Developer's right to extend scheme

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24 Dec 2012

What does this mean for the body corporate?

Many large property developments are built in 'phases', allowing owners and tenants to use the premises as soon as possible.

Most large property developments are built in “phases”. This methodology has obvious time and financial advantages for the developers and allows owners and tenants, especially in commercial properties, to put the premises to good use as early as possible.

In developments that are sectional title schemes, adding phases after the establishment of the body corporate is not the automatic prerogative of the developer, it is a right that has to be formally acquired and brings with it liabilities and responsibilities to the body corporate of the scheme. The right to extend the scheme, also called a future development right, is a registered real right and is deemed to be a right to immovable property.

So how does the developer acquire the right to extend the scheme and what can the body corporate expect from that developer?

Future development rights are not only reserved when a scheme is planned to be built in phases. Even though a scheme may be built to use up all the available bulk or floor area ratio, possible changes to local authority regulations may make an extension of the scheme feasible in the future, making the reservation of the right worthwhile.

Should the developer of a sectional title scheme apply to reserve the right to extend the scheme, the application should be included with the developer’s application to the local Registrar of Deeds for the registration of the scheme.

The developer of a sectional title scheme may apply to reserve the right to extend the scheme. The application is usually included with the developer’s application to the local Registrar of Deeds for the registration of the scheme. Once the body corporate for the scheme has been established, that is, as soon as the first unit is transferred from the developer to a third party, the right may no longer be reserved by the developer; after this time only the body corporate can apply for a future development right.

The developer must include in the application a full description of what the extension will comprise, including plans showing what will be built and where, the particulars of any changes in materials from those used in the original buildings and an estimate of the participation quotas of all the sections, both original and planned. The extensions to the scheme must be made strictly according to the descriptions in the application, as far as is reasonably possible. The right is also time limited: the developer must specify the period within which the right may be exercised, although, once established, the body corporate may unanimously agree for the period to be extended, which it may do if the developer makes it worthwhile for the scheme.

While the developer holds the right to extend the scheme, he or she must pay any costs attributable to the part of the common property which will be used for the extension and, if the right or part of the right is ceded to a third party, the body corporate must issue a certificate showing that all these costs have been paid before the cession can be registered.

Once a new unit in the extension is complete the developer has ninety days in which to get it registered and, upon registration, is liable for the levy for that section until it is transferred to a third party. If the developer fails to register the new unit within the ninety day period, he or she becomes liable for that payment as from the date of completion of the unit.

During the period between the establishment of the body corporate and the inaugural meeting, the developer serves as the chairperson, but after the inaugural meeting he or she is not automatically a trustee as the holder of the extension right. Of course, as it is not required that all trustees be owners, the developer could be elected as a trustee and subsequently as the chairperson.

The right to extend the scheme does not carry with it the right to vote in a general meeting. The developer is only entitled to vote if he or she has retained ownership of a section, but once the new units have been registered, the developer becomes an owner in the scheme again until the last unit is transferred to someone else. As there are usually several units registered at once, the developer could be an owner with considerable voting power. However, it’s most usual for the new units to have been sold off plan and transferred in a block to the new owners as soon as they are ready for occupation.

Finally, a very important point that affects both the developer and all owners in a scheme where a future development right has been reserved is that the reservation must be disclosed in any sale agreement for units in the scheme. If this disclosure is not made, the buyer in that case is entitled to make the sale void. - Anton Kelly

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