28 August 2010

Sectional title and retirement housing schemes - the High Court has an important function

The Sectional Titles Act No. 95 of 1986 (the STA) and the Housing Development Schemes for Retired Persons Act No. 65 of 1988 (the RPA) are both examples of regulatory and protective enactments and increasingly, they overlap.

In Du Rand N O and others v Faerie Glen Renaissance Scheme [2010] 1 A11 SA383, the Supreme Court of Appeal has importantly clarified the interplay between the two Acts.

In the STA, there is protection granted to owners in relation to matters which the legislature regards as of critical importance. Thus, certain decisions of, and actions by, a body corporate will require the sanction of a unanimous resolution of the members of a body corporate. Such a resolution requires an 80% threshold as a quorum for a meeting which is called, to pass the "unanimity" test. If any member votes against the proposed resolution, the proposal will fail the test. What is more, where the resolution in question might "adversely affect the proprietary rights or powers of any member as owner, the resolution shall not be regarded as having been passed, unless such member consents in writing thereto." However, in 2003 the STA was amended by the addition of Section 1(3A) to give a body corporate relief in the event of an owner or owners voting against a proposal requiring unanimity for reasons which a court might find unjustifiable (motivated, for example, by no good reason other than perversity, or a personal vendetta against the trustees).

In the Faerie Glen case, the Supreme Court of Appeal considered the question of relief to a body corporate where an owner (effectively only one out of 150 owners) felt that its proprietary rights or powers were adversely affected by a proposed resolution which required unanimity. In doing so, the Court also had regard to the RPA and refined aspects of that body of legislation.

The appellants, Du Rand and others, objected to an amendment of a management rule (which requires a unanimous resolution) which would make the Sectional Title Scheme subject to the RPA. The appellants were of the view that the amendment adversely affected their proprietary rights or powers and refused to consent thereto in writing.

Judge of Appeal, S. Snyders, found as follows:

"The Sectional Titles Act does not require a vote at a formally constituted meeting as a precondition to an approach to court for relief in terms of section 1(3A). The only requirement apparent from section 1(3A) read with section 35(2)(a) - is a purely factual one, namely, that the body corporate must have been unable to obtain a unanimous decision. Any variety of facts may be sufficient to persuade a court, at the hearing, of that. In this case the history of the attempts to amend the rules and the animosity between the appellants and the respondent overwhelmingly indicate that a unanimous decision was impossible."

The Judge found on the facts of the case that the RPA did in fact apply from the inception of the Scheme: that the agreements of sale complied in all respects with the strict provisions of that Act.

Interestingly, the judge also clarifies aspects of the RPA and distinguishes between ownership versus a right of occupation:

"Two provisions in the agreement motivated the appellants to argue that the agreement does not comply with the Retirement Housing Act and that the Act is therefore not applicable. First the agreement specifies that the title deed has not been endorsed in accordance with the provisions of section 4C of the Retirement Housing Act. Second, the developer, in the agreement, reserved the right to sell up to 20% of the units to persons under the age of 50 years."

Section 4C of the Retirement Housing Act is not applicable to the alienation of a right of ownership in a development scheme, as in this case, but only a right of occupation. The agreement does no more than state exactly that. This clause indicates an attempt to comply with the Retirement Housing Act, by explaining why there is no need to comply with section 4C of the Act. In any event, non-compliance with section 4C could not render the Act inapplicable.

The reservation in the agreement of the right to sell up to 20% of the units to persons under the age of 50 years in clause 14.5 of the agreement does not violate the provisions of the Retirement Housing Act which prescribes the age of occupants as opposed to the age of owners.

When the provisions of the Retirement Housing Act are applied to the facts, it is clear that the developer sold and transferred a "housing interest" - ownership of a unit - in a "housing development scheme" - a sectional title scheme - for occupation by "retired persons or the spouse of a retired person" - a person who is 50 years of age or older, or the spouse of such a person - as contemplated in section 7. In these circumstances section 7 applies.

The conclusion is inevitable; the Faerie Glen Retirement Scheme was developed in compliance with the provisions of the Pretoria Town-Planning Scheme 1974; the agreement of sale in terms of which the developer sold the units complies with the provisions of the Retirement Housing Act; and the Retirement Housing Act has been applicable to the Faerie Glen Renaissance Scheme since its inception. The amendment of rules 1 and 2 of the management rules to reflect the existing state of affairs serves only to clarify and explicitly protect the interests of existing and prospective owners of units in the scheme. It certainly does not adversely affect the rights of the appellants."

It is comforting to know that the legislature in protecting members of a body corporate in regard to their proprietary rights nevertheless opens the door to the High Courts to investigate the basis upon which a member refuses to give the required written consent and the merits of such refusal.

John Gomes, Director, Real Estate

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