Ask to see the body corporate’s financial statements before buying

Over and above the structural integrity of a building, when buying into a sectional scheme there are a number of elements that should be inspected closely to make a good investment.

The process to approval for extending a Sectional Title Unit

There is often a great deal of emphasis placed on the physical structure of a house and identifying any defects before purchasing a property in order to make an informed decision about the investment opportunity. But when buying a sectional title property, there are a number of additional elements to inspect before making the final decision.

Buying into a sectional scheme can be likened to entering into a form of joint ownership. Although you will own your section wholly, the common areas are owned jointly with all other sectional owners and management of the scheme, including the responsibility of maintaining the building structure, is shared by all owners (although in practice, often managed by selected representatives). In addition, all sectional schemes will have rules and regulations, as agreed by existing owners that must be abided by.

As such, it is incredibly helpful to read the body corporate rules as well as the latest AGM minutes. These documents will give a prospective buyer the necessary information regarding the rules that must be followed after becoming an owner/tenant as well as any recent resolutions that have been passed. This information is important since it is possible that certain regulations may not fit with the prospective buyer’s plans or needs and as a result, an informed decision can be made regarding whether to proceed with the purchase or not.

There are also financial considerations to bear in mind. As mentioned, the maintenance of the building and grounds is the joint responsibility of all the section owners, and this includes the costs associated with the property maintenance and upkeep.

The way in which these costs are covered is through monthly levies being paid by each owner. On occasion, though, if the maintenance costs exceed the amount saved or if there are unforeseen renovations to be carried out for which there are not sufficient funds, the owners will have to pay what is known as a special levy to cover these additional costs.

Although there is no way to determine with complete certainty whether a special levy might be imposed in the future, examining the most recent audited financial statements of the body corporate can offer useful insight into the financial management of the scheme. This financial statement should be made available to interested buyers upon request and will include information regarding funds currently saved as well as expenses incurred. Based on this information, one can determine the financial integrity of the sectional scheme and whether buying into it will be a good investment or will likely result in additional expenses being incurred through poor management or negligence.

While there are seldom clear-cut answers about whether buying a particular property is a good investment or not, equipping yourself with as much information as possible will provide the best chance of making a financially wise investment.

Recommended for you

Your Trusted Partner in Residential and Commercial Property Transfers
Sectional Title Governance

The Family Home – A customary law concept gets acknowledgement from the CC[post_view before=""]

This is an application that ended up in the Constitutional Court, by a partner (applicant) who lived with her late partner in, what was to them, their family home. Upon the death of her late partner, she (the applicant) was appointed the executrix of her deceased partner’s estate who died intestate. The applicant and deceased were not married but had lived together for years in the family home the applicant had inherited from her late grandfather as a “family home” intended to be for the benefit of the family.

Read More
Minors and immovable property
Sectional Title Governance

The Body Corporate and the Community Scheme Ombud Service[post_view before=""]

It is commonly accepted that the trustees appointed in a sectional title scheme have a fiduciary duty to manage the scheme in good faith and with its best interest in mind.  This is supported by the fact that all owners in a sectional title scheme have similar obligations toward other residents in the scheme and the common property. This is also underpinned by the Sectional Titles Schemes Management Act 8 of 2011.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Sectional Title Governance

ULTRA – The CC once again confirms the importance of women’s rights in Rahube v Rahube and Others [2018] ZACC 42[post_view before=""]

This case involves the apartheid era, where not only rights of black people were oppressed but also rights of women. In this case, an entire family lived together in a property – that is, the applicant, her grandmother, uncle, three brothers (including the first respondent) and two children.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Sectional Title Governance

SPLUMA in Mpumalanga: the saga continues[post_view before=""]

In this article, we take a closer look at an ongoing matter relating to SPLUMA in Mpumalanga. SPLUMA stands for the Spatial Planning and Land Use Management Act, and all municipalities in the province have issued by-laws relating to SPLUMA certificates and the transfer of property.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Sectional Title Governance

A closer look at two cases where HOA restrictions were dealt with[post_view before=""]

In 2014, a developer in Midstream estate in Midrand instituted legal action against two sets of owners/respondents in almost identical cases. Both cases dealt with clauses that imposed an obligation to build a dwelling within a prescribed time frame.  Here’s…

Read More

Need more Snymans content?

Sign up for our monthly newsletter.

Ask to see the body corporate’s financial statements before buying

Over and above the structural integrity of a building, when buying into a sectional scheme there are a number of elements that should be inspected closely to make a good investment.

The process to approval for extending a Sectional Title Unit

There is often a great deal of emphasis placed on the physical structure of a house and identifying any defects before purchasing a property in order to make an informed decision about the investment opportunity. But when buying a sectional title property, there are a number of additional elements to inspect before making the final decision.

Buying into a sectional scheme can be likened to entering into a form of joint ownership. Although you will own your section wholly, the common areas are owned jointly with all other sectional owners and management of the scheme, including the responsibility of maintaining the building structure, is shared by all owners (although in practice, often managed by selected representatives). In addition, all sectional schemes will have rules and regulations, as agreed by existing owners that must be abided by.

As such, it is incredibly helpful to read the body corporate rules as well as the latest AGM minutes. These documents will give a prospective buyer the necessary information regarding the rules that must be followed after becoming an owner/tenant as well as any recent resolutions that have been passed. This information is important since it is possible that certain regulations may not fit with the prospective buyer’s plans or needs and as a result, an informed decision can be made regarding whether to proceed with the purchase or not.

There are also financial considerations to bear in mind. As mentioned, the maintenance of the building and grounds is the joint responsibility of all the section owners, and this includes the costs associated with the property maintenance and upkeep.

The way in which these costs are covered is through monthly levies being paid by each owner. On occasion, though, if the maintenance costs exceed the amount saved or if there are unforeseen renovations to be carried out for which there are not sufficient funds, the owners will have to pay what is known as a special levy to cover these additional costs.

Although there is no way to determine with complete certainty whether a special levy might be imposed in the future, examining the most recent audited financial statements of the body corporate can offer useful insight into the financial management of the scheme. This financial statement should be made available to interested buyers upon request and will include information regarding funds currently saved as well as expenses incurred. Based on this information, one can determine the financial integrity of the sectional scheme and whether buying into it will be a good investment or will likely result in additional expenses being incurred through poor management or negligence.

While there are seldom clear-cut answers about whether buying a particular property is a good investment or not, equipping yourself with as much information as possible will provide the best chance of making a financially wise investment.