Mr and Mrs Jones own a property in Bryanston, Johannesburg. Many of the old properties in Bryanston are approximately 4 200 square meters, and this is one such property. The Jones’s children have grown up and left home to start their own lives. Mr Jones is considering retiring in approximately 6 years’ time and Mrs Jones in 3 years’ time. They still have a small amount owing on the loan secured by a mortgage bond over the property.
They have already determined that there are the following benefits in reducing the size of the property they occupy:
Maintenance costs of the garden would be reduced;
If they build a new smaller home on the property, the maintenance costs of their home would also be reduced;
Living in closer proximity to others does contribute to the security one would enjoy.
Depending on the available capital they could:
Sell their old family home to someone who may wish to modernise it;
Fix the old family home up themselves and sell it for a very tidy sum;
Build a smaller modern home, or a few homes in fact, and sell them off.
Any of these options would mean they could settle their bond and possibly contribute a substantial amount to their retirement funding. The Jone’s now need to decide which route they wish to follow.After many family discussions, which would naturally include the children and their new spouses, they decide that they would like to build 3 cluster homes, move into one, sell the other 2 and modernise the old family home and sell that also. Perhaps in the end they can add another R5 000 000,00 to their retirement savings!!At this stage they need to consult with their Conveyancer, Town-planner and Surveyor on the way forward, which they do, and realise they are now faced with another decision:
Do they subdivide the property or do they open a Sectional Title Register?
Advantages of subdividing:
Each property will be wholly owned by the new owners;
There will likely be a Home Owner’s Association but the Rules are a lot less rigorous than those in a Sectional Scheme and one is generally free to affect whatever changes one wishes to one’s home, subject to municipal approval of the plans and possibly a general guideline in the homeowner’s association rules;
All municipal accounts are in one’s own name so are more easily managed;
There is no joint responsibility to maintain gardens and buildings, nor to insure the improvements on the property;
One can sell the land on a “Plot and Plan” basis – one would then receive the purchase consideration for the land on registration and the balance of the price by way of draws as the building progresses – much kinder on the available capital for the project.
Disadvantages of subdividing:
The process takes long – at least a year and perhaps as long as 2 or more;
The municipality would have to be involved at every step;
The process is relatively expensive – each new home would need to have its own water, electricity and sewerage connections and the driveway would generally have to be of a higher, and more expensive, standard.
Advantages of opening a Sectional Title Register:
Once the plans are approved by the municipality, one can start building – there are no long delays in waiting for townplanning approval from the municipality;
The costs involved are a lot less – joint electricity, water and sewerage supplies for all the homes for a start; The process is generally a lot quicker – one may be able to start transferring the finished homes within 6 months;
The Management and Conduct Rules are quite standard and more and more people are coming to terms with the value of having strict conduct rules when living in close proximity with others.
Disadvantages of opening a Sectional Title Register:
The whole unit must be complete before it can be transferred – the Sectional Plans can only be finalised when the Surveyor or Architect can measure the unit between the walls AND from floor to ceiling;
There are joint accounts with the municipality;
The legislation compels the establishment of a body corporate and the body corporate to prepare an annual budget and to divide the budgeted costs between the owners;
The annual budget should include a provision for future maintenance projects – the intention of the legislation was never that a body corporate would just raise a special levy when it was time to paint all the outside walls – this should be provided for in the budget;
The gardens are part of the “Common Property” and as such are jointly owned by all the owners – it is possible to register a personal right of an “Exclusive Use Area” but the garden (and perhaps courtyard, parking areas, open stoeps, etc) remains common property;
The Management and Conduct Rules need to be strictly adhered to; otherwise the rights of neighbours quickly become compromised;
In a smaller complex there is less of a tendency to run a formal management system and one very often finds owners effecting unapproved alterations; and not ensuring that the Sectional Plans are properly amended (this process is another entire discussion!!);
Many of the banks are now instructing their Valuation teams to specifically check that the units conform to the registered Sectional Plans and if they do not, they will not grant a bond; This means that if your neighbour has effected alterations to his or her home without the approval of the body corporate and without ensuring the Sectional Plans are amended and the amended Sectional Plans are registered in the deeds office, your buyer will never be able to secure a bond – you will need to find a cash buyer who does not yet understand the problems associated with unapproved alterations in a Sectional Scheme.
Andrew Smith has 26 years of conveyancing experience, including subdivisions, township developments, sectional title developments, servitudes, usufruct transfers, general transfers, mortgage bonds, and uses his tax background to structure complicated transactions in the most tax efficient manner.