A. BACKGROUND
The Sectional Properties Act No.21 of 2020 (the “Sectional Properties Act”) as read with the Sectional Properties Regulations, 2021 (the “Sectional Regulations”) provides for the division of buildings to units and issuance of sectional titles to purchasers who buy units/apartments from developers.
Sectional titles are title documents or ownership documentations in respect of the separate ownership of units within a complex or building.
B. STRUCTURE OF DOCUMENTATION UNDER THE SECTIONAL PROPERTIES LAWS
We set out below a comparative analysis of the legal structure of developments prior to the coming into force of the new Sectional Properties Act and the applicable structure under the Sectional Properties Laws: –
a. Management Companies vis a vis Sectional Properties Corporation
Under the previous regime, management companies were incorporated with the intent of managing common areas and holding reversionary interest on behalf of the owners of the units. Currently, Corporations which replaced Management Companies under the Sectional Properties Act, 2020 are responsible for the management and administration of the common areas. However, a Corporation will not be holding any reversionary interest on behalf of the owners of the units.
b. Membership
With respect to Management Companies, each purchaser of a unit was required to subscribe for shares in the Management Company for one to be regarded as a member of the Management Company. As for membership in relation to Corporations, owners of the units are not required to buy shares in the Corporation. Rather, the owners of the units automatically become members upon registration of their interest as owners of the units.
c. Reversionary Interest
Under the Sectional Properties Act, 1987, if the title of the property is a 99-year lease from the government, this means that on expiry of the lease the owner would be required to apply for an extension of the term of the lease. In this regard, reversionary interest is the right to apply for extension of the terms of the lease. This right to apply for extension of the terms of the lease is normally transferred from the owner of the land to the Management Company so that the tenants through the Management Company can apply for extension of the lease.
The sub-lease for the tenants is normally for 99 years less the last seven days. This means that on the last seven days of the term, the tenants will surrender their leases to the Management Company to enable the Management Company to apply for extension of the term of the main title at the Lands Registry. Thereafter, the Management Company will issue new leases to the tenants at no additional price.
Currently, under the new regime the reversionary interest will not be held by the Corporation but each purchaser will hold their own reversionary interest and will be entitled to apply in their individual capacity for an extension of their lease.
d. Sub-lease versus Corporation by-laws
Previously, the instrument of transfer of the units was the sub-lease. The sub-lease contained standard terms and conditions which were the rules that governed the developments. The terms of the sub-lease were standard for each development and applicable to all the purchasers. However, with the enactment of the current law, the Sub-lease will no longer be applicable but the Corporation will have its By-laws which will govern the owners of the units and the management of the development. The By-laws are binding on all the owners.
e. Titles
Under the previous legal structure, the sub-lease was also the title for the respective units. Currently, the Sectional Properties Act provides for the issuance of sectional titles for each individual unit. Each purchaser of the units is to be issued with their certificate of title or certificate of lease depending on the interest of the land.
C. MANDATORY RULES FOR THE DEVELOPMENT
The rules that are to govern each sectional development will be the Corporation By-Laws.
Important Things to Know About the By-laws:
(i) The standard By-laws are prescribed under Schedule 2 of the Sectional Regulations.
(ii) On registration of the Sectional Plans, (see our Article on “How Do I obtain Sectional Titles for my Building?”) the developer is also required to present the standard By-laws for registration. It is a mandatory requirement for the prescribed By-laws to be presented for registration on as is basis on the first registration of the sectional plans for a development. However, for existing developments and where leases had been issued and the said leases are subject of conversion, the By-laws may be amended by including duly modified terms and conditions as
contained in the long term leases.
(iii) The By-laws of the Corporation shall be binding on all members as if individually signed by each member.
(iv) The By-laws of the Corporation may be amended by a special resolution of not less than 75% of the members of the Corporation.
(v) A copy of the amended By-laws shall be filed with the Registrar and the Registrar shall make a memorandum of the filing on the sectional plans.
(vi) The By-laws will also set out the powers and duties of the Corporation.
D. HOW WE CAN HELP?
We are well conversant with the sectional properties regime and we are happy to help with: –
(a) the preparation of the By-laws for your development’s Corporation;
(b) amendment of the By-laws of your development’s Corporation to ensure that the rules are suitable for the particular development; and
(c) registration of the Sectional Plans, the Corporation and By-laws and obtaining the Sectional Titles.
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