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All “Community Schemes”: New Rules and a New Ombud You Need to Know About

All “Community Schemes”: New Rules and a New Ombud You Need to Know About

The Community Schemes Ombud Service Act (“CSOSA”) came into effect on 7 October, together with the related Sectional Titles Schemes Management Act (see previous article).   CSOSA applies to all “Community Schemes” (residential, commercial and industrial) including –

  • Sectional title development schemes
  • Home owners associations
  • Property owners associations
  • Share block companies
  • Retirement housing schemes
  • Housing co-operatives
  • Any other “scheme or arrangement in terms of which there is shared use of and responsibility for parts of land and buildings”.

Community disputes – a new resolution process

If you have lived or worked in any community you will know just how easily disputes can arise, how bitter they can be, and how difficult it can be to resolve them.

A welcome innovation therefore is the new Community Schemes Ombud Service (“CSOS”) which provides an alternate dispute resolution process for anyone party to, or “materially affected by” a dispute.

The range of disputes on which the Service can adjudicate is extensive and covers levy disputes, nuisance complaints, repairs and maintenance disputes, complex meetings, financial, governance and management issues, exclusive use rights and the like – the list is long and widely-worded.  Legal representation in adjudication proceedings is only allowed if the adjudicator and all parties agree or the adjudicator decides that a party cannot deal with the adjudication without legal representation.  Orders may be appealed to the High Court, but only on points of law.

The scheme’s administrators can also ask for an order that a tenant pay rentals direct to them to clear a landlord’s arrears.

The cost of using the dispute resolution service itself is minimal (R50 per application, R100 per adjudication, R8 per copy of a document) but your levies will increase when schemes have to start recovering from you (and paying over to CSOS on a quarterly basis) a Service Levy based on your monthly levies – a sliding scale from zero for levies of R500 p.m. or less, up to R40 p.m. for levies of R2,500 p.m. or more. Download CSOS’s Levy Calculator here http://www.csos.org.za/regulations.html to see what you (and the scheme as a whole) will be paying.  These new levies kick in 90 days from 7 October.

New duties for “scheme executives” and schemes

“Scheme executives” (trustees, directors and anyone else “who exercises executive control of a community scheme”) acquire various duties and fiduciary obligations, including a duty to be informed and educated about the community scheme, its affairs and activities and the relevant legislation and governance documentation.  Governance documentation means any “rules, regulations, articles, constitution, terms, conditions or other provisions that control the administration or occupation of private areas and common areas in a community scheme”.

Schemes must (these are highlights only) –

  • Take out fidelity insurance against loss of money through fraud or dishonesty
  • Register with CSOS on form CS1, within 30 days of 7 October or incorporation
  • Lodge annual returns and (within 90 days of 7 October or incorporation) governance documentation with CSOS.

The Ombud Service has the Community Schemes Ombud Service Act No. 9 of 2011 (and also the Sectional Titles Schemes Management Act No. 8 of 2011 with which it is closely intertwined), as well as downloadable CSOSA forms, on its website here, with the Regulations and levy calculator downloadable here.

New Reserve Fund Requirement and Other Key Changes

The Sectional Titles Schemes Management Act (“STSM”) applies only to sectional title schemes and replaces the old Act’s Management provisions.  It came into effect on 7 October 2016, together with the related Community Schemes Ombud Service Act.

The 10 year plan and reserve fund requirements

Bodies Corporates and Trustees in particular need to know about their new responsibilities and liabilities, amongst which is the well-publicised new requirement to prepare a 10 year plan for maintenance, repair and replacement of capital items.  You must support this with a reserve fund sufficient to cover the cost of future maintenance and repair of common property.

The minimum level for this reserve fund has been set at 25% of the previous financial year’s “administrative fund” (the fund for operating costs) levies. If your scheme is short of this requirement (it will be if you have in the past relied on special levies to fund exceptional expenses as they arise), your levies will increase by at least 15% (in addition to any normal annual increase) until you catch up.

Other key changes

  1. The Body Corporate must notify (on Form A of the Regulations) the Chief Ombud, local municipality and registrar of deeds of its domicilium citandi et executandi address for service of process
  2. Changes to the procedures for the calling and conduct of meetings include a provision that no attendee can act as proxy for more than two members
  3. There is a 3 year revaluation requirement for all buildings and improvements, the valuation to be presented to an AGM for approval of insurance schedules
  4. A body corporate may charge interest on arrear levies, and other overdue amounts payable to it by a member, compounded monthly in arrear, at the maximum rate under the National Credit Act (Repo Rate + 21%).

The Ombud Service has the Sectional Titles Schemes Management Act No. 8 of 2011 (and also the Community Schemes Ombud Service Act No. 9 of 2011 with which it is closely intertwined) – on its website here, with the Regulations downloadable here.