Here is Part Five, the final article in the series of ‘Life Rights’ articles written by Prof Graham Paddock. To see the full series visit the ‘articles’ section of paddocks.co.za
UNDERSTANDING LIFE RIGHTS: A Hybrid Life Right and Sectional Title Scheme
Introduction: In part four I looked at the challenges that arise in retirement schemes where some segments are devoted to life rights and others to for-profit commercial enterprises. In this part an illustrative case study includes elements common to many life right schemes, to examine how the statutory bodies established under the Housing Development Schemes for Retired Persons Act of 1988 (‘the Act’) and the Sectional Titles Schemes Management Act of 2011 (‘STSMA’) can legitimately be operated by just one overarching management body to achieve both management efficiencies and legal compliance.
Illustrative Case Study
The developer of a conventional property builds 120 retirement dwellings, a community centre including a large kitchen, dining room, lounges and recreation areas, a 60 bed healthcare centre, a guard and gatehouse and a security complex linked to perimeter electrified fencing. The developer operates a managing agency and a range of other businesses that are set up to provide utilities and services to retirees. The kitchen and healthcare centre businesses offer a full range of sub-acute hospital care and meals to both the retirees and to the staff and general public. Both the retirement and commercial segments share use of a segment of the development including some roadways, gardens, the guarding and the security systems.
The developer first alienates the life rights and later opens a sectional title register for the whole property with the dwellings, community centre, kitchen and healthcare centre as separate sections. It retains the dwelling units and transfers the others to an associated company. It assigns the LRMA’s and the STBC’s functions and powers to a newly established common law management association, and substitutes the constitution of that association for the STBC’s management and conduct rules.
Proposed governance framework: In these circumstances, the CLA constitution can comply with the requirements of Act and the STSMA and also balance the interests of the life right holders, the developer and the owners of the commercial units if it:
Divides the scheme into life right, commercial and shared segments;
Separates the administration and financial management of each segment, utilising the provisions of section 11 (2) of the STSM Act and regulation 14 of the Act;
Provides for each segment to elect their own trustees and for separate trustee and member meetings for each segment when they deal with and manage their own affairs in line with the relevant governing statutes (different for each segment), while the trustees of the life right and commercial segments jointly manage the affairs of the shared segment, each group acting in accordance with the law applicable to their segment;
Ensures that expenses associated with each of the three segments (Life Right, Commercial, and Shared) are borne by the appropriate group of stakeholders or shared between them in an agreed ratio to avoid cross-subsidization;
Contains provisions to ensure that conflicts of interest are avoided, that the developer’s legitimate rights are respected and that the life right members are neither subsidised nor exploited by the developer or the commercial owners.
Summary: A single body can manage this type of hybrid scheme, but its governance documents must be set up properly and the executives must know and apply the laws applicable to each segment or joint decision. This aligns with the scheme executives’ statutory duty under the Community Schemes Ombud Service Act’s regulation 14(1) to take reasonable steps to inform and educate themselves about the scheme’s governance documentation and the relevant legislation.
Strategies for life right holders who confront prejudicial governance provisions:
Step 1: Check your scheme’s governance documents carefully and do your own investigations, e.g. checking documents at the deeds registry and at CSOS.
Step 2: Talk to other life right holders in your scheme to see that they share your concerns.
Step 3: Make sure that the provisions you want removed are either contrary to the Act or the STSMA or unenforceable for some other good reason so that you can allege that they are either legally invalid or unreasonable, considering the interests of all scheme stakeholders.
Step 4: Negotiate with the persons who benefit from the provisions to try to change them.
Step 5: Try to get a LRMA meeting to amend or remove the provisions.
Step 6: Make an application to CSOS for the removal of the provisions and, if appropriate, their replacement with more suitable provisions, or for the restoration of a previous provision.
In this process, it would be sensible to get legal advice. You may not need to be represented by a lawyer, but you should get an attorney with a good working knowledge of the Act and the STSMA to confirm that you have a valid dispute and to assist you in the preparation of any proposed replacement provision, any application to CSOS and any reply to the respondent’s response to your application.
– Graham Paddock