UNDERSTANDING GOVERNANCE RULES IN NON-PROFIT COMPANY HOMEOWNERS’ ASSOCIATIONS VS. SECTIONAL TITLE SCHEMES – By Prof. Graham Paddock and Jennifer Paddock

In the management of community schemes, understanding the different  legal frameworks governing Non-Profit Company (NPC) Homeowners’ Associations (HOAs) and Sectional Title (ST) schemes is crucial. Recently a student on the Paddocks Homeowners’ Association Management Course asked us to compare company management rules under Section 15 of the Companies Act of 2008 with rules under the Sectional Titles Schemes Management Act of 2011 (STSMA). This article aims to clarify these differences and their practical implications.

Section 15 Rules in NPC HOAs: The Companies Act is not designed to provide a legal framework for the operations of any type of community scheme. Under Section 15 of the Companies Act, a company may make administration rules. These rules, which must not be contrary to any of the unalterable prescribed provisions of the Memorandum of Incorporation (MOI), supplement the MOI’s clauses. The essence of Section 15 rules is to provide more detailed regulation for the management of a particular company.

Importantly, these rules are not mandatory but, when made, they are subject to the  provisions of the Companies Act and the company’s MOI, specifying more detailed aspects of company management and administration specific to the NPC HOA.

Contrast with ST Management Rules: On the other hand, the STSMA requires bodies corporate to have rules to further regulate both its administration and the conduct or behaviour of owners and occupiers in their schemes. This Act requires two types of rules, based on the Prescribed Management Rules (PMRs) and Prescribed Conduct Rules (PCRs). Management Rules focus on the body corporate’s administration, similar to Section 15 rules in an NPC HOA. Conduct rules focus on the regulation of owner and occupier behaviour and actions in the scheme.

The Role of HOA Conduct Rules: In the Companies Act, there is no explicit provision for making conduct rules akin to those often needed in HOAs – such as Landscaping Rules, Parking Rules, or Architectural Guidelines. For an NPC HOA to establish such rules, there must be an enabling clause in its MOI. This clause should outline the authority (whether vested in the directors or the members) to create conduct and other special purpose rules that regulate the behaviour of members, occupants of private dwellings, and users of communal property. It must also detail the procedures for making, publishing, amending, and revoking these rules as circumstances change.

STSMA: A Comprehensive Community Scheme Management Framework: In contrast, the STSMA is specifically designed to provide a comprehensive legal framework for bodies corporate to manage both administration and the conduct of owners and occupiers.

Conclusion: The governance of NPC HOAs and sectional title schemes, though similar in some respects, diverges substantially in the scope and application of the rules they make and enforce under their enabling statutes. Understanding these distinctions is key for anyone involved in property management, be it in an NPC HOA or a sectional title scheme. This knowledge ensures effective governance and compliance with the relevant legal frameworks.

Article reference: Paddocks Press: Volume 19, Issue 2.

This article is published under the Creative Commons Attribution license.

 

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