refused to grant such rights and requiring it to give exclusive use rights to the owner or occupier, on terms that may require payment or payments to the association, over a part of a common area; or

Obliging an owner or occupier to accept obligations respecting part of a common area.[104]

 

General and other issues, an order—

Declaring that the applicant has been wrongfully denied access to information, and requiring the association to make it available; or

As proposed by the chief ombud.[105]



[1]       Govt Notice R907 of 20 October 2015.

[2]       Govt Notice R908 of 20 October 2015.

[3]       Govt Notice R909 of 20 October 2015.

[4]       The Good Law Project is an association not for profit that was established to eradicate objectionable legislation arising out of apartheid-era policies. It is an affiliate of the Free Market Foundation.

[5]       Mervyn King is a corporate attorney, arbitrator, mediator, corporate director, commission chair, author, speaker and former High Court judge. He is best known for chairing the King Committee on Corporate Governance which issued three comprehensive reports in 1994, 2002 and 2009 endorsing an integrated and inclusive approach to corporate governance.

[6]       Copies of Alternative Dispute Resolution Guidelines are available on request.

[7]       Kent v Transvaalsche Bank 1907 TS 765 774.

[8]       Good Law Project, Alternative Dispute Resolution Guidelines, pp 5 – 9, 28 – 29.

[9]       Burns and Co 1922 NPD 461 at 462.

[10]     Sapiero and Another v Lipschitz and Others 1920 CPD 483. 

[11]     R (on the application of West) v Parole Board [2005] 1 WLR 350 para [31].

[12]     Good Law Project, Alternative Dispute Resolution Guidelines, pp 24 - 27.

[13]     Good Law Project, Alternative Dispute Resolution Guidelines, pp 6, 9, 13, 31.

[14]     Community Schemes Ombud Service Act 9 of 2011 s 60.

[15]     Community Schemes Ombud Service Act s 3(1).

[16]     Parliamentary Monitoring Group: Parliamentary committees, Human Settlements Committee, meeting on 14 November 2013, https://pmg.org.za/committee-meeting/16774/ (accessed 31 October 2015).

[17]     Interpretation Act 33 of 1957 s 14.

[18]     Community Schemes Ombud Service Act s 4(1)(a).

[19]     Community Schemes Ombud Service Act s 1(1).

[20]     Community Schemes Ombud Service Act s 37(3).

[21]     Community Schemes Ombud Service Act s 21(2)(b) and (c).

[22]     Community Schemes Ombud Service Act s 21(2)(a).

[23]     Community Schemes Ombud Service Act s 3(3).

[24]     Community Schemes Ombud Service Act s 35(1) and (2).

[25]     Community Schemes Ombud Service Act s 4(3).

[26]     Community Schemes Ombud Service Act s 7(1) and (2).

[27]     Community Schemes Ombud Service Act s 7(10) and 14(1) – (3).

[28]     Community Schemes Ombud Service Act s 7(10) and 14(4)(a).

[29]     Community Schemes Ombud Service Act s 21(6) and (7).

[30]     Community Schemes Ombud Service Act s 18(1) and (2)(b) and (c).

[31]     Community Schemes Ombud Service Act s 19(c).

[32]     Community Schemes Ombud Service Act s 19(d).

[33]     Subject to the Public Finance Management Act: Community Schemes Ombud Service Act ss 22(2) and 23.

[34]     Community Schemes Ombud Service Act s 22(1)(b) and (c).

[35]     Community Schemes Ombud Service Act s 22(1)(a).

[36]     Subject to the Public Finance Management Act: Community Schemes Ombud Service Act ss 22(1)(e) and 23.

[37]     Community Schemes Ombud Service Act s 22(1)(g).

[38]     Community Schemes Ombud Service Act s 38(1), (2)(b) and (3)(a) – (c).

[39]     Community Schemes Ombud Service Act s 39(1) – (7).

[40]     Community Schemes Ombud Service Act s 38(1)(c) and (4).

[41]     Community Schemes Ombud Service Act s 42(e).

[42]     Community Schemes Ombud Service Act s 40(c).

[43]     Community Schemes Ombud Service Act ss 40(a) and (b), 41, 42(a) – (c), 43 – 46.

[44]     Community Schemes Ombud Service Act s 43(1)(d).

[45]     Community Schemes Ombud Service Act s 44(b).

[46]     Community Schemes Ombud Service Act s 42(d).

[47]     Community Schemes Ombud Service Act s 47.

[48]     Community Schemes Ombud Service Act s 48(1) – (3).

[49]     Community Schemes Ombud Service Act s 50.

[50]     Community Schemes Ombud Service Act s 51.

[51]     Community Schemes Ombud Service Act s 52.

[52]     Community Schemes Ombud Service Act s 53.

[53]     Community Schemes Ombud Service Act s 54.

[54]     Community Schemes Ombud Service Act s 56.

[55]     Community Schemes Ombud Service Act s 57.

[56]     Community Schemes Ombud Service Act s 59.

[57]     Community Schemes Ombud Service, Code of Conduct for Conciliators and Adjudicators 2015, para 1.2.

[58]     Community Schemes Ombud Service, Code of Conduct for Conciliators and Adjudicators 2015, para 2.2.1.

[59]     Community Schemes Ombud Service, Code of Conduct for Conciliators and Adjudicators 2015, para 5 (Rules for conducting conciliations and adjudications).

[60]     Community Schemes Ombud Service, Code of Conduct for Conciliators and Adjudicators 2015, paras 5.1 – 5.6.

[61]     Community Schemes Ombud Service Act s 29(1)(b) – (h).

[62]     Community Schemes Ombud Service Act s 29(3).

[63]     Community Schemes Ombud Service Act s 59(a).

[64]     Draft Community Schemes Ombud Service regulation 11(3).

[65]     Draft Community Schemes Ombud Service regulation 11(2).

[66]     Draft Community Schemes Ombud Service regulation 13.

[67]     Draft Community Schemes Ombud Service regulation 12(a)(i) and (ii).

[68]     Draft Fees and Levies regulation 2.

[69]     Draft Fees and Levies regulation 3.

[70]     Draft Fees and Levies regulation 4(2).

[71]     Draft Fees and Levies regulation 4(3), read with Form CS3A or CS3B depending on the applicant.

[72]     Community Schemes Ombud Service Act s 4(1)(c) and (d).

[73]     Sectional Title Schemes Management Act 8 of 2011 s 22(1).

[74]     Sectional Titles Act 95 of 1986 ss 1(2) – (3A), 26(1), 27A, 32(4), 35, 36(4) – (7), 37 – 48, 55(k), 60(4) – (8), and 60A(4) – (8).

[75]     Sectional Title Schemes Management Act ss 2 – 19.

[76]     Sectional Titles Act ss 37 and 38 (and other provisions interspersed throughout that Act).

[77]     Sectional Title Schemes Management Act ss 3 and 4 (and s 5 consolidating the other provisions that were interspersed throughout the Sectional Titles Act).

[78]     Sectional Titles Act ss 2 – 25, 26(2), 27, 28 – 31, 32(1) – (3), 33 – 34, 36(1) – (3), 49, 50, 54, 55(a) – (g) and (l) – (o), 56 – 58, 60(1) – (3), and 60A(1) – (3).

[79]     Community Schemes Ombud Service Act s 3(1)(b). Usefully analysed by Westrand Properties at Status Mark Properties’ website http://www.statusmark.co.za/ (accessed 29 October 2015).

[80]     Govt Notice R664 of 8 April 1988: Sectional Title Regulations, Annexure 8 – Management Rules: rule 50 et seq.

[81]     Sectional Title Schemes Management Act s 6.

[82]     Sectional Title Schemes Management Act s 6(8). A “unanimous resolution” in this context means a resolution passed unanimously at a meeting at which at least “80%” calculated both in value and in number, of the votes of all the members of a body corporate are present or represented: s 1(1) “unanimous resolution” (a).

[83]     De Rebus, Issues, August 2015 –  T Maree “The new sectional title legislation – some noteworthy features of the ‘tricky trio’,” 23 July 2015.

[84]     Sectional Title Schemes Management Act s 10(2)(a) and (b).

[85]     De Rebus, Issues, August 2015 –  T Maree “The new sectional title legislation – some noteworthy features of the ‘tricky trio’,” 23 July 2015.

[86]     Draft Sectional Title Schemes Management regulation 2.

[87]     Draft Sectional Title Schemes Management regulation 6(2)(a) read with Annexure 1 - Management Rules.

[88]     Draft Sectional Title Schemes Management regulation 6(2)(b) read with Annexure 2 - Conduct Rules.

[89]     Draft Sectional Title Schemes Management Regulations, Annexure 1- Management Rules, rule 22.

[90]     Draft Sectional Title Schemes Management Regulations, Annexure 1- Management Rules, rule 21(3)(c).

[91]     Prescribed Rate of Interest Act 55 of 1975 s 1; Govt Notice R554 of 18 July 2014.

[92]     Sectional Titles Act 95 of 1986: Govt Notice R664 of 8 April 1988, sectional title regulations, annexure 8- management rules, rule 31(6).

 

[93]     Independent on Saturday, 10 October 2015, “Sectional title shake-up a step closer,” M Bechard, http://www.iol.co.za/business/personal-finance/sectional-title-shake-up-a-step-closer-1.1928392#.VjU-CPmrTIV (accessed 31 October 2015).

[94]     Draft Sectional Title Schemes Management Regulations, Annexures 4.1 and 4.2.

[95]     See, for example, Thinking Inside the Box – Paddocks Sectional Title Lifestyle Blog, Community Scheme Ombud Service – An Overview,” 3 April 2014, http://paddocksblog.com/2014/04/03/community-scheme-ombud-service-an-overview/ (accessed 29 October 2015).

See also Property24, 16 October 2012, “New sectional title Act explained,” http://www.property24.com/articles/new-sectional-title-act-explained/16421 (accessed 20 October 2015).

[96]     SAcommercialprop-news, 21 July 2011, Intersect Sectional Title Services, “Two new acts that affect Sectional Title & Community Schemes,” interviewing Martin Bester (managing director of Intersect, board member of SAPOA Residential and Sectional Title Committee and committee member of the Sectional Title Regulations Board).

[97]     The Mercury, 28 October 2015, “Promoting good governance of community schemes,” Robin Westley (head of property law department, Cox Yeats attorneys).

[98]     Community Schemes Ombud Service Act s 39 read with 38(3)(a).

[99]     Community Schemes Ombud Service Act s 39(1)(a) – (f).

[100]    Community Schemes Ombud Service Act s 39(2)(a) – (d).

[101]    Community Schemes Ombud Service Act s 39(3)(a) – (d).

[102]    Community Schemes Ombud Service Act s 39(4)(a) – (e).

[103]    Community Schemes Ombud Service Act s 39(5)(a) and (b).

[104]    Community Schemes Ombud Service Act s 39(6)(a) – (g).

[105]    Community Schemes Ombud Service Act s 39(7)(a) and (b).


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