Avoid making mistakes when entering into a sectional title scheme!

mistakes when entering into a sectional title scheme mistakes when entering into a sectional title scheme mistakes when entering into a sectional title schemeBuyers moving into what is now the fastest growing sector of the SA residential property market, sectional title schemes, often do so with far too little research and awareness of the potential problems. In this post, we look at some of the common mistakes made by those looking to opt into a sectional title scheme.

Mistakes when entering into a sectional title scheme: the first mistake

The first, all too common, mistake is to sign a purchase agreement without checking on the financial health of the scheme. Every purchaser is entitled to ask for a copy of the scheme’s latest financial statement but very few do.

With anything up to 30% of SA’s sectional title schemes in arrears on levy payments, failing to check on the financials can lead to disastrous results.

Quite often, the new purchaser will find that within one year or less he is being held liable for debts incurred by the scheme prior to his purchase and/or that he has to contribute to a big special levy for the maintenance, repairs, or other expenses of which he was not warned at the time of purchase.

If the purchaser wants to raise a bond to pay for the property, the banks will insist on seeing the scheme’s audited financial statement.  This has saved many a purchaser from buying into a scheme in trouble.

Mistakes when entering into a sectional title scheme: the second mistake

Another big mistake is to fail to investigate or to misunderstand the exclusive use rules of the scheme.

Ideally, these should be set out on the sectional title deed of sale.  If they are, the buyer’s rights will have been recognised at the outset and he can transfer or bond the exclusive use area as suits him.

However, developers often opt for the less expensive alternative of listing the exclusive use rights on each unit in the management/conduct rules.  If this procedure is followed the owner cannot transfer or bond it.

What is more, if 75% of the members vote in favour of a special resolution, the body corporate will have the right to appropriate or transfer an exclusive area as suits them.

Most commonly affected by the exclusive use rulings are parking bays and gardens.

The owner deprived of a parking bay could be in serious trouble because two SA banks will now not grant a bond to a sectional title unit if it has no parking.

Often a purchaser will buy into a scheme and take over an exclusive use area without realising that he has no legal title to this.

The trustees may well have given the go ahead to extend an exclusive use area into the communal property, but in doing so, they may not have registered the changes with the deeds office.  Their ruling alone is not sufficient to secure the owner’s legal right.  In the event of a dispute, the court will refer back to the original title deeds.

Much the same can also happen when the trustees change the management rules. These, too, have to be registered.

The purchaser, for example, may have bought into a scheme because it forbids children or pets or to live there.  If the trustees then get a 75% vote in favour of allowing children in, this has to be registered to become legally binding.

Images courtesy of Stuart Miles an tungphoto  FreeDigitalPhotos.net.

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