Community Schemes are living arrangements where people share the use of and responsibility for land or buildings. Examples of community schemes include sectional title complexes, homeowners’ associations, retirement housing schemes, share block companies, and housing cooperatives.
These schemes have rules that the owners of vacant land must follow. For instance, there may be specific deadlines and building requirements that the landowner needs to meet.
If someone buys vacant land within a community scheme and fails to comply with the building conditions specified in the scheme’s rules, there can be financial consequences and penalties. The penalty can increase until the landowner complies with the building conditions stated in the scheme’s rules.
Examples of common provisions in such instances are:
Failure to commence with construction of a building on the land within a certain period of time; and/ or
Failure to complete the construction of a building on the land within a certain period of time.
In the case of Chapmans Bay Estate Homeowners Association v Lotter and Others, the HOA’s constitution provided that an owner of vacant land will be liable for payment of a penalty, if construction of a building on the vacant land was not completed within 3 years from date of transfer of the property from the Developer to the owner provided that-
Construction of the building should commence within 2 years from date of transfer; and
Completed within 1 year of commencement of the construction process.
In this matter, the current owner purchased land from a third party and not directly from the developer. Neither the first owner, nor the current owner commenced with construction of a building on the land within the specified time periods set out within the rules. The current owner was subsequently charged a penalty by the HOA for falling to commence with construction of a building on the land.
The Court advised that imposing a penalty on owners who purchased vacant land from a third party, and not directly from the developer, was unreasonable and confirmed that the said rules were unenforceable against owners of undeveloped land if the land was not purchased directly from the developer. As a result, it was ordered that the HOA cease from imposing penalties in such circumstances.
In summary, purchasers are cautioned to investigate the rules of a scheme and familiarise themselves with the responsibilities imposed on a property owner, before concluding a sale agreement.
The Legal Lowdown
Taking a closer look at Chapman’s Bay Estate Homeowners’ Association v Lotter and Others (9387/2022) case, the Respondent took transfer of a vacant property in the Chapman’s Bay Estate in January 2021 and was managed by a homeowners’ association (‘HOA’). As a result, the Respondent automatically became a member of the HOA and was bound by its constitution. The property in question was first transferred from the developer to a purchaser in 2017. Thereafter, the property was later purchased by the Respondent in 2021.
In the respective Constitution of the HOA, clause 9.10 thereof dealt with the obligation to erect a home on the property and stipulated:
“Penalty levies as determined by the Trustees Committee are payable to the Association if a dwelling on the property is not completed within 3 (three) years from date of transfer of the property from the Developer. This is on the basis that construction of the dwelling should commence within 2 (two) years from date of transfer of the property into the name of the Purchaser, and completed within 1 (one) year from date of commencement of such construction process. This needs to be undertaken on a continuous basis, unless an extended time period is approved by the Design Review Committee, due to the complexity of the dwelling.” ( http://www.saflii.org/za).
After much deliberation in court, it was decided that the purpose of this clause is to encourage owners to build within three years of taking transfer from the developer, and that this can never be served by imposing penalties on subsequent owners where the three-year period has expired. In such circumstances, it is impossible for subsequent owners to comply with the clause, and imposing penalties potentially in perpetuity from year 4 onwards does not give effect to the purpose of the clause.
In summary, on a proper interpretation of the above clause, the HOA is entitled to impose penalty levies only upon owners who purchase properties in the Estate directly from the developer. In this case, the court held that the HOA was not entitled to charge subsequent owners with such penalty levies, based on the plain meaning of the actual words used in clause 9.10 of the HOA’s constitution.
It is clear from the above judgement, that the enforceability of a clause in an HOA’s constitution only stretches as far as the simple meaning of the actual words used. Unless the clause is comprehensively and accurately worded to reflect the purpose for which it was drafted, the enforceability thereof is limited.
New purchasers must be cautious when buying directly from a developer and subsequently becoming part of an HOA with building restrictions and penalties.
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