Sectional title in trouble

Posted On Wednesday, 26 June 2002 02:00 Published by
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Debt problems in townhouse schemes are causing massive destruction of value
Debt problems in townhouse schemes are causing massive destruction of value

Property Editor

SERIOUS problems are emerging in the sectional title property industry, in which schemes are devised to simplify home ownership in a shared common property, such as townhouses and apartments.

The problems in old sectional title schemes, in which debt and neglect led to a massive destruction of value in city centres, are now emerging in new suburban residential developments across the country.

Some new schemes are fast piling up debt, a situation that is becoming untenable, according to industry spokesmen.

There seems to be consensus that many schemes will be saved only by an overhaul of the regulatory environment, including amending the Sectional Title Act.

The source of the problems varies from the actions of unscrupulous developers who have left unsustainable schemes in the hands of 'body corporates' committees of trustees elected by the owners to run the affairs of the complex incompetent trustees and their managing agents, and the owners who have failed to meet their obligations, such as monthly levies.

There are also cases in which corrupt managing agents, with several schemes on their books, have simply milked the schemes of their funds.

But the main cause of the problems is probably the regulatory vacuum. 'South Africans do not realise the amount of damage being done in the sectional titles environment,' says National Association of Managing Agents chairman Gerald Jooste.

According to Jooste, there has been massive destruction of value and wealth as a result of problems in the schemes.

Many body corporates owe large amounts of money to suppliers of services, including the municipalities. Some are in a debt trap, and their situation is irreversible.

Sectional Title Services MD Peter Nathan says this is partly the result of toothless body corporates, which are legally unable to enforce rules, including levy payments.

Suggestions to empower body corporates to cut services to defaulters have been dismissed as being likely to result in kangaroo courts.

Jooste says a 'general amnesty', where debt to municipalities of certain buildings is wiped out, should be seriously considered.

Nathan agrees that many owners in financially troubled schemes are the victims of circumstances who have been betrayed by a lax regulatory environment.

Nathan says the people really responsible for these arrears have often escaped by selling the units to current owners without telling them of the underlying debts.

'The result has been that people who thought they were buying property were actually buying debt.' He says local authorities are spending a lot of money chasing debt that cannot be recovered.

An expert in sectional title schemes, Bob Gauld, who runs the Sectional Title Help Line, says many of the problems can be solved by educating consumers.

The sectional title environment is too broad, he says, and its problems are unlikely to be solved by meddling with the Sectional Title Act. Provisions of the act cannot cover schemes which may vary from one with two units to a 500-unit scheme with very different features.

Gauld says that education of the consumer is the answer and warns potential owners of the age-old saying caveat emptor let the buyer beware.

'If we can get the buyer to use the statutory cooling off period intelligently, we will go a long way towards solving some of the problems,' says Gauld.

There is, however, general agreement that the estate agent should play a significant role in consumer education.

Nathan says legislation should be strengthened to ensure more transparent transactions. The estate agent should carry the responsibility for disclosing information about the property at the time of the sale.

This should include disclosure of a body corporate's debts and its general financial situation.

Nathan says the sectional title regulations board an ad hoc board called from time to time should include people who are in touch with the day to day problems of managing sectional title schemes.

There is also wide support for the suggestion that municipalities should bill individual owners rather than the body corporate.

Jun 26 2002 12:00:00:000AM Sibonelo Radebe Business Day 1st Edition


Publisher: Business Day
Source: Business Day

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