When one breaks down the recent CSOS order regarding the Blyde Home Owners Association in Pretoria, one will see that there is more to the decision than just the issue of short-term letting (STL). A number of other critical issues arise therein, which Managing Agent’s and Scheme Executives should carefully take note of.
Several interesting Community Scheme issues are touched on in the judgment, the most pertinent of which, are set out below:
- When it comes to outlawing or restricting short-term letting in a Scheme via the Rules, what exactly is the balance to be struck between the Owners who wish to operate short-term letting from their units and their right to property (in terms of Section 25 of the SA Constitution), which cannot be interfered with arbitrarily and the rights of the other Owners/Scheme Executives who do not want short-term letting to be allowed in the Scheme;
- The crucialness of properly complying with legislation, i.e. the Sectional Titles Schemes Management Act (STSMA) or the Companies Act when calling, conducting and voting at meetings of Owners in the Scheme and the repercussions of not following the legislated and governance documentation meeting guidelines;
- The sanctity of contract law in South Africa and the powers afforded to Developers when Offers to Purchase and governance documentation of new Schemes contain clauses which grant the Developer drastic rights, i.e. loaded votes and the enforceability of such clauses.
Before we examine these 3 pertinent issues, we first provide a background to the events and issues in contention at the Blyde which were dealt with in the order.
Background to the Blyde Adjudication Order and the Relief Granted
The Applicants were owners of apartments purchased as investment opportunities to lease out to guests over a short period of time similar to that of Airbnb. The Respondents included the Board of Trustees of the Blyde, Riverwalk Estate Homeowners Association (the Blyde HOA), Landsdowne Property Group and Balwin Properties Ltd.
On 14 October 2021, a general meeting of owners was held whereby a resolution was passed to amend the Conduct Rules which would essentially ban STL. The banning of STL led investment owners to lodge a complaint to the CSOS.
The Respondents reasoning for not allowing STL was that more resources were needed to accommodate STL guests as well as the fact that the STL guests were allegedly disruptive, failed to adhere to complex rules as well as their overall behaviour.
The Applicants contended that they would not have initially invested in the units had STL not been allowed. Furthermore, they stated that the owner’s general meeting that was held on 14 October was unlawfully conducted.
The applicants approached the CSOS seeking the following relief:
- An Order declaring that the general meeting held on 14 October 2021 was not validly convened;
- An order declaring that the resolution passed at the general meeting of 14 October 2021 to amend clause 21.4 of the Code of Conduct was void;
- An order declaring that the resolution passed at the meeting of 14 October 2021 was void on the grounds that it unreasonably interfered with the rights of an individual owner or occupier or the rights of a group of occupiers;
- An order declaring that the scheme governance provision, clause 21.4 of the Conduct Rules of 30 September 2020, having regard to the interests of all owners and occupiers in the Scheme, is unreasonable and requiring the Association to approve and record a new scheme governance provision to restore an earlier provision, as existed under the 20 March 2018 Rules.
The Adjudicator found that the general meeting was indeed not validly conducted and consequently the resolution to amend the Conduct Rules was void. This was as a result of only 53% of owners voting in favour of the resolution and not the required 75% that was needed to pass such a resolution. Additionally, the Respondents could not prove that only STL guests were responsible for the unwanted behaviour because there were indications that permanent residents may have also contributed to the discontentment of the Respondents.
An Owner’s Right to Deal With Their Property and Not to Have Such Right Arbitrarily Interfered With
Certain rights of a Community Scheme Owner were succinctly repeated by Ms Mabaso, the Adjudicator, in making the order, when she stated that:
“Each one of the STL Owners have a right to property in terms of Section 25 of the Constitution and such a right cannot be interfered with arbitrarily. With property rights come the ability of income and wealth generation… Those STL Owners who have never had a single complaint against their use of their properties stand to be deprived of their right to generate an income without being afforded an opportunity to be heard. All this is being done to preserve the original intents of the Developer, a non-permanent stakeholder in the development. It would be grossly inconsistent with public policy to have proprietary rights of permanent Owners being taken away only for the limited duration of the Developer’s interest in the Estate. The restriction sought to be imposed is arbitrary, and thus without justification.”
Also relevant is Section 10 (3) of the STSMA which provides that Conduct Rules must be reasonable and must be applied equally to all Owners of units.
Section 4 of the Community Schemes Ombud Services Act (CSOSA) provides that CSOS must regulate, monitor and control the quality of all Sectional Titles Schemes governance documentation and must promote the good governance of Community Schemes and monitor Community Scheme governance.
The lesson for all Managing Agents and Scheme Executives which was highlighted in this decision, is that if a right has been previously bestowed on an Owner, i.e., the right to operate STL, that that right cannot be arbitrarily revoked. With the procedural requirements to amend such a right in the governance documentation of the Scheme, comes an obligation to consider the SA Constitution, the Owner’s right to property, public policy as well as reasonableness. There must be proper justification to revoke or restrict entitlements especially those previously granted to Scheme Owners.
Schemes wishing to outlaw completely or more strictly govern STL, in certain instances, would be well advised, over a period of time, to raise this with the Owners at meetings, minute this dialogue and provide for a period of feedback to be received from the Owners, consultation must take place and if necessary, the changes should be introduced over a period of time. The process should not be one that is cast upon the Owners by surprise. Again there must be proper justification for the revoking or restricting of the rights of Owners.
Properly Complying With the Scheme Governance Documentation and Legislation in Calling and Conducting Owner’s Meetings in the Scheme
The Adjudicator, in the order, critiqued the conveners of the owner’s meetings stating that attendees were not asked to register nor were they told that the meeting was to vote out STL. Attendees were not allowed to speak or to ask questions and certain Owners were not invited to the meeting. The meeting was told that a quorum was achieved, but anyone could have attended because attendees were never asked to register their names or unit numbers. In addition, an agenda was not put up at the meeting nor was there any confirmation of proxies.
The main issues in the order were dealt with at an Owners meeting of the HOA on 11 October 2021 and at the reconvened meeting on 14 October 2021. In regard to the meeting of 11 October 2021, the Adjudicator reiterated the above and repeated the common-law principle that a meeting must remain quorate throughout. The Adjudicator found that the HOA failed to prove that the meeting was quorate throughout. The Adjudicator further found that it was not the Chairperson of the meeting but rather a representative of the Managing Agent that adjourned the meeting.
The Adjudicator found that since the meeting of the 11th of October 2021 was not quorate, that the meeting on 14 October 2021, to which was adjourned to, was not validly convened.
From this part of the order, we are reminded of the importance of properly calling meetings in community schemes, properly conducting such meetings and complying with all the scheme governance documentation and legislation regulating the conduct of such meetings. Failure to do so can render a motion at the meeting or the entire meeting invalid.
Developers in Community Schemes and Developers Rights
The Blyde HOA Constitution provided that each Owner would have 1 vote per unit owned by him save that during the development period, the Developer would have 1 vote for every unit in the development and an additional 100 votes.
The Constitution further provided that no business would be transacted at an Owners meeting until a quorum was present, which during the development period would be all the votes of the Developer plus 10% of the total number of votes of the other Owners.
The Adjudicator stated based on for example the above, that only the Developer can really take decisions in the HOA, which decisions have an impact on how persons who purchased their properties from the Developer live their lives. The development period which started 4 years ago would endure for an unknown number of further years as only a third of the development had been completed.
The Adjudicator pointed out that it is true that the Owners and specifically the Applicants, purchased their units in the Scheme subject to the Scheme Constitution and the Conduct Rules of the Scheme which allow the vote of the Developer to prevail and confirmed the contractual and legal position, that the Owners are bound thereby.
The Adjudicator pointed out, on the flip side of the coin, that the Developer has a duty to ensure that it exercises its enormous powers in the interest of the investing Owners and that this interest can only be taken into account by giving the Owners the basic right to be heard and to have their views considered. The Adjudicator stated that anything less than this would surely offend public policy.
Far reaching powers of Developers entrenched in the constitution and/or conduct rules and other governance documentation of the Scheme, are binding upon the Owners in the Scheme. Owners purchasing in new Schemes are well cautioned to scrutinize and obtain legal advice in respect of all parts of such documentation that raise alarm bells.
It remains to be seen in the coming years whether the legislature will deal with and regulate the powers of Developers in regard to new Schemes and better provide to even the scales between the powers of Developers and Owners purchasing units in these Schemes.
Alan Levy Attorneys: Sectional Title Specialists and Expert Community Scheme Attorneys
Alan Levy Attorneys offers expert advice and legal guidance in regard to Sectional Titles Schemes, Home Owners Associations, and Community Schemes in line with South African Law.
This article is a summary only and does not constitute legal advice. For legal advice on how to handle your matter, please contact Alan Levy Attorneys
Alan Levy Attorneys, Notaries and Conveyancers are Property Lawyers and also specialising in Conveyancing, Evictions and Municipal Law.