Investors in fractional property ownership schemes – such as those at Zimbali in KwaZulu-Natal, Sparrebosch and Pezula in Knysna, Arabella and the V&A Waterfront in the Western Cape – could lose their investments because of liabilities incurred by schemes running these properties.
Legal firm Cliffe Dekker Hofmeyr says that some fractional property ownership schemes may have incurred liabilities such as a mortgage bond, without the knowledge of their investors and a creditor may foreclose on a property resulting in the property being sold or the scheme being liquidated.
Grant Ford, director of litigation and insolvency practice at the law firm says that fractional ownership is a commercial and not a legal concept. The title that an investor gets is right to use the property.
Ford says that in most cases the fractional ownership schemes are owned by a share block company, which appoints directors to run it. The Share Blocks Control Act contains very strict and stringent provisions governing the disclosure of information to investors in fractional ownership schemes.
He says that if the provisions of the Act are not complied with, the entire investment may be declared null and void and parties that have failed to comply with the Act could face criminal prosecution.
In terms of both the Share Blocks Control Act and the Companies Act, a company must obtain permission from 75% of its shareholders prior to alienating, disposing of or ceding any of its assets.
“If such approvals are not obtained then the any sale or cession would be invalid and the person, or people, responsible could face prosecution in their personal capacities.
Ford says that some media reports indicate that certain fractional ownership schemes may have been encumbered without the knowledge of shareholders and that loan obligations have not been met.
In such cases the investors risk losing their investment, particularly if the property sold to meet outstanding liabilities from creditors such as banks, builders or estate agents.
He says the position is worse for those people who have bought shares in a fractional ownership scheme from other shareholders because that shareholder would be left with a claim against a company in liquidation.
Ford says that all investors are entitled to a full disclosure of all information relating to the financial status of the fractional ownership scheme they have bought into and would be well advised to demand this information immediately.
Each member of a fractional ownership scheme should insist on receiving a full report on the financial status of the scheme at least once a year. He recommends that any investor who may be concerned about the investment he or she has made should immediately seek independent professional advice regarding the fractional ownership scheme.
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