You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

What sectional title schemes may do to increase income

What’s allowed and what’s not.
Image: Shutterstock

The Covid-19 pandemic has had a negative impact on levy income cash flow in many sectional title (ST) schemes this year so it is no surprise that trustees are looking for other sources of revenue, including rentals for certain parts of the common property.

“Trustees are often approached to allow the erection of cell phone towers in the grounds of their schemes, or to allow companies to put up advertising signage on the perimeter walls or building roofs – and doing so can prove to be quite a lucrative source of additional income for their schemes,” says Andrew Schaefer, MD of national property management company Trafalgar.

Moneyweb Insider INSIDERGOLD

Subscribe for full access to all our share and unit trust data tools, our award-winning articles, and support quality journalism in the process.

Choose an option:

R63 per month
R630 per year SAVE R126

You will be redirected to a checkout page.
To view all features and options, click here.

A monthly subscription is charged pro rata, based on the day of purchase. This is non-refundable and includes a R5 once-off sign-up fee.
A yearly subscription is refundable within 14 days of purchase and includes a 365-day membership.

Click here for more information.

“However, it is very important for them to remember that, in terms of Section 5 of the Sectional Title Schemes Management Act (STSMA) they cannot authorise the letting of any part of the common property to a non-owner or non-occupant in the scheme without a unanimous resolution of all owners.

“And the roofs and perimeter walls, as well as the scheme’s gardens and parking areas, are generally all part of the common property.”

However, he says, Section 4 of the STSMA does provide for the letting of common property to owners themselves as well as current tenants, under certain conditions.

“There is often a demand among occupants for additional parking spaces, garages and storerooms, for example, and renting these out can also provide the scheme with additional income. It only requires a special resolution for them to be let for a period of less than 10 years, although a lease period of more than 10 years will once again require a unanimous resolution.”

Schaefer says bodies corporate can also borrow money, if necessary, to bridge a temporary gap between income and expenses, but that trustees should be cautious about this option, because the loan will have to be paid back and that could necessitate higher-than-expected levies in future. A special resolution is required for a loan to be approved.

Meanwhile, it is also worth noting that the Prescribed Management Rules prohibit owners in ST schemes from using their individual sections and any exclusive use areas – or allowing these to be used – in any way or for any purpose that could put the reputation or the value of the scheme at risk.

“This means they may not unilaterally decide to rent their exclusive use garden area to a cell phone company, for example, or let their unit in a residential complex to a commercial tenant – even if they could earn a lot more rent by doing so and put themselves in a better position to catch up any levy arrears.”

And, he says, trustees need to enforce this rule, because the value of homes in a ST scheme is to a large degree dependent on the homogeneity of the scheme, as well as good maintenance and good financial management, and would quickly be eroded if every owner was allowed to use their unit in a different way.

Trafalgar.

COMMENTS   5

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Sectional title schemes will collapse in some dysfunctional ares (ANC areas).

Brother it’s not only the ANC areas, in the western cape many schemes are a total shambles. Levies just arnt being paid. And the struggling buy-to-let property “investors” are stuck having to fill the properties with all types of people. Even some of the larney schemes are like total Lagos slums.

The problem is that residents in ‘gated estates’ pay the same municipal tax as anybody else but they do not get any services from the municipality. They must repair their own potholes, burst water pipes, read their own water meters and maintain their own trees. All this must come from the levees.
Residents in these estates are seen to be rich. This is not so.

The big problem is that this is a volunteer position and frankly, a – – job. As such, people are not exactly lining up to sit on the BC, and there is certainly very little adherence to corporate governance protocols. Compounding this is the fact that there are no entities who actively police BCs, especially if there are no obvious problems, because it is simply not important. All of this provides a ripe opportunity for collusion and corruption on a micro scale. After all, who is going to care about BC members taking a bit off the top when the block is well run and no one is really watching?

Trafalgar is a terrible company.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / PODCASTS SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: