First quarter Rode’s Report raises doubts over the Sectional Titles Schemes Management Act

11-04-2022

The latest issue of the Rode’s Report has brought into question the practicality of the current Sectional Titles Schemes Management Act (STSMA). Legislated in its new form in 2016, the Act is felt to be overwhelmingly one-sided and biased towards managers, trustees and compliant owners.

Explains Mike Spencer of Platinum Global (a professional valuer and a contributor to this quarter’s report): “The Act enables trustees to run their own schemes with or without the assistance of managing agents. Even when such agents are appointed, it makes these professionals subservient to invariably unqualified, unprofessional and thus uninformed trustees, who often run their schemes in whatever way they chose.”

Problems also arise in that the Act enables defaulting trustees - either in arrears of their levies or who do not abide by the rules - to be elected as trustees. Spencer adds: “What is the likelihood of these trustees holding themselves accountable? The best scenario would be for the Act to return to its previous legislative form in which any trustee in arrears is automatically disqualified from being a trustee.”

Where electrical and water service charges were then also in arrears, the body corporate was not allowed to disconnect these.

Says Spencer: “To make matters worse, the Community Schemes Ombud Services (CSOS) is clearly not up to the task of ruling on matters such as outstanding levies. These would rather need to be resolved via attorneys if any resolution is to be found.”

Another fault of the new STSMA was that it changed both the quorum required for decision making, as well as the way of voting.

Explains Spencer: “While it may be fairly easy to get an attendance of 33,3% - as currently required by the Act - in a scheme of 10 units, this becomes highly problematic with schemes that can have in excess of 200 owners and more.”

There were also questions around who could be given a proxy to vote on behalf of an owner, as well as limiting the votes an owner could have, irrespective of whether the number of units they owned in a scheme. The only way around this, believes Spencer, is to: “Revert to the previous way of voting, as per one vote per unit, unless any owner insists on a participation-quota vote.”

The current Act also enabled body corporates who held meetings at which the required quorums were not in attendance, to simply hold over the meeting to a second time and place. There would then be no requirements in place to meet the quorum at the second meeting.

“This means that a tiny number of owners would effectively be allowed to make major decisions on behalf of an entire body corporate,” notes Spencer. “It’s time to return to a more equitable, economical and practical system that favours those who bother to participate in the first call for an AGM.”

The latest Rode’s Report also reflects on the current office market, noting that it continues to be the worst placed of all the different property types.

Notes Rode: “Oversupply is enabling tenants to push negotiations to the extreme in their favour, and capitalization rates of office properties, understandably, are then also taking a turn for the worse.”

While no major city was thus able to record rental growth compared to a year ago, the Cape Town office market had at least managed to see rentals rising significantly from the low levels recorded at the end of 2021.

On the other end of the scale, in line with the recovery of manufacturing and retail, industrial property continued to fare relatively well, with nominal rental growth on average across South Africa rising to 4,1% year on year. This in turn meant that cap rates of industrial property had also improved.

Consumer inflation, however, seemed to be taking its toll on the housing market. While this sector had seen nominal prices in the first two months of 2022 growing by 3,8% year on year, it has also seen a 2% fall in real house prices due to the sharp rise in consumer inflation to 5,7%. Rising prime lending rates will eventually depress nominal house prices.

As for the flats market, a positive is that flats are filling slowly, notes Rode. Flat vacancy rates were slightly down from 10,2% in the fourth quarter of 2021 to 9,9% in the first quarter of 2022 and have generally improved after hitting a peak of 13,1% in the fourth quarter of 2020. “However, thanks to the pandemic, vacancy rates remain well above the 5,3% average recorded between 2017 and 2019, placing strong pressure on achievable rentals.”

More information:
Kobus Lamprecht - kobus@rode.co.za
021 946 2480

Subscriptions:
Juwayra Januarie - juwayra@rode.co.za
021 946 2480