Sectional Title vs Homeowners Associations: What Are The Differences?

Property in sectional title schemes and Homeowners Associations (“HOA”) are the two fastest-growing homeowner sectors in South Africa. The need for security, urbanisation, and smaller space living are some factors driving this trend.

What is a Sectional Title Scheme?

This is a type of property whereby an owner owns a section of the building or property within a larger property. A benefit of this scheme is that it allows a section of a property to be individually owned. When you purchase a section, you also own an undivided share of the common property i.e. you also own common properties of the larger property.
In South Africa, the creation and administration of sectional title schemes are governed by two pieces of legislation. The formal and practical creation (registration and land survey matters) of sectional title schemes are covered in the Sectional Titles Act 95 of 1986 (“Sectional Titles Act”) and The Sectional Titles Schemes Management Act 8 of 2011 (“Sectional Titles Management Act”). These acts include provisions for the governance and management of sectional title schemes, as well as regulations and annexes that establish the required standards for conduct and management. These provisions apply to all schemes.

What is a Homeowners Association?

An HOA is a legal body created to govern communal living estates where the individual properties are owned outright by their owners (as a freehold title), while the common communal facilities and infrastructure (collectively referred to as “common property”) are owned by the HOA. Common property often includes but is not limited to, security entrances, clubhouses, parks, roads, pavements, bulk services infrastructure (e.g. water and electricity), and boundary walls.

The Differences and Similarities Between Homeowners Associations And Sectional Title Schemes.

If you want to buy property, it’s important to understand the distinctions between the two community schemes.

Legislation

The Sectional Titles Act, the Sectional Titles Management Act, and the Community Schemes Ombud Service Act 9 of 2011 (“Community Schemes Act”) are the legal acts that govern sectional title development and schemes.
The Sectional Titles Management Act is crucial for scheme management, even though the Sectional Titles Act is pertinent for those who create sectional title schemes. The Sectional Titles Management Act contains the conduct and management regulations, which provide guidelines for owners’ and residents’ behaviour and offer instructions when decisions that impact owners are being made.
Common law associations or non-profit corporations make up HOAs. In a HOA, each property is owned solely by the association, which also maintains ownership of the shared facilities and infrastructure

Levies and Responsibilities

An HOA levy pays for the management and upkeep expenses: shared spaces, common roads, and overall security. Whether it is controlled by a Memorandum of Incorporation or a Constitution will determine its responsibilities, but they often include the following:

• Supervising the upkeep of every building in the development as well as communal spaces like gardens.
• Ensuring that every resident abides by the estate’s guidelines.
  Managing contracts with the local government or any service provider to the estate.

In addition to funding the upkeep of the buildings and common facilities, the levies collected by Sectional Title Bodies Corporate also contain a specific amount for building insurance. This explains why Sectional Title Body Corporate levies are sometimes greater than HOA levies.
In a Sectional Title, the owners of the Scheme’s units collectively make up the Body Corporate, which is responsible for managing the common property. Trustees are chosen by the Body Corporate and may have responsibilities such as, but not limited to, the following:

• Establishing a reserve levy fund and budget for administration. The administration, upkeep, and management of the common property are then covered by these monies
• Setting up building and common property insurance
• Enforcing the Scheme’s Management and Conduct Rules among its residents

Trustees and Directors

In a sectional title scheme, trustees are selected at each annual general meeting (AGM). The current trustees automatically resign at every meeting and must then be re-elected or replaced. Trustees have the option to step down in writing before the next AGM. In the case of an HOA registered as a non-profit organisation, it only has directors and no trustees. The method of selecting directors and the duration of their service will be determined by the HOA’s Memorandum of Incorporation.
Both are community schemes with shared use of common property, where owners pay a levy to the scheme to contribute to common property expenses.

Sectional title schemes and HOAs are regulated by the Community Schemes Act. This law created a formal dispute resolution process and platform to oversee all community schemes, such as share block companies, homeowner’s associations, housing schemes for the elderly, sectional title schemes, and housing co-ops. These entities share the use and responsibility for portions of land and buildings.
The Community Schemes Act offers community schemes an alternative option for resolving conflicts instead of going to court. Issues such as financial, behavioural, governance, meeting management, physical, and other general difficulties can be resolved through mediation and adjudication orders by the Community Schemes Act. These orders are enforceable and have the same legal weight as court orders.
In addition, the Community Schemes Act is responsible for the custody, preservation, and public access of scheme documentation. Furthermore, the Community Schemes Act must regulate, monitor, and control the quality of all sectoral titles, schemes, and governance paperwork, including the scheme’s rules.

Considering purchasing a property in a Sectional Title or HOA? Be sure to seek professional property advice before proceeding with any property transaction. Contact AWD Law.

Kindly be advised that AWD Law does not enter into litigation on behalf of clients. Our conveyancers specialise exclusively in the development of vacant land, property transfers, bond registrations, administration of deceased estates and notarial practice. Should you require assistance with a litigation, kindly contact The Legal Practice Council.