27 April 2008

Life Right Schemes – Protection for retired persons

The Housing Development Schemes for Retired Persons Act, 1988 was introduced to regulate retirement development schemes so as to afford an occupier a minimum level of protection. This protection extends to various aspects of both the development and the ongoing management of a development scheme. This article highlights the financial protection afforded to a retired person who purchases a housing interest that is regulated by the Act.

A "housing interest" is defined in the Act, in relation to a housing development scheme, as "any right to claim transfer of the land to which the scheme relates, or to use or occupy that land”.

A housing development scheme for retired persons may be structured in a variety of ways. For example, a scheme may be based on sectional title or share block ownership, or be structured as a so-called “life right” scheme. A purchaser in a sectional title or share block scheme is afforded a degree of statutory protection in terms of the applicable legislation regulating sectional title ownership and share block schemes, as the case may be. However, prior to the amendment to the Act in 1989, a purchaser of a life right was afforded little protection as a life right amounted to no more than a personal right of occupancy. Section 4A of the Act (which was introduced in 1989) places the holder of a "right of occupation" in a "housing development scheme for retired persons" in the same position as a registered lessee of land.

One of the specific aims of the Act is to prevent a developer using funds paid by a purchaser without the purchaser being protected in any way. This protection is achieved by imposing a restriction on the receipt by the developer of any consideration paid by a purchaser until such time as –

  • a copy of the contract entered into between the developer and the purchaser is provided to the purchaser;
  • an architect or quantity surveyor has issued a certificate confirming that the scheme has been erected substantially in accordance with approved building plans, the applicable town-planning scheme and any relevant local authority by-laws, and the scheme has been sufficiently completed to enable the housing interest to be used; and
  • an attorney has issued a certificate confirming that the title deed of the land on which the scheme is situated has been endorsed to reflect that the land is subject to a housing development scheme, as contemplated in the Act.

Copies of the architect or quantity surveyor’s certificate as well as that issued by the attorney must be provided to the purchaser concerned. A developer or other person who fails to comply with these requirements of the Act is guilty of an offense.

It should be noted, however, that the Act does not preclude the consideration paid by a purchaser, or any part of that, being entrusted to an attorney or an estate agent to be kept for the benefit of the developer in a trust account until these requirements have been complied with. An alternative is for the consideration to be paid to the developer, but only after the purchaser has been furnished with an irrevocable and unconditional guarantee by a banking institution, mutual building society, building society or insurer that the amount paid will be repaid to the purchaser in the event that the prescribed requirements are not complied with.

Hugh Jackso, director and Giada Masina, associate, Cliffe Dekker Inc.

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