May 20, 2020
CHALLENGES AND CONSIDERATIONS RELATING TO NEW SECTIONAL TITLE DEVELOPMENTS
In a sectional title development, and especially one where the development takes place in phases, there are a number of legal requirements to be complied with, which if not properly understood and dealt with from inception, can delay the process and become obstacles. This article highlights some of the key factors which need to be considered from the outset and dealt with as soon as practically possible.
National Housing Building Regulations Certificates
The National Homebuilders Registration Council (NHBRC) established as a regulatory body by the Housing Consumers Protection Measures Act, 95 of 1998 for the home building industry, aims to protect housing consumers. It is compulsory for a developer / home builder / seller to register with the NHBRC and obtain a Registration Certificate, which is to be renewed annually while it is developing. In addition, a developer is required to enrol with the NHBRC each residential development to be undertaken by the developer, and a Unit Enrolment Certificate must be issued in respect of every sectional title unit to be constructed in the development. The Unit Enrolment Certificates must be issued before building of the sectional unit can commence, and the failure to do so can lead to adverse consequences for developers.
Financial institutions granting loan funding to purchasers of new sectional units on the security of a mortgage bond (home loan) registered against the units will insist that the value of the unit as declared in the Enrolment Certificate is the same as the purchase price of the unit. Delays can occur in obtaining a new Certificate from the NHBRC.
Municipal Occupation/ Building Completion Certificates
In terms of the National Building Regulations and Building Standards Act, 103 of 1977, the local municipality is required to issue an Occupation Certificate to the effect that the development (i.e. the buildings erected on the property) is compliant with the law before any occupation can be taken. Financial institutions granting loan funding to purchasers of new sectional units on the security of a mortgage bond (home loan) registered against the units will insist on being furnished with the Occupation Certificate before allowing their mortgage bonds to be registered. Insurers on behalf of the Body Corporate will also insist on being furnished with this Certificate.
Where the development is phased, the municipality will (must) issue Temporary Occupation Certificates in respect of each completed phase of the development, which have timelines attached to their validity. Developers should liaise upfront with both the municipality and the financial institutions to be engaged in respect of end-user funding regarding the phasing of the development and the issue of Occupation Certificates.
Contractors All Risk Insurance for developers
Developers should ensure that proper and adequate insurance cover is in place prior to commencing with construction. Insurance cover, besides including the construction period should also cover completed buildings up to the date they are incorporated into the sectional scheme and included under the Body Corporate insurance policy. There needs to be a smooth transition from the developer’s CAR policy to the Body Corporate policy so as to ensure that there is adequate cover at all times.
Financial institutions will insist on Certificates issued by the Body Corporate’s insurers in respect of the sectional units over which they are registering mortgage bonds, and that the value for which the units are insured covers their exposure under the mortgage bonds.
On the opening of a register of a sectional title development, the Deeds Office will require Municipal Rates Certificates for the parent property and for each sectional unit that is being transferred to purchasers thereof. A developer needs to ensure that all rates (arrear and current rates) on the parent property are fully paid before application is made to the municipality for the issue of a Rates Certificate. Where the development is being established in phases each new sectional unit that is being transferred will require a Rates Certificate to be lodged in the Deeds Office.
Developers should liaise with municipalities as to their respective requirements for processing Rates Certificate applications. Municipalities have different requirements, i.e. some require to be furnished with a copy of the approved sectional plans before finalising and issuing the Rates Certificates. Where it is necessary to obtain separate certificates from water authorities (i.e. Illembe/Siza for KwaDukuza Municipality or UGU for Umdoni Municipality), these clearances need to be obtained and furnished to the municipality before the Rates Certificate is issued.
The obtaining of Rates Certificates invariably causes the most delays in the registration process and it is advisable for developers to establish a working relationship with municipalities so as to expedite delivery.
Financial institutions / mortgage bond security
It is advisable that, prior to commencement of the development, the developer registers/lists the development with a number of financial institutions, which will assist potential purchasers with arranging and securing loan finance. The financial institution/s will be afforded the opportunity to assess and approve the development in advance. The developer may be required to provide documentation to the financial institutions and site inspections will no doubt be required.
Developers should at the time of arranging their finance for the development agree with the financial institution concerned the amounts to be paid to the financial institution towards settlement of the development loan finance from the proceeds of the sales of the sectional units to end-users and for the release of the units from the operation of the financial institution’s mortgage bond so as to avoid cash flow issues going forward.