CAN FINANCIAL PENALTIES BE LEGITIMATELY IMPOSED BY A HOME OWNERS ASSOCIATION AND A BODY CORPORATE?

All community schemes are regulated by the Community Schemes Ombud Service Act 9 of 2011 (‘‘CSOS Act’’) and required to be registered with the CSOS Ombud. This applies where there is shared use of and responsibility for parts of land and buildings, including but not limited to a sectional titles developments scheme, a share block company, a home or property owner`s association to administer a property development.

A Homeowners Association (‘‘HOA’’) is a private entity entrusted with various responsibilities to the community scheme which it represents, which responsibilities include, regulating safety / security within the scheme, maintenance of infrastructure and enforcement of rules, procedures, and policies amongst its members. The creation of a HOA often arises as a condition of establishment imposed by local government when approving the creation of a new township. HOAs can be incorporated and registered as non-profit organizations in terms of the Companies Act, 71 of 2008, where the Companies Act and the HOA’s Memorandum of Incorporation (“MOI”) will govern it and its members, or be unincorporated, where they will be governed by the provisions of their constitution or other constitutive documents.

A Body Corporate of a sectional title scheme is a community scheme that also requires registration in terms of the CSOS Act. In addition, a Body Corporate, which is established when the first transfer of a unit in a sectional scheme is registered in the name of a third party, is governed by the Sectional Titles Act, 95 of 1986 (“STA”) and the Sectional Titles Schemes Management Act, 8 of 2011 (“STSMA”). STSMA provides, amongst other things, that:-

• the regulation, management, administration, use and enjoyment of sections and common property in all sectional schemes are governed by the Management and Conduct Rules of the Body Corporate, as approved by the CSOS Ombud;
• the Rules of a Body Corporate are to be reasonable and are to apply equally to all owners of units in a scheme.

In terms of the STSMA regulations, a Body Corporate is not authorized to debit a member`s account with any amount that is not a contribution, or a charge levied in terms of the Act or the Body Corporate rules without the member’s consent or the authority of a judgement or order by a judge, adjudicator or arbitrator.

STSMA only makes provision for the following charges to be levied against a member:-

• ordinary and special charges;
• interest and legal charges;
• reasonable photocopying charges for inspection of documents.

The SCA in its judgment in the case Mount Edgecombe Country Club Estate Management Association II RF NPC v Singh and Others 2019 (4) SA 471 highlighted that the contents of a HOA MOI are contractual in nature. An owner in a scheme is obliged to become a member of the Association or Body Corporate, as the case may be, and is subject to the conditions set out in the HOA MOI and Body Corporate rules, which is legally binding.

Where the rules of a scheme, whether governed by a HOA or a Body Corporate provide for the imposition of fines for contravention of the MOI or rules, then the MOI or rules must clearly set out the penalties and the process to be followed by a HOA or the trustees of a Body Corporate when imposing a fine on an owner. Financial penalties may be imposed on an owner (member) of a HOA or a Body Corporate if the MOI or rules of the scheme make specific provision for it. Purchasers are advised to carefully review the MOI or rules, as the case may be, when purchasing a property within a scheme. Any concerns regarding the MOI and rules should be raised prior to the signing of a sale agreement