Sectional Titles Scheme Management Bill [B20-2010]; Community Scheme Ombud Services Bill [B21-2010]: public hearings with Deputy Minister

Meeting report

The Chairperson said that Members must be critical in order to protect the interests of the people. She welcomed the Deputy Minister of Human Settlements, Zou Kota-Fredericks. Only three submissions had been received. Of these two of the people involved were unable to attend the meeting.

Submission by Ms Ingrid de Klerk
Ms Ingrid de Klerk was the owner of a sectional title unit in a block in Plumstead, Cape Town. When she had bought her flat she did not know that the body corporate was bankrupt and did not have enough money for maintenance. She suggested that a complex of her size, which had 48 units, should have reserves of approximately R1 million. Her complex only had R48 000 in the bank which was a problem. She was an elderly person as were many other residents who could not afford to pay a special levy.

Ms de Klerk felt that owners selling sectional title properties should be required to inform buyers of the status of the finances of the body corporate. A specified amount of reserve funding should be available depending on the size of the complex.

Ms de Klerk did not have money to pay for a lawyer. She had saved all her life for this apartment and was now forced to fight with the superintendent of the complex and the trustees. The superintendent was paid from the levy income and was rewarded financially for serving on the board of trustees.

Ms de Klerk said that residents were subject to noisy renovations. Walls were broken down and there were other building activities. Such practices should be prohibited by the law. Walls were cracking as a result of renovations to other units.

Ms de Klerk felt that the estate agents selling units should be held responsible for knowing the financial circumstances of a block and informing potential buyers. There was no maintenance schedule at her complex. The trustees practised crisis management. A special levy would have to be raised for maintenance costs. She felt that there should be an inspectorate to look into the affairs of bodies corporate. Some organisation was needed which owners could approach.

Ms de Klerk raised the problem of owners renting their units. Tenants often did not understand the responsibilities of the owners. Some of the owners were in fact living overseas and were not aware of what was happening at the complex. The same trustees were elected year after year. There was a good balance in the bank but no maintenance was being done. She mentioned another complex in the area of a similar size which had R1 million in cash reserves to cover maintenance. All the owners there were happy.

Discussion
The Chairperson said that Parliament was the right forum for ordinary citizens such as Ms de Klerk to look for assistance. Members were present to hear the concerns of citizens. The Sectional Titles Scheme Management Bill dealt with issues of management.

Ms M Borman (ANC) heard Ms de Klerk's plea. Levies were a problem area that would have to be addressed by the proposed ombudsman. She did not understand what Ms de Klerk meant by requesting a lump sum.

Mr A Steyn (DA) understood what the problem was. Owners needed to be educated. The body corporate was elected by the owners. The problems described by Ms de Klerk were essentially private matters between the owners and the body corporate. He had bought a sectional title unit himself. He advised buyers to insist on seeing the financial statements for the previous two years and the report by the chairperson of the board of trustees. The body corporate could not be obliged to disclose the information. The situation differed between different complexes.

Ms M Njobe (COPE) said that the issues involved might be from the law of 1986. She told Ms de Klerk that the Sectional Titles Scheme Management Bill would address her concerns. It dealt with the structure and functions of a body corporate, the replacement of trustees and the rights of owners.

Ms de Klerk replied that she had spoken to a contractor who had estimated it would cost R950 000 to repair the building. There had been no proper maintenance for twenty years. Serious problems were now developing. The levy was increased by 10% each year. Too much of the body corporate funds had been used in the past and there had been mismanagement. Owners no longer trusted whoever sat as chairperson of the body corporate due to past experience. Her letters to the body corporate had been ignored. She had not had the chance to read the Bill. She had consulted with an attorney based in Port Elizabeth on a water leak problem. The attorney's letter to the body corporate had been ignored. Friends in other blocks were experiencing the same problem.

Ms de Klerk said that she had served a term as a trustee but was unable to persuade her colleagues to vote for a special levy to be to perform the required maintenance. Her stance meant that she was being shunned by her neighbours.

Ms Zou Kota-Fredericks, Deputy Minister of Human Settlements, said that Ms de Klerk sounded like a lone voice. There seemed to be a lack of camaraderie at her complex. This was wrong. The body corporate owned the property. There seemed to be no sense of co-ownership. The building was deteriorating and all owners would lose. The body corporate had to look ahead. The current legislation would go a long way, especially the institution of an ombudsman. This office would obviate the need for expensive legal action. Trustees felt that they were above the law. The Committee should follow up on Ms de Klerk's submission.

Mr R Bhoola (MF) said that the Deputy Minister was correct. The body corporate was not marching forward and appeared to be insensitive. Human factors had to be considered. Aspects of human rights had to be considered. When one was buying a unit in a sectional title development one had to understand what the conditions were and who was responsible. The body corporate and the owners had their own responsibilities. People like Ms de Klerk must not be afraid to speak their minds. The people would remember the warnings Ms de Klerk had given in the future.

Mr Bhoola said that managing agents had to be interrogated regularly. They should put the interests of owners before their own business interests. Proactive communities were progressive. Competent people needed to sit on the board of trustees. Trustees had a role in enforcing housekeeping rules. Legal and human rights issues had to be considered. The Committee would address the issue.

Research Report on the Bills
Ms Berenice Paulse, Research Unit, Parliament, said she had prepared a report on issues that the Committee should consider. The first concerned the definitions of ‘regulation board’ and ‘unanimous resolution’. There had been comments from consultants on the matter of proxy votes for meetings. There was a concern that a particular owner could obtain a number of proxies that would enable the owner to destabilise the body corporate. Consultants suggested that a limit should be set for the number of proxies that a single owner could possess.

Ms Paulse said that managing agents had to be registered estate agents even though they did not have to have the necessary qualifications to practise. It was suggested that only owners should be entitled to be trustees. The body corporate could decide to appoint a managing agent or not. There was a suggestion that the appointment of a managing agent should be compulsory for complexes of more than a specified number of units.

Ms Paulse said that only the rights of owners were currently recognised. There was also a question of the rights of tenants. Perhaps the tenant should hold the proxy vote if the owner was not available to attend a meeting. The matter of levies was a complex and controversial one. There was a proposal that the body corporate could cut off the services of an occupant who was more than two months in arrears. Government policy on basic water supplies and the competency to cut off services would have to be discussed before this could be implemented. Consultants felt that occupants should be given a fair hearing before such procedures were executed. The matter should be linked to the ombudsman function.

Ms Paulse said that certificates of establishment were needed. The term ‘municipality’ was in more general use than ‘local authority’. If the term was defined then it should be in line with the legislation governing municipalities. There was a recommendation that in the event of a unit being damaged, the insurance money should be paid to the body corporate and not to the owner. This was not explicitly stated but there was a concern about mismanagement of that insurance money and it not being used for its correct purpose.

Ms Paulse said that there was a provision that where a trustee was in arrears for thirty days, the trustee would be given seven days to pay the outstanding levies. Failing this, the trustee would be deemed to have resigned from the body corporate. There was the question of what should happen if there was a payment dispute that was being investigated. Once again a fair hearing was needed.

Ms Paulse said that there was concern over the duty of owners not to sub-let without the knowledge of the body corporate. The requirement to advise the body corporate of a change in ownership should also apply to a change of occupant. The next area of concern was where owners made extensions to their units without the approval of the body corporate. Where these extensions were not registered within three months, there was the suggestion that the body corporate should undertake the related administration work and pass the cost on to the owner. Levies would be adjusted to reflect the altered size.

Ms Paulse said that there was a suggestion that the levies clearance certificate should be withheld if the owner was in arrears.

She said that there was a problem with the definition of ‘quorum’. There was a suggestion that a proportional scale should be adopted. If the complex had fewer than ten units then quorum should be 50%. For complexes of between ten and twenty units quorum would be 35%, with a reduction in the size of quorum as the number of units increased. Where a trustees meeting was postponed there should be quorum of 50% at the rescheduled meeting. The current system was open to abuse, and a single person could make decisions.

Ms Paulse said that international practice had been investigated regarding the ombudsman. The best legislation developed was in the Australian state of Queensland. That state had comprehensive legislation including by-laws. There were useful lessons to be learnt from its legislation. The first chapter dealt with governance and administration and the second with dispute resolution. There was separate legislation for these aspects in South Africa. She asked if it would be possible to merge the current Acts. The Queensland state government maintained an office to deal with disputes and to educate the public. Owners were given pamphlets. A fee was charged. There was a detailed process for the appointment of adjudicators.

Ms Paulse said that the Queensland legislation included an appeal process. There was a separate process for the Commissioner to lodge an appeal. The Commissioner could impose a fine in the event of a frivolous case being brought. Reconciliation should be the first goal. Often disputes were of a complex nature. Specialists could be brought in. In this case the parties should agree on the costs beforehand. One shortcoming of the Queensland legislation was that there was not a lot of public information available.

Ms Paulse said that there were a number of countries with similar legislation. However, there was no substantive comment and none of the comments had been included in the Sectional Titles Scheme Management Bill. There were some issues with merit. The Committee had to recommend that the Bill be accepted or changed. If it stayed in its current form, then the Committee would have to revisit it in the future. If changes were considered then Members would have to bear in mind that changes in society could lead to amendments.

The Chairperson ruled that there would be no interaction with the research report which was meant for the Committee. However, Parliament was transparent and responsive. The team from the Department of Human Settlements had been allowed to listen to it. It was now up to the Committee to decide if the Bill was desirable or not. Parliament would now decide on the Bill and would come up with a beneficial product.

Ms Paulse noted that the Department of Rural Development and Land Reform (DRDLR) had published the draft Community Schemes Ombud Service Bill in August 2009 for public comment. She asked what had happened to the comments that had been made at that point. There was a need to review the comments. Members of the public might feel despondent if they felt that their inputs had been ignored. There were complex issues involved and more in-depth research was needed. She asked if the matter of an advisory council for the Minister was new to the Bill. The DHS said that it was a new provision. If that was the case then the Committee needed to look at the proposal in more detail. There had been suggestions from the public on the constitution of the council.

The Chairperson asked Members to consider the desirability of the Bill.

Mr Steyn asked if they were going to do a clause-by-clause review of the Bill. He asked if the amendments and suggestions would be considered.

The Chairperson had been advised by telephone that the Department of Human Settlements had amendments. The Committee did not have enough information. Public comment had been received. The questions could not be considered immediately. She asked the Members for advice.

Mr R Mdakane (ANC) asked the Department of Human Settlements if they wanted to amend the Bill.

The Chairperson called a brief adjournment for Members to discuss the approval of the Bill.

Break

After the break the Chairperson advised the meeting that the Department of Human Settlements needed an opportunity to respond. The Committee could not proceed with the reading of the Bill. The Committee would meet again on 15 September 2010 to conduct a clause-by-clause discussion of the Bill.

Mr Nqwenya Khwezi, Legal Advisor: Department of Human Settlements, said that important issues had been raised. The Deputy Minister had spoken about the need to establish an ombudsman. The body headed by this person would respond to the needs of the public. The Bill would provide for such a mechanism. The procedure for the body corporate to take over the administration of issues arising from extensions had been established in the Bill. There was no indication on what a reasonable amount would be for the body corporate to charge. Ms de Klerk's presentation had shown the need for the establishment of reserve funds to cover repairs and future maintenance.
 
Mr Khwezi said that there were problems in sectional title schemes. People were not aware of their rights. The issues raised were generic. Some went beyond the scope of the Bill. Estate agents were regulated by a Code of Conduct. The Department had taken cognisance. Adjudicators would be allowed to appoint specialists.

Mr Graham Paddock, Consultant to the Department of Human Settlements, said that some separation was needed between the two Bills. The amendments needed to be prepared. The Bill had been certified by the Chief State Law Advisor. Most amendments were formal such as the alignment of text. The Department of Human Settlements had an agreement with the Department of Rural Development and Land Reform (DRDLR). It was a matter of good housekeeping and not substantial issues that had been raised. He appreciated the desktop research done but had not heard enough information about the system used in Queensland.

Mr Paddock continued that under the then Department of Land Affairs, the Queensland jurisdiction had been identified. He had visited the state and other countries and had met with similar boards. Queensland had the best fit and they had spent some time there. The situation here was less complex. There was no distinction between general and special adjudicators. This was the simplified version. In the first draft, the Department of Human Settlements had been assisted by the Scottish Law Commission, which had made some suggestions to simplify the legislation.

Mr Connie van der Merwe, Consultant to the Department of Human Settlements, advised that people buying into a separate title scheme should be careful of the development's debts. They should get a financial report. Most of the debts of sectional title schemes were to municipalities. The trend in the past was that municipalities were slow to recover their debts. The Municipal Rates Act had changed the system so that owners were billed separately for rates and municipal services. Bodies corporate no longer had to collect rates from the owners. If owners felt that the maintenance of their buildings was poor then they would be able to go to the ombudsman who could order that defects be repaired. A court order would not be needed. Any owner with proof of neglect could approach the ombudsman.

Mr George Tsotetsi, Assistant Registrar of Deeds: DRDLR, said that government needed to formulate a policy on foreign ownership. There was no current policy to prevent foreign ownership. There was nothing in the Bill on the registration board. The body was described in the Sectional Titles Act and not the Sectional Titles Scheme Management Bill. He did not feel that owners needed to get detailed information on the body corporate. In the case of extensions not being registered by the unit owner, he doubted the viability of passing this responsibility on to the body corporate. The administration remained the responsibility of the owner. The Amendment Bill of 2009 had dealt with different matters.

The Chairperson said that there was a responsibility to ensure that sectional title owners who tried to correct matters were not victimised. The Committee would not consider any suggestion which was not part of its mandate. The public was confused by constant references to other legislation. She asked why there were always so many such references. She got confused herself at times. Drafters of legislation should try to limit the number of references to other legislation.

Mr Steyn requested both Departments to consider that what they termed technical changes must still come to the Committee. However, the difference between “must” and “shall”, for example, could affect the meaning of a clause.

Mr Bhoola said that the alignment was important. Members needed to digest and interpret the wording of the legislation.

Mr van der Merwe emphasised that new owners inherited the debts of the body corporate. The trustees needed to recoup outstanding amounts.

Mr Bhoola said that there was an absolute necessity for knowledge. The Department must not put the cart before the horse. Injustices must be fixed.

The Chairperson advised Members to conserve their energy for the meeting in the following week.

The meeting was adjourned.