Share Block Schemes | What are they & how do they work?

Share blocks

In a nutshell, a share block scheme is an alternative form of property ownership. Rather than full-title ownership, share block schemes allow for a single company to own a particular development, while allowing individuals to buy the right to use a specific unit, or space, within the development.

The company, known as the Share Block Company, acquires the title to the property by means of registered title, use or lease, and certain occupation. The company can only operate a share block scheme if the expression ‘share block’ (or ‘aandeleblok’) is part of its name.  

The purchaser of a unit in the Share Block becomes a shareholder in the company and is entitled to occupy that specific unit in terms stated in the Use Agreement. Other rights are also conferred in the Memorandum of Incorporation and in the Use Agreement between the Share Block Company and the shareholders.

The Use Agreement:

The use agreement is a written agreement between the share block company and the shareholders, which outlines the terms and conditions of a share block scheme. The use agreement defines the shareholders right to use and occupy a portion of the property in question, which can also include parking bays and gym, etc.

A copy of every signed use agreement and any amendments must be kept by the company at the property, or at the place where the Registrar was notified in terms of section 110 (4) of the Companies Act.

The Duties of the Directors:

In a share block company, the directors are responsible for the management of the company. They are bound by the terms of the Share Blocks Control Act as well as the Companies Act and the generally take care of all the management duties.

These include:

  • Maintaining the Levy Fund and ensuring its adequacy;
  • Keeping adequate accounting records;
  • Ensuring that the property is insured; and
  • Ensuring the fiduciary responsibilities are met.

The directors are also responsible for ensuring that no fraudulent activities are taking place.

The Duties of the Shareholders:

In many cases, in addition to buying shares within the Share Block Company, shareholders also purchase an “allocated loan”, which means that they take over a portion of liability of the company. This loan needs to be paid through monthly installments. Other obligations include:

  • Paying the monthly levy;
  • Maintaining the exclusive part of the building in a neat and tidy condition;
  • Allowing the company reasonable access to inspect your section of the building when necessary;
  • Maintaining and fixing any damages to the interior of the unit; and
  • Ensure that the unit’s contents are insured.

Sale of Shares in a Share Block Company:

As mentioned above, the marketing and the sale agreements of these schemes must comply with the provisions of the Act which state that the expression ‘share block’ or ‘aandeleblok’ (Afrikaans) must form part of the name of the share block company. It is also important to note that in many cases, banks don’t bond share blocks and therefore it’s more advantageous to be a cash buyer.

There are a number of provisions contained within the Share Blocks Control Act, which regulate the sale of shares. These provisions provide prospective purchasers with all the necessary information to make an informed decision; they also outline the steps which should be followed by estate agents who wish to market and sell shares. These can be viewed here.