What is the difference between an HOA, a body corporate, and a sectional title scheme?

If you’re thinking about buying a property in South Africa, or if you already own one within a community scheme, it’s crucial to understand the different governance structures. Navigating the world of property ownership can be challenging, especially when you’re dealing with community living arrangements. “Homeowners association”, “body corporate”, and “sectional titles” are three terms you’ll often hear thrown around. But what do they mean? Furthermore, we touch on “layered schemes” and the rising prevalence of this form of scheme governance structure.

1. Definition: Most commonly refers to a non-profit company incorporated in terms of the Companies Act, 71 of 2008 (“the Companies Act”). However, it can also refer to a voluntary HOA (“Voluntary HOA”) established in terms of the common law.
2. Governing legislation, founding documentation and rules: In relation to a registered non-profit HOA, the Memorandum of Incorporation (“MOI”) and, if applicable, its Company Rules, in accordance with the provisions of the Companies Act and Companies Regulations. In relation to a Voluntary HOA, its constitution, management rules and/or conduct rules. Sometimes these are called Estate Rules or House Rules. To some extent, for dispute resolution, the Community Schemes Ombud Service Act, 9 of 2011 (“the CSOS Act”) is also applicable to these types of community schemes. This documentation is also often referred to as “scheme governance documentation”.
3. Ownership structure: Typically, free-standing homes on individually owned properties with the HOA, and sometimes the municipality, retaining ownership of the common property, e.g. roads, common areas, etc.
4. Management: Managed by a board of trustees or directors elected by the homeowners. The board enforces the rules, enforces the collection of levies, and manages the communal facilities. The rules pertaining to the management of the HOA are often unique to the scheme.
5. Levies: Generally, homeowners pay levies to the HOA, which are used for the maintenance of common areas, security, and other communal expenses. The amount is determined by the HOA’s budget of estimated income and expenditure for a specific financial year.
6. Layered schemes: Sometimes, the HOA is a layered scheme with a Master Property Owners Association (“MPOA”) at the top, and then underneath the MPOA are one or more sectional title schemes and/or HOAs, governed in terms of an overarching constitution. The underlying sectional title schemes may not be governed in the usual way expected if the developer has introduced legal and valid restrictive conditions of title to remove or add certain powers and functions from the bodies corporate of those underlying sectional title schemes. More about this below.

1. Definition: A distinct legal entity established in terms of section 2 of the Sectional Titles Schemes Management Act, 8 of 2011 (“STSMA”), to manage and control a sectional title scheme.
2. Governing legislation and scheme governance documentation: The STSMA, the Sectional Titles Act, 95 of 1986 (“the STA”) and the CSOS Act, including the regulations applicable to that legislation. The management and conduct rules of the body corporate are also relevant. The Prescribed management and Conduct Rules contained in Annexures 1 and 2 of the Sectional Titles Schemes Management Regulations, 2016 (“STSM Regulations”) are applicable, but may be substituted, added to, amended or repealed by the developer or the body corporate, provided due process is followed as per the legislation.
3. Ownership structure: Each owner owns their section and has an undivided share in the common property (their unit). Each owner is also a member of the body corporate, once established.
4. Management: Managed by trustees elected and appointed by the unit owners at general meetings. The body corporate is responsible for the administration and management of the sectional title scheme, including maintenance of common property, insurance, and financial management. The trustees or body corporate often appoint a managing agent to run with certain financial, physical and administrative management of the body corporate.
5. Levies: Unit owners pay levies to the body corporate for the administrative fund. These levies cover, among other expenses, maintenance of the common property, insurance, administrative costs, and contributions to a reserve fund. The levies are calculated based on the participation quota of each unit and the amount is determined by the body corporate’s budget of estimated income and expenditure for a specific financial year.
6. Layered schemes: If all members of the body corporate must be members of an MPOA as mentioned above, some or all of the body corporate’s powers and functions must be assigned to the MPOA under the applicable constitution. In such a case, the Prescribed Management Rules contained in Annexure 1 of the STSM Regulations may not apply.

1. Definition: This refers to land and/or buildings divided into sections, such as flats or townhouses, which can be individually owned while sharing ownership of common property in undivided shares.
2. Governing legislation and scheme governance documentation: The STSMA, the STA and the CSOS Act, and the regulations applicable to that legislation. This also includes the applicable rules.
3. Ownership structure: See definition above. The sectional title scheme is the physical registered community scheme over which the body corporate governs, once established.
4. Management: The body corporate, which consists of all the unit owners, manages the scheme and the trustees are responsible for the day-to-day management. In layered schemes, the MPOA may perform such functions and powers over the sectional title scheme as described above.
5. Levies: Unit owners usually pay levies to the body corporate for the maintenance of common areas, insurance, and other communal expenses. In cases of layered schemes, the unit owners may either pay levies to the MPOA and the body corporate, or only to the MPOA, or only to the body corporate, depending on the constitutional documentation establishing the MPOA.

• Know your governance structure: Before buying property, check if it’s governed by an HOA or a body corporate, and if it is a layered scheme. This will affect your rights, responsibilities, and financial obligations, and affect what you can expect from the HOA or body corporate in question.

• Review governing documents: Get familiar with the HOA’s or body corporate’s scheme governance documentation. These documents will tell you everything you need to know about levies, maintenance responsibilities, and community rules.

• Actively participate: Attend general meetings and be part of the decision-making process. Your involvement can influence how the common property is managed and ensure your interests are represented.

• Plan financially: Be ready for regular levy payments to the HOA or body corporate. Understand how they’re calculated and budget accordingly. Proper financial planning will help you manage these costs without any surprises. If you don’t pay your levies, legal action will be instituted against you and you will be liable to additional interest, collection costs and legal fees.

Do you have more questions about community schemes? Do you need legal advice on your property rights? Or maybe you’re considering buying property within an HOA or sectional title scheme, but you’re not sure what’s best, or what kind of governing structure you’re getting into.

Don’t hesitate to reach out to us for a consultation. Our experts are ready to provide detailed guidance tailored to your needs, ensuring you make informed decisions about your property investments.