Is there a difference between an HOA and a body corporate?
Hi, Please explain what exactly the difference is between a homeowners’ association (HOA) and a body corporate? – Yolande
Hi Yolande, an HOA and a body corporate are certainly not the same. A body corporate is a legal entity created in terms of the Sectional Titles Act and managed in terms of the Sectional Titles Schemes Management Act. The fundamental principle behind a body corporate is the division of a property into parts that are exclusively owned by individual owners and other parts that are jointly owned in undivided shares, referred to as common property. The functions of a body corporate are strictly defined in terms of Section 3 of the Sectional Titles Schemes Management Act.
An HOA on the other hand is not created in terms of any specific national legislation and the common property is usually transferred to and registered in the name of the HOA which exists as a legal entity separate from its members, none of whom shall, in their personal capacities, have any right, title or interest to or in the property, funds or assets of the HOA.
The main functions of an HOA differ depending on the founding document of the HOA. Some HOAs are governed in terms of a Memorandum of Association while others are governed in terms of a Constitution. Irrespective of the type of founding document, the most common functions of an HOA shall usually be the following:
- The control over all aspects of the design, aesthetics and maintenance of all buildings, improvements and landscaping within the development
- To ensure compliance with the estate rules
- The maintenance, control and management of the common areas within the development
- The promotion, advancement and protection of the communal and group interests of the members generally in regard to the development
- To enter into service agreements and other necessary agreements with the local authority or any other authority or supplier of services in connection with the development
- To generally do all such things as may be necessary or requisite to give effect to and implement the objects of the Association and to do all such things ancillary or incidental to the objects
- To ensure that all erven within the development are developed as soon as is reasonably possible
- To enforce the conditions of subdivision approval or management plans listed in the conditions registered with the local municipality.
An HOA is usually created either as a non-profit company in terms of Section 21 of the Companies Act or as a common law association. There are also provincial and/or municipal statutes which often govern the establishment of HOAs, for example, the City of Cape Town Municipal Planning By-Law, 2015.
Irrespective of the law governing the establishment of an HOA, almost every HOA is created as a result of a condition of subdivision approval for a new development. In other words, when a developer intends to subdivide a large piece of land into smaller separate pieces of land it is usually required by the local authority to create an HOA with the aim of managing and controlling the common property linked to that development. The HOA shall come into existence simultaneously with the registration in the Deeds Office of the first of the erven in the subdivision, whereafter each and every purchaser of an erf situated within the development, and their successors-in-title, shall automatically become members of the HOA.
It is, however, possible to create an HOA subsequent to the establishment of development. This usually occurs when a group of individual homeowners band together to formally agree to the formation of an HOA. In such an instance it is an absolute requirement that each and every homeowner agrees to the formation of the HOA before the founding document of the HOA is binding upon that owner. In most instances the approval of the local council will be required.
Once the HOA is formed the members will contribute a monthly levy toward the HOA to cover the costs of managing the security. This is only one example of such a scenario.
As a result, a property owner either automatically becomes a member of an HOA which is created as a condition of subdivision or the property owner must specifically consent and agree to the establishment of an HOA subsequent to the creation of a township/development. In both instances, however, the property owner shall only cease to be a member of the HOA when they cease to be the registered owner of the property.
While an HOA can apply to any type of development, generally, however, they are established when there is a certain amount of focus on the maintenance of large tracts of land which will be included in the boundaries of the HOA such as a golf course, parks, sensitive environmental areas, bodies of water etc.
It is not unusual to find an HOA which has one or more sectional title schemes situated within its borders. It is important to understand that a development can, for example, consist of 10 individual pieces of land and one of those pieces of land can be zoned as a general residential erf while the remaining nine pieces of land can be zoned as single residential erven. The erf zoned as a general residential erf must be used for the establishment of a sectional title scheme, while the erven zoned as single residential may only be used for freestanding properties. It is therefore crucial to understand the different zoning types that exist as this will play an important role when deciding on what type of property can be developed.
Interestingly, there is no national legislation governing HOAs and the function and concept of HOAs can differ considerably depending on which province you find yourself in. Sectional title schemes, on the other hand, are strictly regulated by the provisions of the Sectional Titles Act 95 of 1986 and the newly introduced Sectional Titles Schemes Management Act 8 of 2011. This fact is usually taken into account when deciding between the two types of developments as some people prefer the predictability of sectional title schemes while others enjoy the perceived autonomy of HOAs.
Why would a sectional title development body corporate wish to form an HOA?
Firstly, it is important to understand that a sectional title scheme will always be subject to the provisions of the Sectional Titles Act 95 of 1986 and the Sectional Titles Schemes Management Act 8 of 2011. Only the powers and functions of a sectional title scheme can be assigned to an HOA, in which case the governing document of the HOA (either a Constitution or Memorandum of Incorporation) will replace the Management and Conduct Rules as prescribed by the Sectional Titles Schemes Management Act 8 of 2011. It is important to note that the provisions of the HOA’s governing document may not override or be in conflict with the provisions of Sectional Titles Act 95 of 1986 and the Sectional Titles Schemes Management Act 8 of 2011. The body corporate will, therefore, never fall away and the HOA will exist over and above the body corporate.
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Top photo: The Welgevonden Estate homeowners’ association in Stellenbosch in the Cape Winelands is managed by Pam Golding Property Management Services