HOAs must get their ‘houses in order’

07 Mar 2012

The new Companies Act is proving a minefield for many Homeowners Associations whose roles and rules may have been hastily and haphazardly cobbled together, and who must now lodge and register a formal Memorandum of Incorporation. 

Constas explains that a Homeowners Association is the body that governs a cluster development, and that any cluster development that comprises five or more freehold homes should have its Homeowners Association registered as a Section 21 company.

Marina Constas, specialist property attorney and a director of BBM Attorneys, urges Homeowners Associations to use the requirements of the New Act, which came into effect in May last year, as an opportunity to, quite literally, get their houses in order.

Constas explains that a Homeowners Association is the body that governs a cluster development, and that any cluster development that comprises five or more freehold homes should have its Homeowners Association registered as a Section 21 company. 

In the past, many Homeowners Associations were set up very informally, she says. “If they were registered as Section 21 companies (and some were not), they were required to have a Memorandum, which set out the purpose of the company, and an Articles of Association, which set out the rules.” 

She says in many cases, however, both of these were unclear and inaccurate. “This is all very well and good, until something goes wrong!” 

One particular Association stated quite simply in its Memorandum that its only purpose was to control the main gate, notes Constas. 

“As we all know, living in close proximity to one another is not something that we humans do particularly well, so it is just as crucial in cluster developments as it is in sectional title to have clear rules and regulations.” 

In Homeowners Associations, she says you have levies to pay in respect of the common property facilities, including the maintenance of roads, lights, landscaped and security areas – and this must be controlled. 

“If the development has subscribed to a certain theme, look or colour, this has to be maintained and enforced throughout the complex.” 

Constas cites one case of a cluster estate where all the homes were single storey. When one homeowner decided to extend his home, and go double-storey, his neighbours had no recourse as nothing was stipulated in their rules.

Under the new Companies Act, the Homeowners Association's Memorandum of Incorporation must set out all rules and procedures clearly and accurately, its directors must be named, and its financials must be transparent and audited annually. 

“The process is more formal and streamlined, and if it is done properly, it will eliminate future problems,” Constas says. 

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