Sectional Title Schemes are a little different to other types of properties in South Africa. The Sectional Titles Act 95 of 1986 lays down different requirements for the sale of proposed sectional title units and existing sectional title units.
Sale of proposed sectional title units
The sectional titles act says that a proposed sectional title unit can be sold in a building that has already been built, even if the sectional title register for the scheme has not been opened yet. But transfer of ownership in the sectional title unit can only be effected once the sectional title plan has been registered and the sectional title register has been opened.
A unit in a proposed sectional title scheme, which has yet to be built, can also be sold, subject to the building thereof, and the opening of the sectional title register. This is often called "off plan" sectional title unit sales.
Receiving Consideration
Section 26 of the Alienation of Land Act states that the seller of a proposed sectional title unit may not receive "consideration" from the sale, until the sectional title register for that unit has been opened. This "consideration" means the purchase price and interest on the purchase price, or any portion thereof.
Rent and occupational interest, wich can be considered reasonable compensation for the buyer's use and enjoyment of the proposed sectional title unit, does not fall under this definition of "consideration", though. A seller may therefore receive occupational interest, or occupational rent in respect to the sale of a proposed sectional title unit.
Another way to "get around" the prohibition for sellers, in terms of receiving consideration from the sale of a proposed sectional title unit, would be to make use of an attorney's, or a real estate agent's trust account. The whole, or a portion, of the purchase price may be held in trust for the benefit of the seller, untill the sectional title register has been opened.
The rule, wich prohibits sellers from receiving consideration in terms of the sale of a proposed sectional title units, also does not apply if the seller furnishes the buyer of such sectional title unit with an unconditional and irrevocable guarantee, by a bank or insurance company, that the amount will be repaid to the buyer, in full, if the sectional title unit is not registered for some reason or another.
Installment Sale
The Alienation of Land Act also provides for the sale of proposed sectional title properties in more than 2 installments, over a period of more than one year.
The same rules, regarding consideration, applies to the sale of proposed sectional title units by installment sale. But the requirement, of the sectional title register being opened, before the seller is allowed to receive consideration from the sale, is not enough in the case of an installment sale.
The installment sale has to be registered against the title of the property before any consideration may be received by the seller.
The installment sale contract must also state the latest date, by which the sectional title register will be opened. This date may not be more than 5 (five) years from the date of the installment sale contract.
Existing Occupants
Tenants who are in occupation of the proposed sectional title units, who have a lease with the sectional title developer, or his predesessor in title, enjoy a pre-emptive right to purchase the proposed sectional title units they occupy.
This right of first refusal is only available to tenants were entitled to be notified of the meeting, called by the developer, before the draft sectional title plan could be submitted to the Surveyor General for approval. So, a tenant who entered into a lease with the developer after the meeting was held, does not have a right of first refusal (a pre-emptive right).
Sale of existing sectional title units
An existing sectional title unit is one that has already been built AND for which the sectional title register has already been opened. And there ore some rules to follow for the sale of existing sectional title units as well.
Sale by a developer
When the sectional title register is opened for the first time, the sectional title developer owns every last unit in the sectional title scheme. The developer can decide what to do with the sectional title units.
The developer may let all the units to tenants, or he/she may let some units and sell some other units, or sell every last unit in the sectional title scheme. The developer may also sell or let the units in one or more transactions, or in "phases", if he/she so wishes.
The Sectional Titles Act, however, restricts a developer from selling any of the sectional title units in a scheme on the open market, if a leased unit is used for residential purposes and the tenant was entitled to be notified of the required meeting, before submitting the draft sectional title plan. Such sectional title unit may only be sold once the tenant has failed, or declined, to excersize his/her right of first refusal.
A contract of sale, which was entered into without following the provisions for the tenant's right of first refusal, is null and void. And the Sectional Titles Act also contains provisions that protects the tenants of a sectional title unit from rent increases and notices to vacate the sectional title unit, by the developer.
Sale by persons other than the developer
The Sectional Titles Act does not contain restrictions on the sale of existing sectional title units by persons other than the developer of the sectional title scheme. The seller of a sectional title unit must, however, inform the body corporate of the sectional title scheme of any change of ownership without delay.
The body corporate will find out about any change of ownership anyway, because the transfer of ownership of a sectional title unit can only occur once the body corporate issues the seller with a clearance certificate. The clearance certificate is issued only if the seller has paid all monies due by him/her, or once the seller has made provision for the payment of such outstanding amounts, to the satisfaction of the body corporate.
The body corporate must issue a clearance certificate, signed by at least two trustees, which confirms that all due payments have been made, or that satisfactory provisions have been made for the payment of any outstanding amounts.
Rent controlled sectional title units
No restrictions apply to the sale of an existing sectional title unit by someone other than a developer. But rent controlled leased units are an exception.
If a sectional title unit is rentcontrolled and occupied by a lessee, older than 65 years, whose income does not exceed the maximum amount for rent protected tenants, who concluded a lease agreement with the developer, and who was entitled to be notified of the required meeting, before submitting the draft sectional title plan, the sectional title unit may only be sold subject to the lessee's right to remain in the unit, for as long as his/her maximum income does not exceed the maximum amount for rent protected tenants.
Sectional Title Unit Sales
Selling sectional title units is not as simple as selling a freehold property, in some cases. But if sectional title developers and sectional title unit owners follow the rules, selling sectional title property is not that hard either.
