Homeowners Association or Sectional Title Body Corporate: What’s the Difference?
If the safety and security offered by a townhouse Community Scheme appeal to you, you will want to learn more about Sectional Title Bodies Corporate and Homeowners Associations. In this article, we’ll explain how they differ from each other, what they share in common and what all this means for homeowners.
How is Ownership Defined?
One of the key differences between a Homeowners Association (HOA) and a Sectional Title Body Corporate lies in the way ownership is defined. In a Homeowners Association, you own the building and the land it’s built on, known as an erf. You are responsible for maintaining and repairing your own property as well as arranging proper home insurance.
In a Sectional Title Body Corporate, there are two types of ownership: exclusive and joint ownership. For example, you own your apartment, townhouse or unit exclusively but share ownership of common property areas such as gardens or a swimming pool with other owners. Then, there are areas such as parking bays which you do not own but which are available for you to use exclusively (if registered or defined in your Rules as such).
Levies and Responsibilities
This is another key area where the two schemes differ. In a Homeowners Association, the association is formed to manage and maintain common roads, communal areas and general security. The levy you pay to the Homeowners Association is used to cover the management and maintenance costs incurred. The duties of a Homeowners Association will depend on whether it is governed in terms of a Memorandum of Incorporation or a Constitution, but generally consist of the following:
Overseeing the maintenance of all buildings and common areas such as gardens within the development.
Ensuring that all residents comply with the rules of the estate.
Managing agreements with the local authorities or those supplying any type of service to the estate.
To ensure that any activities within the estate comply with local municipal laws.
The levies collected in Sectional Title Bodies Corporate not only cover the maintenance of the buildings and common property areas, but also include certain defined building insurance cover. This explains why levies in a Sectional Title Body Corporate are often higher than those in a Homeowners Association. In a Sectional Title Body Corporate, the management of the common property falls on the Body Corporate, which is made of the people who own units in the Scheme. The Body Corporate in turn elects trustees whose duties may include, but are in no way limited to the following:
Setting up a budget for the administration and reserve levy funds from which all levies are paid. These funds are then used for the management, maintenance and administration of the common property.
Arranging insurance for the buildings and common property.
Dealing with the local authorities and if need be entering into agreements with the local authority or any other person for the supply of electricity, gas, water, fuel, sanitary and other services.
Enforcing the Management and Conduct Rules amongst the residents of the Scheme.
Although the responsibilities of both Sectional Title Bodies Corporate and Homeowners Associations are rather similar, there is one important difference. In a Sectional Title Body Corporate, the Body Corporate is also responsible for arranging insurance cover and carrying out repairs to the outside of the building – homeowners are only responsible for the ‘interior shell’ of their particular units and their exclusive use areas. Bodies Corporate are also obliged to formulate, budget for, and act on a 10 Year Maintenance Plan. Whereas, in a Homeowners Association, individual owners are entirely responsible for the inside and outside of their property which includes the buildings and gardens on the erf on which they have built (subject to aesthetic guidelines that may be listed in the Memorandum of Incorporation or Conduct Rules).
Laws and Legislation
In a Homeowners Association, by way of their title deeds, every owner is automatically a member of the Association which exists as a separate legal entity from its members. In this case, the common property is transferred to and registered in the name of the Homeowners Association. As a Homeowners Association is normally a Section 21 non-profit, it is subject to the Companies Act, No. 71 of 2008. The residents elect a Board of Directors who are responsible for management of the Association.
On the other hand, a Sectional Title Body Corporate is subject to the Sectional Titles Act of 1986 and the more recent Sectional Titles Scheme Management Act 8 of 2011. As mentioned earlier, the owners in a Sectional Title Body Corporate make up the Body Corporate and elect Trustees to carry out the duties required and defined in the Act.
It is important to note that both the Homeowners Association and the Sectional Title Body Corporate are subject to the more recent Community Scheme Ombud Service Act 9 of 2011. Every Scheme must be registered with the Ombud Service, charge the applicable levies to each of their members on a monthly basis and pay such levies collected to the Ombud Service every 3 months.
Which scheme do you choose?
It is clear that there are many similarities between Sectional Title Bodies Corporate and Homeowners Associations, so you have to consider the subtle differences when deciding which arrangement suits you best.
If you prefer possibly paying a smaller levy but covering the cost of maintenance and repairs to the inside and outside of your property from your own pocket, then you are better suited to a Homeowners Association. Otherwise, you could pay a bit more and let someone else oversee the building insurance and general upkeep of the common property while you concentrate on taking care of your unit.
For Trustees in Sectional Title Bodies Corporate or Directors in Homeowners Associations, Solver Property Services offers a uniquely customised service backed by years of experience in managing Community Schemes. For more information on the services we provide, get in touch with us.