A popular form of investment in property is to purchase a sectional title unit and to earn rental income by entering into a lease agreement with a tenant, preferably on a longerterm basis to maximise the investment over time.
A sectional title owner is also bound by the rules of the sectional title scheme in how to utilise and enjoy the unit. In general this will not be problematic where there is a lease agreement in respect of the unit, as the owner would, as part of the lease agreement with the tenant, include provisions so that the tenant is aware of the rules (for example by attaching a copy to the lease agreement) and will comply with them.
The issue can become more complex where the unit is rented out for short term rentals, for example as holiday accommodation, or where it is used as an Airbnb. This issue was recently considered by the South Gauteng High Court in Body Corporate, Paddock Sectional Title Scheme v Nicholl 2020 (2) SA 472 (GJ) (Paddock judgment).
This bulletin will give a high level overview of sectional title scheme rules, discuss the findings of the Paddock judgment and conclude with key takeaways.
Sectional title schemes are regulated by the Sectional Titles Act 95 of 1986 (the STA) and the Sectional Title Schemes Management Act 8 of 2011 (the STSMA) along with the regulations promulgated in terms of this Act.
The key role players in the sectional title scheme rules value chain are: individual owners; the body corporate; trustees of the body corporate; agents and employees of the body corporate; and the Community Schemes Ombud Service (CSOS).
A body corporate comes into being by operation of the law once a person other than the developer becomes an owner of a unit, and thereafter every person who buys a unit automatically becomes a member of the scheme’s body corporate.
After the body corporate is established, a set of management and conduct rules must be adopted for the regulation and management of the sectional title scheme. The STSMA requires that these rules must be reasonable and equally applicable to all the owners of the scheme. The amendment of the rules is subject to the approval of the Chief Ombud exercising power in terms of the Community Schemes Ombud Service Act 9 of 2011. The Chief Ombud will approve an amendment to the rules having regard to the nature of the scheme and whether the rules are reasonable.
Once approved, the rules are binding on all owners and occupiers of property within the scheme.
The STSMA makes provision for the appointment of trustees of the body corporate that are responsible for exercising the powers and functions of the body corporate, which includes enforcing the conduct rules adopted by the body corporate.
Additionally, the body corporate may also employ agents who will be responsible for the day to day management of the sectional title scheme.
Discussion of the Paddock judgment
This case involved the applicant, a body corporate of a sectional title scheme known as the Paddock located in Sandown Sandton and the respondent, Nicholl, an owner of a unit within the sectional title scheme.
The respondent had been utilising her unit as an Airbnb. Following complaints from some of the residents of the sectional title scheme, chief among them being security risks and a concern of depraved conduct by the short term tenants, the body corporate adopted rules which sought to prevent the leasing out of units for periods less than six months and the use of property for commercial purposes.
The new rules were approved by the CSOS. The respondent continued to operate her unit as an Airbnb in contravention of the new conduct rules which led to the body corporate instituting an application for a final interdict against the respondent.
The respondent instituted a counter-application seeking to, inter alia, have the new conduct rules declared unconstitutional and invalid in that they violated her right to property in terms of section 25 of the Constitution by limiting the way in which she deals with her property to generate an income.
The issues before the court included the following:
- whether the amendment of the conduct rules was compliant with the STSMA;
- whether the amendment and the adoption of the new rules is reasonable and applicable to the respondent;
- whether certain conduct rules are inconsistent with section 25 of the Constitution, in that they constitute an arbitrary deprivation of the respondent's right to property; and
- whether the applicant is entitled to a final interdict against the respondent.
One of the sections of the STSMA quoted and dealt with extensively by the court is section 10(3) which provides that the conduct rules adopted by the scheme must be reasonable and apply equally to all owners of units within the scheme. The court held that the question to be answered in this case was - whether the complaint against short-term leasing was objectively reasonable.
It was held that the answer will vary from scheme to scheme and the intrusion brought about by the operation of Airbnb will have a different effect depending on the type of scheme; whereas the disturbance may be acceptable in a student accommodation, the same cannot be expected in a quiet estate with only a few units. The court found that the residents of the applicant in this case cannot be expected to tolerate the intrusion brought about by the operation of an Airbnb and the amendment of the conduct rules was found to be compliant with the STSMA as it was reasonable and equally applied to all owners.
The court also took the view that the new rules were consistent with section 25 of the Constitution, as they do not constitute an arbitrary deprivation of property to the respondent but instead, they constitute a justifiable limitation of the respondent's property rights. The court found in favour of the body corporate and the respondent was ordered to, amongst others, stop utilising her property as an Airbnb.
The ruling of the court in this matter may still be overturned on appeal. Nevertheless it presents an interesting case study of how rules supported by the majority in a sectional title can limit the manner in which an owner wishes to use their property to generate an income.
As a prospective purchaser of a unit in a sectional title scheme, it is important to note that when buying into a sectional title scheme an owner of a unit will be bound by the rules adopted by the scheme’s body corporate and that new rules may be adopted at any time as long as this is done lawfully.
If the rules of a scheme have been lawfully adopted and contain restrictions to use the unit as discussed above, the owner of the unit will have no other choice but to comply with the rules.
Care should therefore be taken before purchasing a unit in a sectional title scheme, that a prospective purchaser considers any restrictions on the use of a unit.
In the event of the rules not placing any restrictions of use of the unit for short term rental purposes, care should further be taken that the use would comply with the rules, failing which the body corporate may be entitled to enforce same. The possibility then also remains that the rules can be amended to limit the use of the unit for short term rental purposes.
This bulletin was prepared by Johan Coetzee, Partner and Thulisile Cingo, candidate attorney.