Sectional title vs freehold in South Africa

"Freehold" and "sectional title" get treated as opposites, but there are three common forms of ownership, not two. Freehold, which many people call full title, means you own the erf (the registered piece of land) and the house on it. Sectional title means you own a section of a building and a share of its shared parts. The middle case is a full-title house in an HOA estate: you own the erf outright, but the estate's homeowners' association collects levies and enforces rules. The form decides what you own, what you maintain and what you pay every month on top of the bond. Some sectional title schemes also sit inside an estate with an association of their own (regulation 6(4) and (5) deals with the case where an association takes over a body corporate's functions), so ask whether a unit pays an association levy as well as a body corporate levy.

Sectional title comes from the Sectional Titles Act 95 of 1986, and the Sectional Titles Schemes Management Act 8 of 2011 sets how a scheme is run. A section is the part of the building shown as yours on the registered sectional plan. Everything else, including the land, the roof, the lobby and the driveways, is common property, owned by all the owners together in shares set by each unit's participation quota. An exclusive use area is part of the common property set aside for the exclusive use of one owner or a few, such as a garden, a patio or a parking bay. It is a right to use, not ownership, although a garage or bay can instead be a separate section that you own (see below).

What freehold asks of you. The drawbacks of freehold, with or without an estate, come from owning everything. Every repair is yours to pay for, from the roof to the geyser to the boundary wall, and no one shares a large bill with you. You arrange and pay for the insurance on the building as well as your contents, and the garden, the security and the boundary are yours to run. There is no levy, but the maintenance does not disappear: it arrives unevenly instead of as a monthly figure. A buyer who wants a steady monthly cost, or who does not want to look after a roof and a boundary, may weigh that against a levy. In an estate you carry the association's levies and rules on top.

The owners do, together. The Schemes Management Act says the quota of a section fixes the undivided share in the common property of that section's owner (section 11(1)(b)). In the Sectional Titles Act as first gazetted in 1986, the land included in the scheme is common property, and the owners of the sections own the common property jointly in undivided shares proportionate to their quotas (sections 1 and 16). The Act calls your section together with that share a unit, so a buyer of the unit gets both.

The quota follows a rule in the Act. As re-enacted by the 2022 amendment, in force from 5 January 2023, section 32(1) makes the quota of a section in a residential-only scheme its floor area divided by the floor area of all the sections, correct to the nearest square metre and expressed to four decimal places. Section 32(2) has the developer determine the quotas of other kinds of scheme, subject to provisos we have not set out. A scheme's rules can also change how contributions are shared, with the written consent of an owner who is adversely affected (Schemes Management Act, section 11(2)), so check the rules as well as the quota.

The edge of your section is not where many people think it is. On the Act as first gazetted in 1986, the common boundary between your section and a neighbouring section or the common property is the median line of the dividing floor, wall or ceiling (section 5(4)). The registered sectional plan, not a rule of thumb about the space inside the walls, shows what is yours. Who repairs a particular pipe or wall is set by the Acts and the scheme's rules: an owner must repair and maintain their section, and the body corporate must maintain the common property, including pipes, wires, cables and ducts that can serve more than one section (Schemes Management Act, sections 13(1)(c) and 3(1)(l) and (r)). The body corporate or its managing agent can tell you which applies to a given pipe or wall.

A garden or parking bay shown as an exclusive use area is still common property. The body corporate controls it, and you hold the right to use it. A garage, bay or store can instead be a separate section that you own, called a utility section in the regulations (regulation 1(f)). The body corporate keeps a list of the sections that says whether each is a primary or a utility section, with its quota, and a list of the exclusive use areas (management rule 27(2)(c)). The ownership and boundary points above come from the 1986 text, which later Acts have amended in places we have not read in full, so a conveyancing attorney should confirm the current wording for your scheme.

A body corporate keeps two funds, and your levy is your share of both. The administrative fund pays the year's running costs: repairing, maintaining and managing the common property, the municipal charges for the building and land, and the premiums on the building's insurance. The reserve fund pays for future maintenance and repair of the common property, such as repainting, roof work, lifts and waterproofing. The Act requires one, and regulation 2 sets the minimum yearly contribution to it. The body corporate must insure the building to its replacement value, so the building premium sits inside the levy (Schemes Management Act, section 3(1)(a), (b) and (h)). An owner may also take out a policy of their own, for example for contents or for risks the body corporate's policy does not cover (section 14).

Under the prescribed management rules, the owners approve the budgets for both funds at the annual general meeting (rule 17(6)(j)(iv)). The body corporate then raises the money by levying the owners in proportion to their sections' quotas (section 3(1)(f)), unless the scheme's rules modify an owner's liability, which section 11(2) allows by special resolution with the consent of an owner who is adversely affected. The same rules let the trustees raise contributions by up to 10 per cent at the end of a financial year for expected higher costs, until members are told their contributions for the next year (rule 21(3)(b)), so a levy can move between annual general meetings. A section with an exclusive use area can also carry an extra contribution towards the rates, insurance and maintenance of that part, unless the rules make the owner responsible for those costs (section 3(1)(c)).

Special levies. The Act calls them special contributions, and most people say special levy. A special contribution is any contribution beyond the ones that come from the budget approved at the annual general meeting (section 3(4)). The management rules as published in 2016 let the body corporate levy one on a written resolution of the trustees, with no vote of the owners, when more income is needed for a necessary expense that cannot reasonably be delayed until the next budget (management rule 21(3)(a)). That is how we read the rule, and a scheme's own rules may differ: section 10 of the Schemes Management Act and regulation 6 allow management rules to be changed, for example by unanimous resolution of the body corporate, and regulation 6 sets out a few cases, such as some schemes run through an association, where the prescribed rules do not apply as written. Ask for the rules in force.

An owner who thinks a levy is wrong is not without a route. The Community Schemes Ombud Service Act lists, among the orders an application to CSOS may seek, a declaration that a levied contribution is incorrectly determined or unreasonable (section 39(1)(c)).

The reserve fund test. Regulation 2 of the 2016 regulations sets a minimum for the year's budgeted reserve fund contribution (the first budget, set at the developer's first meeting, is outside it). On our reading it turns on how much the reserve held at the end of last year compared with last year's total contributions to the administrative fund, and the table sets it out. Take a scheme that collected R600 000 for its administrative fund last year and ended the year with R120 000 in the reserve fund, which is 20% of that. That is under 25%, so on our reading the minimum for this year's budgeted reserve contribution is 15% of the budgeted administrative fund contribution: R99 000 on a R660 000 budget. The regulation does not say what applies when the reserve is exactly 25% of last year's contributions, because its bands are "less than" and "more than" 25%. A budget below the minimum, or a reserve far short of what the maintenance plan needs, is a reason to ask the trustees why. This is our reading of a regulation as published in 2016. Ask a conveyancing attorney or the scheme's auditor whether it has been amended and how it applies to the scheme.

Under section 3(3) of the Schemes Management Act as gazetted, a special contribution becomes due when the trustees pass the resolution that levies it, and the body corporate can recover it from the people who owned the units at that time. The same subsection adds that on a change of ownership the new owner becomes liable for the pro rata payment of those contributions from the date of change.

The Sectional Titles Act deals with the seller's side separately. In the wording the Schemes Management Act gave section 15B(3)(a)(i)(aa), a unit's transfer involves the body corporate certifying that all moneys due to it by the transferor for the unit have been paid, or that provision has been made to its satisfaction for their payment. As we read the two together, a special levy that has already fallen due is money the seller owes, and it is dealt with before the transfer registers.

What the Acts leave open is a levy passed before transfer but payable in instalments afterwards. We have not seen a court's reading of how the new owner's pro rata liability fits with the seller's share, and we have not read a full consolidated text of section 15B, so treat it as a question for the conveyancing attorney, who can say how the share will be worked out. Ask the managing agent for every special levy passed or proposed, and ask whether the offer to purchase should say who bears it. The transfer process shows where the levy figures fit.

The body corporate is not a company that you join: the Companies Act does not apply to it (Schemes Management Act, section 2(6)), although it can sue and be sued in its own corporate name (section 2(7)). It is deemed to exist from the date a person other than the developer becomes the owner of a unit in the scheme, every owner is a member, and it is responsible for enforcing the rules and for controlling, administering and managing the common property for the benefit of all the owners (section 2). Under the prescribed rules, the trustees run the scheme between meetings. In a larger scheme the owners elect them at the annual general meeting (rule 17(6)(j)(viii)), and where there are fewer than four owners of primary sections, every member is a trustee without election (rule 5(2)). Buying in a new scheme before the sectional title register opens is a different process: see buying off-plan in a new scheme.

Two sets of rules apply. Management rules cover how the scheme is run: meetings, voting and money. Conduct rules cover how people live there. The prescribed conduct rule on animals, for example, says an owner or occupier may not keep one without the trustees' written consent, which must not be unreasonably withheld. The rules bind the owners and anyone who occupies a section (section 10(4)). The regulations prescribe both sets, but a scheme can add to or change them in the ways section 10 allows, so the rules in force for a particular scheme are the ones to read before you make an offer.

The maintenance, repair and replacement plan. Management rule 22, as published in 2016, says the body corporate or the trustees must prepare a written plan covering the major capital items expected to need maintenance, repair or replacement in the next 10 years. A scheme may have changed that rule, so ask for the rules in force. On the 2016 text, the plan takes effect when the owners approve it in general meeting (rule 22(3)), the reserve fund exists to carry it out (rule 24(2)), and the trustees must report to each annual general meeting on how far it has been implemented (rule 22(4)). The rule sets each item's yearly reserve contribution at its estimated cost less what has already been put aside, divided by its expected life (rule 22(2)). A scheme with no plan, or a reserve far short of the plan's costs, is a reason to ask questions, because a shortfall has to be met somehow and a special levy is one way. The plan sets out:

• The major capital items expected to need work, such as the roof, lifts, paintwork and waterproofing.
• Their present condition or state of repair.
• When each will need work.
• The estimated cost of that work.
• The expected life of each item once the work is done.
• Anything else the body corporate considers relevant.

Both are residents' bodies that charge levies, but they come about differently. SARS puts the difference this way: a body corporate is created by law under the Sectional Titles Act and managed under the Sectional Titles Schemes Management Act, and a homeowners' association is formed by agreement, through a constitution or memorandum of incorporation. Both count as a community scheme under the Community Schemes Ombud Service Act, whose definition names a sectional titles development scheme and a home or property owner's association, however constituted, established to administer a property development. That puts a dispute about the administration of either one within reach of CSOS.

We have found no published comparison of levies that we can cite, so we do not say one form is cheaper. What differs is what the levy pays for. A body corporate levy also funds the upkeep of the building itself and a reserve for future repairs, as set out above. A homeowners' association levy pays for whatever that association looks after, such as roads, gates and security, and each estate's constitution says what that is. Compare the actual levy statements and what each covers, not the label.

In an estate you own the erf and the house outright, as you would anywhere else, and you also belong to the homeowners' association. Membership is commonly made compulsory by a condition registered against the title deed. That is common rather than universal, we have not found a source that says how many estates do it, and the wording differs from one estate to the next. Ask the conveyancing attorney to read the title deed conditions and the estate's constitution and say what binds you.

Drawbacks to weigh. The levy may be one you cannot opt out of, and it may rise. The association's rules may limit what you build, paint, keep or let out. How well the association is run shapes your costs: if its roads and services are neglected, the bill can arrive as a special levy. A sale may also need paperwork from the association. These come on top of freehold's own drawbacks, and they are the price of the shared roads, security and amenities. Some buyers value those, and others find the rules too tight.

Before you make an offer, ask the seller and the association for:

• The constitution (or memorandum of incorporation) and the rules, including who may vote and how the levy is set.
• The architectural or design guidelines, if you plan to build, extend or repaint, and whether the association must approve your plans.
• The latest levy statement, showing that the seller is up to date, and what the levy covers.
• A ten-year levy history, so you can see how often and by how much the levy has risen.
• The latest financial statements and budget, and whether the association has a plan for maintaining the roads, gates and services.
• Any special levy raised or proposed, and any dispute or legal claim involving the association.
• What happens at transfer: whether the association asks for a clearance or its consent before a sale can go ahead, and what that costs. That depends on its constitution and the title conditions, and we have not found a source that says how many do. The rates and levy clearance guide covers it from the seller's side.

In an agent-led sale, an agent often chases these documents. In a private sale you ask for them yourself, and how to buy a house privately covers the rest of the due diligence. The body corporate holds the records and you are not yet an owner, so the usual route is through the seller. Under the prescribed rules, a member can authorise another person in writing to inspect and copy the body corporate's records, and the body corporate must comply with the request within 10 days, or 5 days for a request for the rules (management rule 27(4) and (5)). Ask the seller for that written authority. When you are weighing up a sectional title listing, ask for:

• The levy statement: the current levy, whether the seller is up to date, and any arrears. The Schemes Management Act has the body corporate certify each owner's contribution and how much has been paid, each year and whenever the levy changes (section 3(5)).
• The latest audited financial statements. Unless one person owns every section, the body corporate must present audited statements to a general meeting within 4 months of its year end (management rule 26(4)). The prescribed rules have the statements analyse what members owe the body corporate and for how long, any levy finance or loans, and, for each major capital item, the reserve fund as a percentage of the accrued estimated cost and the rand value of any shortfall (rule 26(1)(c)(i), (iii) and (iv)). They show whether the scheme is solvent or relying on unpaid arrears from other owners.
• Minutes of the last one or two annual general meetings and of the trustees' meetings, with their written resolutions. Under the prescribed rules as published in 2016 (a scheme's own rules may differ), a special levy can be passed on a written trustee resolution, so the annual general meeting minutes alone may not show one. Trustees' minutes also show a contentious repair before it becomes a decision.
• The maintenance plan and the reserve fund balance. Set the balance and the budgeted contribution against the plan's costs, against the shortfall line in the financial statements and against the regulation 2 test above.
• Any special levy passed or proposed, and the date each was passed. Liability under section 3(3) turns on the date of the trustees' resolution, and the new owner becomes liable pro rata from the date ownership changes.
• The insurance schedule and policy. The body corporate must insure the building to its replacement value, and an owner can ask it for the policy and the receipt for the last premium (section 3(1)(h) and (s)). The prescribed rules call for a replacement valuation of the insured buildings at least every 3 years, presented to the annual general meeting (rule 23(3)), so ask for the latest valuation and its date and check that the scheme is not underinsured.
• The rules in force, management and conduct, including any rule that changes how levies are shared or that gives someone exclusive use of common property. An owner can ask the body corporate for a copy of all the rules (section 10(6)(e)), and a person the owner authorises in writing can inspect and copy them within 5 days of the request (rule 27(4) and (5)). Read the rules on pets, short-term letting, parking and alterations if they matter to how you will live there or let the unit.
• The exclusive use areas and any garage or store that come with the unit, whether each is a section you would own or only a right to use, and any extra contribution charged for them (section 3(1)(c)).

The levy is a monthly cost on top of the bond repayment, and it runs for as long as you own the unit. Lenders set their own affordability rules, and we have not confirmed whether yours counts a levy, rates and insurance when it assesses a bond, so ask your bank or a bond originator. Take the levy figure from the levy statement, not from an estimate.

Here is the arithmetic with an example. Take a R1 500 000 unit bought with a 10% deposit on a 20-year bond at the prime rate of 10.75%. The instalment is about R13 706 a month. Say the levy statement shows R2 500 a month. That figure is an example for the arithmetic, not a typical levy, because yours comes from the statement. The levy would then be about 15% of the two together, and a special levy would come on top. Banks price each buyer individually, so the instalment is an illustration.

Run your own price through the bond and transfer calculator and add the levy from the statement. If this is your first purchase, the first-time buyer guide covers the other costs that sit beside the bond.

Not that we can confirm. A unit is a section together with an undivided share of the common property, including the land, that all the owners hold. In the texts we read we found no step by which one owner can turn one unit into a separate erf. It would probably mean dealing with that shared land, which affects every owner, as well as the body corporate, the registered sectional plan and the Deeds Office.

What the Acts do describe is the end of a whole scheme. In the Sectional Titles Act as first gazetted, a registered sectional plan can be cancelled only by an order of the Court, apart from the developer closing the register when it owns every section (section 14(6) and (8)), and the 2022 amendment adds that, where a body corporate is in existence when the Court cancels a plan, sections 49(3) to (5) apply with the necessary changes (section 14(8)(b)). The owners can also direct the body corporate to alienate common property, which needs a unanimous resolution (Schemes Management Act, section 5(1)(a), with section 17 of the Sectional Titles Act). A building counts as destroyed, for the purposes of the Schemes Management Act, on physical destruction, on a unanimous owners' resolution with the written agreement of all holders of registered sectional mortgage bonds and the persons with registered real rights concerned, or on a court order (section 17(1)).

If the owners resolve unanimously not to rebuild (Schemes Management Act, section 17(9)), section 49(3) as first gazetted has them stop being separate owners and remain co-owners of the land in undivided shares by quota, with the land reverting to the land register. So the result of the routes we read is shared ownership of the land, not a separate erf for one owner. We have not confirmed that any of them is a practical way for an ordinary home to become full title, and the Acts have been amended since the texts we read. A conveyancing attorney and a land surveyor are the people to ask.

If you are selling a sectional title unit, the Sectional Titles Act has the body corporate certify that what you owe it is paid or provided for as part of the transfer (section 15B(3)(a)(i)(aa)), so ask the managing agent for the figures early. The levy clearance certificate guide explains how it works and why it delays transfers.