At a glance: What first-time sectional title buyers should check
- Read the rules first: Check the body corporate’s conduct and management rules, especially around pets, parking, tenants, short-term letting, and working from home.
- Confirm the rules are valid: Make sure the version provided has been properly approved and registered or reviewed through the correct channels.
- Review the body corporate’s finances: Ask for audited financial statements, approved budgets, and details on the administrative and reserve funds.
- Ask about special levies: Find out whether there are current or planned special levies, why they were raised, how much they are, and how long owners will be paying them.
- Check for levy arrears: A high number of owners behind on levies can be a warning sign and may affect the scheme’s financial health.
- Understand the sectional plans: These plans show what forms part of your section, what is exclusive use, and what is common property.
- Know your maintenance responsibilities: Buyers need to understand what they must maintain themselves and what the body corporate is responsible for maintaining.
- Check the 10-year maintenance plan: This helps show whether the scheme is planning properly for future repairs and replacements.
- Look at how the scheme is managed: Check whether it is self-managed or professionally managed, and review AGM or trustee meeting minutes for possible concerns.
- Do proper due diligence: Sectional title can offer secure, community-focused living, but buyers should investigate the scheme carefully before committing.
Whether you are a first-time property buyer, a seasoned investor, or considering downsizing, there are important questions you need to ask before buying a sectional title property.Sectional title residential property has proven its popularity over the last couple of years with many buyers investing in ideally located complexes in areas close to work nodes and as a first step on the property ladder with its sought-after lock-up-and-go lifestyle for young professionals.To ensure you don't suffer from buyer's regret there are some obvious and less obvious questions you need to ask before signing on the dotted line.
Pets, Parking, and People
If you intend to keep a pet, need extra parking, want to rent to tenants on a short-term basis, wonder if you can run your business from home, or are concerned about what would happen if you or your tenant contravenes the rules, these questions will be answered by the rules of the body corporate.
Request a copy of the conduct and management rules of the body corporate, which regulates all aspects of communal living, including the three P’s of sectional title, namely “Pets, Parking, and People”.
Firstly, ensure that the rules you are given are the correct version of the rules and have been properly approved by the members and either registered at the deeds office or reviewed and approved by the Community Schemes Ombud Service (CSOS).
The financial status of the body corporate
As a potential buyer, you need to establish the financial status of the body corporate. A healthy bank balance is a positive sign of good management but you need to look deeper as well. You will need to take a look at the audited and trustee approved financial statements of the body corporate, as well as the member approved administrative and reserve fund budgets.
You will also need to ask about special levies - have they recently been raised, is there one in progress or are they planning one in the immediate future? The reason you need to ask about this is that you will be liable for contributing the same from the date of registration of transfer of your unit in the scheme. Find out the reason for the special levy, the amount raised, and the duration that it will be recovered from members.
Find out if many owners are behind levies and whether the body corporate has taken legal action to recover these outstanding debts. As a potential member of the scheme, you are entitled to this information, so make sure that you are asking the right questions and receive the relevant answers
The 5 steps to understanding the sectional plans
Although it may at first glance seem to be quite complicated, understanding the sectional plans of the scheme is relatively simple. These plans will offer a ‘bird’s eye view’ of the development, indicating those areas that are sections, registered exclusive use areas, and common property.
Take note of your parking bays, garages, courtyards, storerooms, balconies, patios, terraces, and gardens, as the sectional plans will confirm the legal nature of these areas, as well as your responsibility and liability in each instance.
Reference will be made to your participation quota, which will determine your undivided share in the common property within the scheme, your proportionate share in the expenses of the body corporate, and the extent of your voting right in body corporate matters.
Does the sectional plan include any extension that was carried out to your section? If not, the bank, should you require it, will not grant loan financing.
Don’t be surprised if the developer suddenly starts building within your scheme long after it has been established. Developers sometimes have this right, provided they have reserved it from the start, which can also be confirmed by the sectional plans.
What about maintenance?
It’s important to establish if there any areas within the scheme that require maintenance or repair, or any items that require replacement. For example painting, electric fencing, security cameras, elevators, swimming pool, or window frames. Each body corporate must have written maintenance, repair, and replacement plan, known as a ’10-year maintenance plan’, which is updated by the trustees and approved by the members annually.
This plan will set out which areas or items of common property exist, and when they require either maintenance or repair or need to be replaced. The reserve fund budget, as already mentioned, will need to be prepared in terms of this plan, and that is often drawn up by a professional in the industry. It’s important to understand your role to play in the maintenance and repair required within the scheme.
As an owner, you are responsible for the maintenance and repair of your section up to the median line, which is an invisible mid-point separating your section from your neighbour’s section or the common property. You will also be responsible to keep your exclusive use area clean and neat, and will contribute financially to its maintenance and repair by the body corporate, along with your proportionate share in the maintenance, repair, and upkeep of the common property.”
Managed or self-administered?
It’s also important to find out whether the scheme is self-administered, which means it is run by the trustees and perhaps a support staff, or whether there is a professional managing agent administering and managing the scheme on behalf of, and alongside, the trustees.
Take a look at the minutes of the last annual general meeting to see whether the members raised any concerns with the management of the body corporate, or the minutes of a trustee meeting which may indicate how well the trustees work together and for the body corporate.
While there may be a negative perception among some of the CSOS, managing agents and bodies corporate have to abide by the Act and its regulations, so find out whether there are currently disputes in progress involving the body corporate, whether your scheme is registered with the CSOS, and whether it is recovering and paying the prescribed levies.
While you need to be aware of the above, do not let this deter you from buying into a suitable sectional title scheme that meets your requirements, as the sense of community and secure living is worth the investment.
There may be particular areas of interest for you when deciding whether to invest in a sectional title scheme, so when in doubt and need some guidance, contact us for assistance in undertaking this very important step of due diligence.
