By Clint Riddin
In the new-built property market, developers have become increasingly creative in the types of developments they design and build to attract buyers and investors.
The original idea behind cluster schemes was mainly to provide security estates, but over time this was seen as the minimum a development should offer and lifestyle estates have become the order of the day. These lifestyle estates vary in size and type, ranging from a few units on large plots to wine estates and multi-dimensional golf and equestrian estates with a few thousand units. A further aspect of these large developments is that unit prices cover a wide range to cater for different income levels.
Given the multi-dimensional aspects of these estates, the management and structures to support the management need to be carefully considered to ensure the development is a success and becomes an attractive option for future buyers.
However, some developments have failed to provide the correct management structures. Most disputes centre around the calculation of the levy, as little thought was given to this in the past. Often the prescribed management rules are determining factors in calculating levies, which give rise to these disputes. This is especially true in mixed use estates with commercial elements as home owners believe their levies are subsidising costs for another part of the estate, which they don’t use or may not have access to.
Another problem is the zoning of plots, with some consolidated erven or a number of erven in a particular township where a local authority requires the establishment of a home owners’ association. Some erven may form part of the home owners’ association and then, where possible, a sectional scheme may be developed on one or more of these erven. In these circumstances, there would be a home owners’ association structure and a body corporate being managed under the Sectional Titles Act.
The decision also needs to be made about whether the home owners’ association should be a Section 21 company or a common law association. Whatever the decision, the management aspects contained in the home owners’ association must complement the management and conduct rules that govern the sectional scheme within the home owners’ association, with specific emphasis on levy calculations.
VAT is applicable to home owners’ associations, so if the annual levy is in excess of a million rand a year, careful structuring of the levy calculation and budgets may well prevent the HOA needing to register as a VAT vendor. Consideration should also be given to the income tax part of the levy structuring, as here too, careful tax planning could prevent SARS determining that a particular income group be deemed taxable in terms of SARS’s Practice Note 8.
To prevent disputes about the levy calculation and liability, careful thought needs to be given to the accounting structures of the estate, which includes monthly and annual financial reporting. In some instances the management structures could be too elaborate or cumbersome, resulting in disputes, so a happy medium should be sought to ensure well run lifestyle estates.
Clint Riddin is a sectional title accountant and a presenter on the UCT Sectional Title Development Course, which will take place in Johannesburg on March 29, 30 and 31. Call Kate on 021 685 4775, email kate@paddocks.co.za, or visit www.paddocks.co.za.
