IMPORTANT NOTICE TO ALL OWNERS :CSOS THE IMPLICATIONS

IMPORTANT NOTICE TO ALL OWNERS :CSOS THE IMPLICATIONS

THE COMMUNITY SCHEME OMBUD SERVICE ACT No 9/2011 (CSOS) AND THE SECTIONAL TITLE SCHEMES MANAGEMENT ACT No 8/2011 CAME INTO OPERATION ON 7 OCTOBER 2016 AND WILL AFFECT ALL LIVING IN ESTATES AND ALTHOUGH THEY PROVIDE CERTAIN BENEFITS, THEY ALSO CREATE A FINANCIAL BURDEN ON OWNERS AS ALL LEVIES WILL INCREASE.

The main purpose of these acts are to provide standard rules for Sectional Title Schemes, to promote and monitor good governance of all Schemes and to provide an Affordable Dispute Resolution service.

1. THE FINANCIAL IMPACT – INCREASED LEVIES DUE TO:

1. CSOS FEES

In order to finance the operation of the Ombud service all Schemes will, from 1 January 2017, have to pay a fee based upon the current levies paid by an owner.  This fee is equal to 2% of the monthly levy amount with the first R500.00 exempt and with a maximum of R40.00 for levies in excess of R2 500.00 per month.

NO FEES PAYABLE IF:

• Your monthly levy does not exceed R500.00
• Your net income is below R5 500.00 per month
• If the Ombud provides exemption

Owners of Sectional Title Units situated in Home Owner controlled Estates will pay double fees based upon the levies charged by the H.O.A. and also on the levies paid for the Sectional Title Unit.

2. INSURANCE PREMIUMS

All Schemes are now obliged to take out Fidelity Insurance to cover the potential loss of Scheme funds resulting from fraud, theft, etc. over and above other insurance policies

3. RESERVE FUND PROVISIONS

All Sectional Title Schemes are to have a reserve fund equal to 25% of their total annual contributions – If the current reserve fund is below the 25% requirement, levies must increase with at least 15% to make provision for this.

4. INCREASED SCOPE OF AUDIT

The Management and Auditor are tasked with more auditing requirements which will also lead to higher levies.

2. THE ADMINISTRATIVE IMPACT

1. All Schemes must immediately be registered with CSOS and provide them, before 7 January 2017, with all Prescribed Corporate Governance Documentation. (These are substantial and must be kept up to date at all times)

2. All Schemes must provide CSOS with their annual returns and financial statements within 4 months from financial year end.

3. All Schemes to collect the prescribed fees monthly from owners and to pay same quarterly to CSOS from 1 January 2017.

4. All Sectional Title Schemes must in addition to fidelity insurance also insure the buildings and its assets against standard risks and take out public liability cover of at least R10 000 000.00 (TEN MILLION RAND).

5. All Sectional Title Schemes must prepare a 10 year comprehensive repair and replacement maintenance plan.

6. All Sectional Title Schemes must establish a reserve fund with a separate bank account and budget over and above the normal administrative fund.

7. All Sectional Title Schemes must notify CSOS, the Local Municipality and the Registrar of Deeds of their domicile address.

3. THE LEGAL IMPACT:

1. DISPUTE RESOLUTION

• Any person (including a Company/Trust/ETC) materially affected by a dispute can apply to CSOS to have the dispute resolved (the definition of a dispute however requires that the occupier, association or owner has to be one of the parties acting individually or jointly in such application). The costs are minimal - R50.00 for a conciliation (informal settlement) and R100.00 for adjudication (formal settlement) and no legal representation allowed (except in exceptional circumstances).

•  The aim is to eliminate expensive legal costs and to provide a quick and effective means to resolve disputes.

• Disputes can cover a whole range of issues – from financial-, behavioural-, scheme-, governance-meeting-, to management issues, etc. This is a welcome benefit as persons can now get quick and cost effective adjudication of disputes at a maximum of only R150.00.

2. NEW RULES FOR SECTIONAL SCHEMES

• For Sectional Titles Schemes there are far-reaching changes to the quorum-, proxy-, and meeting requirements, the value of votes, notices to persons in arrear and charges and maximum interest rates that can be collected.

• All amendments to Sectional Title rules need to be approved by CSOS. 

• If a developer changes the rules to provide for a different vote/liability of owners this must be disclosed in deeds of sale before opening of the register.

3. INCREASED RESPONSIBILITY ON MANAGEMENT

Management must ensure that their actions and governance provisions are in line with the prescribed acts and rules and do not unreasonably interfere with the rights of an individual owner or occupant. Trustees and Directors of Schemes must acquaint them with the provisions of these as their failure to comply can have dire consequences resulting in them being found guilty of an offence with penalties of fines and even imprisonment.

4. CAUTIONARY

Due to the complexity of these new requirements and the huge responsibility upon Management it is advisable that Directors and Trustees use the services of reputable established managing agents registered with the EAAB and NAMA in order to minimize their own exposure and ensure strict compliance.