Team Sectional Title covers sectional title in Cape Town South. Sectional title schemes appear most commonly in traditional residential homes in the form of flats, townhouses and apartments.
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Considering various definitions and pieces of legislation affecting community schemes, we draw some attention to certain aspects of buildings cover.
Defining a ‘building’
First, we need to clarify the definition of a building to understand what we are insuring.
The STSM Act defines a building differently to a policy of insurance which states that: ‘‘building means a structure of a permanent nature erected or to be erected and which is shown on a sectional plan as part of a scheme”
A typical definition of a buildings policy is more specific and may state the following: “Buildings shall be deemed to include outbuildings and landlords fixtures and fittings therein and thereon including fitted carpets and lifts with all associated equipment, transformers, motors, boilers, air conditioning, standby generators and walls (except dam walls), gates, posts, fences (excluding hedges) and sporting or recreational structures including but not limited to swimming pools, tennis courts (including floodlights), sauna/spa baths/Jacuzzis and water pumps, pool machinery, borehole motors and brick, tar, concrete or paved roads, driveways, parking areas, paths or patios, all the property of the insured and situated as stated in the schedule. Unless otherwise stated in the schedule, the buildings and outbuildings shall be constructed of brick, stone, concrete or metal on metal framework and roofed with slate, tiles, metal, concrete or asbestos.”
The wording is evolving and changing constantly
More recently, the newer all risk wordings have made been used where the building definition is similar but refer to exclusions rather than inclusions.
The CIA all risk community Scheme policy refers to a building as:
“.. means buildings and all outbuildings thereto, constructed of brick, stone, concrete or metal on metal framework, roofed with slate, tile, concrete or any other material specifically stated in the schedule, and anything else permanently built, constructed or installed on your property that you own or are legally responsible for, and tenants fixtures and fittings (if stated in the schedule to be included), at the situation stated in the schedule.
However, building does not include:
Some important points should be noted from the insurance policy definition:
The buildings insured are the buildings at the risk address stated in the policy schedule
Note the following: “…and situated as stated in the schedule.” The risk address i.e. the physical address of the property itself will need to be correctly stated. If the buildings defined in a policy extend over to another property or over a number of plots (or erven), note that all the erven are included as the insured properties; or at least to make sure that the address is clearly indicated. Take note of servitudes over municipal or leased property. Encroachments are more common than one realizes.
Wooden structures or thatch need to be dealt with carefully. It cannot be assumed that wooden structures and thatch roofs will be covered automatically. They are not according to the definition above. Non–covered items such as thatch need to be dealt with separately, i.e. the body corporate trustees need to make it clear to the insurer that the additional risks need to be covered or added to the policy, even if for an additional premium.
Looking at the STSM Act definition against the typical policy wording definition, one can anticipate the short-fall. When a trustee send a sectional plan of a wooden (or partly wooden) building to the broker or insurer and instruct them to place cover without anyone realizing that it is wooden. The buildings policy is then issued but at claims stage after a fire, there would be no cover.
Most insurers apply a loading to the rate if a thatch lapa is larger than 20sqm and closer than 4 metres to the building. It is important to note that owners with thatch lapas need to refer to their brokers or insurer for advice and find out the underwriting requirements under their specific circumstances.
More recently, certain leading underwriting managers have introduced all risk-type policy wordings which further impact on our understanding of the various definitions. In these policies, the wider definition of the building still remains but insurers are more specific as to which items are excluded from cover. What is the difference between “perils based policies” and “all risk policies” in the sectional title environment?
It is our view that the perils-based policy sets out what is defined as a claimable event. If the event experienced by the insured matches the definition, a claim is valid. The insured needs to prove that the event occurred as defined in the policy wording.
On the other hand, the all risk type policy defines damage and then excludes certain causes to that damage. Although the claimant (insured) must present their claim, the onus is on the insurer to disprove the claim rather than the onus being on the insured to prove the claim.
In a nutshell, the all risk type policies offer much the same cover and the processes are much the same as a perils based policy but there may be circumstances not excluded which widens the possibly for a claim where sudden damage occurs.
The Sectional Titles Schemes Management Act, the regulations and the prescribed management rules set out what needs to be covered. The trustees together with a suitably experienced and qualified insurance advisor need to ensure that the selected insurance product meet both the regulatory requirements as well as the actual needs of the community scheme.
Author: Mike Addison, Addsure
Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069
On – 03 May, 2017 By
WHAT IS A SECTIONAL TITLE UNIT?
A Sectional Title Unit consists of a part of a building or a separate building on a piece of land that has been converted into a sectional title scheme. The owner’s ownership of the unit includes ownership of an undivided share in the common property. All the sections together with common property comprise “the Scheme”.
WHAT IS THE COMMON PROPERTY?
This comprises the areas which are utilised by all owners, e.g. the grounds, driveways, roads, recreation facilities, corridors, entrance areas and exterior of the building.
WHAT ARE EXCLUSIVE USE AREAS?
Parts of the common property e.g. parking bay or garden area, etc may be delineated as an exclusive use area and the right to the exclusive use of such area may then be conferred on an owner of a section. Exclusive use rights can be acquired and held in terms of the rules applicable to the Scheme or by way of Notarial Cession.
IS OWNERSHIP CONFERRED UNDER SECTIONAL TITLE?
Yes, once the transfer is registered in the Deeds Office the title holder is the owner of the unit. A Title Deed is issued upon registration of transfer of the Sectional Title Unit as proof of ownership. A Notarial Deed of Cession is issued in respect of certain exclusive use areas.
WHAT IS THE DIFFERENCE BETWEEN A SHARE BLOCK SCHEME AND SECTIONAL TITLE SCHEME?
A share block Scheme involves the selling of shares in a share block Company which owns a building, coupled with an agreement that entitles the share-owner to occupy a portion of the building. These shares cannot be mortgaged and the transfer of the right to occupy is affected by the registration of a share transfer with the Registrar of Companies as opposed to registration in the Deeds Office.
WHAT IS A REGISTERED REAL RIGHT OF EXTENSION?
A developer can, when building a sectional title scheme, reserve to himself the right to extend the scheme by the addition of certain units and/or buildings at a later stage. The plans of such a proposed extension must be drawn and approved at the time that the scheme is first opened and registered. If the right of extension is not exercised or reserved, the right to extend the Scheme vests in the Body Corporate. Any prospective purchaser must be made aware of the existence of a reserved right of extension in the agreement of sale failing which he/she is entitled to resile from the contract.
WHO CONTROLS THE SCHEME?
The Body Corporate is responsible for the control, administration and management of the Scheme.
WHO OR WHAT IS THE BODY CORPORATE?
All the owners of sections in the Scheme automatically constitute the Body Corporate. At an Annual General Meeting of all the owners, Trustees are elected to carry out the day to day running of the Scheme. In many instances and especially with bigger schemes, the Trustees utilise the services of a Managing Agent to assist them. Ultimately, however, the control lies with owners who make decisions on the administration of the scheme at a general meeting.
WHAT ARE LEVIES?
The levy comprises all the anticipated costs of the running of the Scheme and usually includes:
One of the main functions of the Trustees is to set a monthly levy for each Unit.
HOW IS THE AMOUNT OF THE LEVY DETERMINED?
The Trustees will calculate the total annual budget required for the proper running and maintenance of the Scheme. The budget will be made up from various expenses, such as the items mentioned in the previous paragraph. The annual total is divided into monthly instalments which in turn are collectively paid by the individual owners. The levy payable by any one owner is calculated with reference to the floor area of a given section, in relation to the total floor area of all the sections in the Scheme. This is referred to as a section’s participation quota.
Thus: Total annual budget divided by 12 = required monthly budget for the Scheme
Floor area of owners section divided by the total floor area for all sections x 100 = percentage of monthly budget payable by the owner.
WHAT ARE “SPECIAL LEVIES”?
If insufficient funds are available for maintenance and/or improvements or unforeseen, necessary expenses become payable, a special levy may be raised by the Body Corporate at a general meeting. Owners of sections will then be liable to make a further contribution towards levies. This special levy may or may not be payable in instalments. The questions of liability for and disclosure of an existing or possible special levy should be dealt with in the deed of sale since the owner at the time the levy was raised, is the one who is liable for payment thereof.
WHAT ARE MANAGEMENT RULES?
The Sectional Titles Act contains provisions regarding the management of the Scheme, e.g. how Trustees are elected, what the obligations of the Trustees are, what the voting procedure is at general meetings, and so forth. It is possible for the Body Corporate, by unanimous resolution, to amend, substitute, add to or repeal the Management Rules from time to time. Copies of the Management Rules that apply to any scheme can be obtained from the local Deeds Registry.
WHAT ARE CONDUCT RULES?
Each Scheme has a set of conduct rules to regulate the conduct of owners in the Scheme such as rules regarding the keeping of pets, refuse removable, etc. It is possible for the Body Corporate, by special resolution (75% majority), to amend, substitute, add to or repeal the conduct or rules from time to time.
WHAT ARE THE DUTIES OF AN OWNER OF A SECTIONAL TITLE UNIT?
An owner shall:
CAN A UNIT BE EXTENDED, CONSOLIDATED OR SUBDIVIDED?
Yes, but only after:
Hi, I am the chairperson of a complex where we have 13 registered sections; eight of which are flats and the other five are garages or store rooms.
We have been informed that an owner that was handed over to the ombudsman now wants a trustee and myself removed. He has tried before but was told it was not possible because he is only one owner. He owns six sections in total (four flats and two other sections). All the other owners are behind me 100% and together we own seven sections, so we want to know how he has now managed to call a meeting for removal when he is the only owner wanting this?
When voting now he is still one owner one vote but because he has so many sections, do we count the sections or the square meterage of all his sections combined? Everyone is confused with the new CSOS that came in now. Surely one owner cannot hold so much voting right over all other owners. – Leigh-Anne
People get very confused between the two acts (CSOS and STSM) when in fact voting has nothing to do with the CSOS Act – it is in the STSM Act.
All votes at a general meeting (except for special and unanimous resolutions) are calculated on the participation quotas (PQs) so that owner will have a PQ weighted vote for each of his sections (and it does not matter if the section is a flat or a garage. So he will have six votes in value).
It is only when voting in number that he is seen as one member and only has one vote no matter how many sections he owns. Voting in number only applies to special and unanimous resolutions; where you work in value and in number.
An interesting point is that when the STSM Act was published in 2011 it stated controversially that when voting in number one member will have one vote. My opinion is that they realised that this is a problem so when the Prescribed Management Rules were published and came into being on 7 Oct 2016 they softened the blow and said all voting will be by PQ (except special and unanimous resolutions that will be number and in value).
Got a burning question? Email firstname.lastname@example.org and we’ll be sure to assist you
On – 30 Mar, 2017 By David Steynberg
The responsibilities of trustees and executives impacting community and collective property schemes, including golf estates, have become more onerous, due to specific legislative requirements in the Community Schemes Ombud Service (CSOS) Act. This, says Karl Bishop, head of Santam Specialist Real Estate, has a significant impact on the property insurance solutions provided to consumers, and calls for highly specialist insurers with thorough knowledge and understanding of all the risks involved in this burgeoning industry to ensure policyholders are protected.
“Real estate insurance has become increasingly complex, and it is therefore imperative the collective property scheme market has the assurance of a strong, stable, specialist insurance company with the technical expertise to tailor appropriate and comprehensive solutions for this industry,” says Bishop.
“Our solutions provide compliant cover, as well as a number of tailored added benefits for property schemes which standard short-term insurance does not offer.”
Santam Specialist Real Estate was rebranded at the end of 2016 from C-Sure – the first-ever specialist sectional title insurer in South Africa, which since its inception has provided insurance solutions on the Santam licence. Santam Specialist Real Estate now offers a diverse range of specialised insurance solutions for the collective property schemes industry – including sectional title schemes, home-owners associations, sectional title office parks/blocks and retirement villages – as well as the broader real estate industry, including property developers.
As former head of Niche Business at Santam Specialist, Bishop is ideally placed to carry the business forward in the specialist real estate sector. “Santam’s legacy as the market leader in South Africa, coupled with the group’s rapid expansion into a number of emerging markets in Africa and Asia, is invaluable. Santam Specialist Real Estate thus has a sound heritage to build on – we intend to offer differentiated and innovative products as we embark on our new journey,” he says.
Bishop says extreme weather conditions had a significant impact on the way this market is insured, with widespread damage due to floods, hail and fires placing immense pressure on claims and repair turnaround times of insurers. “For this reason it is so important to be insured by a company with a vast and mature claims network and capability, to minimise the impact on policyholders. As South Africa’s largest short-term insurer, Santam is also a financially sound, profitable company with an excellent record.”
Geysers and the resultant damage caused by burst geysers make up the majority of claims volumes. However, storm/ water and lightning damage claims typically have the highest value per incident when compared to all other types of damage – with the increase in severity of natural events, this is on the increase.
The rise in the number of property developments where people live, work and play, as well as group and cluster housing schemes – gated villages controlled by home-owners’ associations – has necessitated customised solutions for this type of community living.
Special features of the policies offered by Santam Specialist Real Estate include public liability cover, trustee liability, cyber risk cover, fidelity cover (including computer crime), business glass cover and water heating systems (electric and solar) cover. Santam also offers extended cover for managing agents where such agents administer the scheme on behalf of the scheme’s trustees.
Bishop adds that Santam Specialist Real Estate works with brokers to provide the best possible insurance solutions. “Our team of experts offers personalised attention and product structuring services to ensure our solutions are more than just desk-top insurance quotations.
“In South Africa there are approximately 44 000 sectional title schemes, both commercial and residential, with this number rising each year. My unconfirmed estimate is that this translates into premiums in the region of R4 bn and R6 bn per annum in this specialised market. This should translate into claims paid by insurers of between R2 billion to R3 billion every year.”
Bishop says that Santam Specialist Real Estate will launch a commercial sectional title product at the start of April this year, as well as two innovative products aimed at assisting real estate developers, which will be available from mid-2017. The Commercial Sectional Title product is designed to cover the insurance requirements of Body Corporates and combines cover for Buildings, Common Area Contents, Money, Fidelity Risk, Machinery Breakdown, Liability, Trustee Liability, Employers Liability, Voluntary Workers Personal Accident, Claims Preparation Costs and Water Heating Systems. All Risks, Electronic Equipment, Irrigation systems, Cyber Liability and Group Personal Accident are optional.
“We believe our insurance solutions will also be easily customisable for markets on the rest of the continent and as such we will be looking to partner with the local insurance partners of Sanlam Emerging Markets in the Southern African Development Community (SADC) and East Africa regions in early 2018,” says Bishop.
On – 04 Apr, 2017 By MoneyMarketing
When you moved into your new sectional title home last September you diligently filled in the defects’ list the complex’s managing agent asked you to complete and send back to him. You noted that the front door’s lock was not…well…locking and some of the windows did not fully close.
When he arrived for the incoming inspection, with your defects’ list in hand, you showed him exactly what you were concerned about. He took photos with his cellphone camera and verbally acknowledged your issues: “The front door has a Trellidor security gate so this is sufficient security”, “If you’re concerned about the windows not closing properly in your child’s bedroom, then let her sleep in your room”.
Last week was your mid-term inspection. The agent arrived and you again pointed out the same issues; only this time he treated it like it was the first time you had brought them up. You realise that he will probably never fix the most basic elements of the home’s security features – relying on the clause in the lease that states his responsibility is to provide “a habitable home” and that when you signed the lease agreement you agreed to rent the home voetstoots (as is).
The only problem is that when you signed the lease agreement, you didn’t know about these defects – only picking them up the night before you moved in when the keys you were given suddenly had no lock to lock! The windows, too, were left open to help dry the carpets and their inability to close on their frames was only picked up after taking occupation.
The love-hate, can’t-live-with-them, can’t-live-without-them relationship dynamic between landlords and tenants is far more pronounced in the age of social media: Where landlords bemoan their disrespecting, bad paying tenants, and tenants their demi-god complex landlords. If this is bad against regular landlords, it is far more amplified against managing agencies which are viewed as faceless, heartless landlords. The role of tenant is also a subservient one, with the landlord in a very powerful position over the tenant – though the Consumer Protection Act has tried to level the playing field and balance power between the two parties.
Still, the question of fairness and mutual responsibility is a difficult one to properly answer: Landlords want a tenant who pays on time and looks after the home as if it were their own, while tenants want a landlord who is fair and human.
The very function of managing agencies which hold a rental property portfolio are far more complex and systems-oriented than even rental agents, and certainly more than normal landlords. Further to managing the relationship with the tenant, they have to deal with inspectors and agents, manage the common property and keep abreast of changes to policy and the legal landscape.
Expecting a managing agency to operate like a human may be a lot to ask and unfair to expect.
But tenants who do rent from managing agencies enjoy a greater level of accountability from the company and the relationship is a business-centred one.
To improve the system and create greater transparency between both sides is what led David Hutchison to localise rental inspection software, Property Inspect, for the South African market.
Through the software, managing agents and tenants can now have instant, online access to the property’s inspection documentation.
“Tenants are able a link to the complete report and can provide input,” says David Hutchison, sales director at Property Inspect. “This ensures fairness in the rental relationship. Tenants can be afforded the opportunity to comment on the report, and log any issues found, for example a broken door handle that may have been missed during the ingoing inspection.”
In this case, tenants will be more empowered to pay for and fix the immediate issues – especially if agency is slow to respond appropriately. Tenants will have proper, verifiable and date-stamped proof of notification and costs in order to be able to claim back the expense from the managing agent, while the agency streamlines processes and maintenance scheduling.
“Strong systems equal more fairness,” says Hutchison. “A happier tenant who feels like their concerns are being addressed ultimately complains less. It is a tool designed specifically for managing agents that tenants can access to make everybody’s life easier and fairer.”
For more, visit Property Inspect
On – 11 Apr, 2017 By David Steynberg
Last year I moved out of my sectional title unit and quickly found a tenant. This past tax season I had to declare my rental income but was not sure of which expenses I could claim against. Can you give me some guidance in anticipation of the next tax deadline. – Sybrand
Hi Sybrand, owning a rental property portfolio that provides an income is much like owning a business, and as such there are tax implications and dues that need to be paid to the South Africa Revenue Service.
Landlords are required to declare the total amount of rental income received as gross income and they will be taxed at the marginal Income Tax Rate, applying to the owner of the home. The below table is a guideline of the personal tax rates that are currently applicable in South Africa:
|Personal Income Tax Rate 2017/2018|
|R0 – R189,880||18% of each R1|
|R189,881 – R296,540||R34,178 + 26% of the amount above R189,880|
|R296,541 – R410,460||R61,910 + 31% of the amount above R296,540|
|R410,461 – R555,600||R97,225 + 36% of the amount above R410,460|
|R555,601 – R708,310||R149,475 + 39% of the amount above R555,600|
|R708,311 – R1,500,000||R209,032 + 41% of the amount above R708,310|
|R1,500,000 and above||R533,625 + 45% of the amount above R1,500,000|
While landlords are required to declare the total income acquired through letting out their property, there are certain deductions that can be made, such as a non-capital expense. A landlord is obliged to incur expenses during the period that the property is let out. Deducting the non-capital expenses from the landlord’s tax return will reduce the taxable income and possibly put the landlord in a lower tax bracket, which will be of benefit to them.
Rental agent’s commission or fees for securing a tenant
Advertising costs for marketing the property
Expenses that are regarded to be of a capital nature cannot be deducted. These would include any expenses incurred while renovating or adding on to the property. If the tenant has moved out of the property and you as the landlord decide to make repairs to the home to sell it, these expenses cannot be deducted as they did not happen while the tenant occupied the property.
If the total deductions exceed the rental income received by the landlord and they wish to declare a net rental loss, the Income Tax Act contains a ring-fencing provision that may come into play depending on the circumstances. If the provision does apply, the landlord will not be able to offset their rental losses against income received from other sources.
Evading paying tax on rental income will see the landlord in hot financial water. Rental agents are obligated to provide SARS with a record of the rental income received and paid over to the landlord. As a result, it is very easy for SARS to find any discrepancies in the landlord’s tax return. If found out evading tax after notification of an audit, the landlord could be facing a hefty penalty or worse – imprisonment.
All rental income should be included in the landlord’s taxable income. However, reducing it by the relevant expenditure will assist the landlord to reduce the amount of money that leaves their back pocket.
On – 19 Apr, 2017 By Home Administrator