Home Owners Association (Section 21 Company)

 

A Home Owners Association is an organisation which represents a body of owners in communal living.   A legal entity is needed to act and do bussiness on behalf of owners.  The legal entity used for this is mostly a Section 21 Company, which is a company not for gain. 

Some uses of a Section 21 Company in the residential arena are:

• Full title housing schemes (as opposed to Sectional Title)
• Security villages and estates
• Enclosed suburbs or neigbourhoods
• A legal entity to provide services to residents, e.g. electricity, streets, etc.

In our opinion it is much more complicated to manage a Section 21 Co. Home Owners Association than a Sectional Title scheme. This really tests the metal of a management firm and a proper knowledge and methodology are imperative. 

 

A Section 21 Company is regulated by the Companies Act and the Memorandum and Articles of Association registered at the Companies and Intelectual Property Registration Office (CIPRO) for that specific HOA, whereas Sectional Title schemes are regulated by the Sectional Titles Act. 

 

1.0  The Companies Act is very formal with many prescriptions and directions.  If properly put together the Memorandum and Articles of Association can give a lot of protection to members, and provide the legal body with wide powers to funtion effectively.  It is, however, complicated and in many instances cumbersome, with costly legal formalities.  For example, the directors have to be registered at Cipro, which is an annual obligation after appointment at the Annual General Meeting (for new directors).  Special Resolutions and the auditor also have to be registered.

 

2.0  Every Section 21 Co has it's own Memorandum and Articles of Association, while in Sectional Titles, the Management Rules and Conducts Rules are generally that prescribed by the Addendums to the Sectional Titles Act, which standardises management.

 

3.0  Often the Memorandum and Articles of Association are not completely suitable for the management of a Home Owners Association, as developers are often not aware of the requirements for the smooth running of a HOA.

 

4.0  A very difficult scenario developes where a Section 21 Company is only registered after the developement has been completed and sold to new owners, or where membership is optional as in the case of suburbs enclosed as a community decision in a suburb already established.  In this case the company is very much dependend on the goodwill of it's members, while a company established beforehand, of which membership is compulsary and a condition contained in the property deed, has much more powers.

 

At Jotam Management Services we are able to properly manage Home Owners Associations and are structured to comply with the requirements of the Companies Act.  We can also assist in amending problematic Articles of Association and Rules.