HOAs and the end of transition period

31 Jan 2013

What does the end of the transition period for compliance with the new Companies Act mean for Home Owners' Associations?

It is advisable to find out what provisions in the MOI will automatically become invalid and, if it is possible, change the MOI to incorporate these provisions before the end of April 2013.

The new Companies Act provisions to do with directors’ duties, conduct and liability, members’ rights to receive notice or access to information, directors’ and members’ meetings and the adoption of resolutions automatically applied from 1 May 2011.

Any other provisions of the company’s memorandum of incorporation (MOI) that were in conflict with the new Act still applied, but only for the length of the “transition period”, which ends on 30 April 2013.

The imminent end of the transition period has prompted panicked questions about what non-profit HOA companies have to do before May.

Any provisions of the HOA’s MOI that are in conflict with the new Act will automatically be void and of no legal effect from 1 May 2013. The same applies for any rules or members’ agreements made before 1 May 2011 that conflict with any unalterable provision of the Act. If the HOA wants to retain any provision that relates to an alterable provision of the Act, the MOI has to be changed before the end of April or that provision will cease to apply.

That doesn't mean the HOA can’t have those provisions. The HOA could change the MOI, amend the rule or enter into the modified agreement at a later date, but there would be a break in continuity between 1 May 2013 and whenever the new provisions are filed with the Commission. It is advisable to find out what provisions in the MOI will automatically become invalid and, if it is possible, change the MOI to incorporate these provisions before the end of April 2013.

The more significant requirements in the new Act are to do with the transparency, accountability and governance of companies and the duties and accountability of directors and prescribed officers. These have been in place for two years and there are serious consequences for companies and individuals in companies who don't comply with them. Non compliance can result in the Commission issuing a compliance notice and failure to make the changes or implement the remedies listed in the notice can result in prosecution or an administrative fine.

HOAs and their directors can take comfort from the principle that serious sanction for non-compliance with the Companies Act generally hinges on whether the non-compliance is deliberate. However, once a compliance notice is issued there are no excuses. It is advisable to know exactly what the Act requires for compliance and get your MOI updated to reflect that position so that the executives are not mislead by provisions that no longer apply. - Anton Kelly

Anton Kelly is the course convener for the Paddocks Home Owners' Association Management course. Next course starts, 11 February 2013. For more information contact Emma on 021 447 4130 or via email. Alternatively, visit www.Paddocks.co.za.

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