10 Oct How your body corporate can generate additional income
While most bodies corporate rely solely on levy income, some try to find additional ways to bolster their income. One additional source is to rent common property to members of the scheme or to third parties.
Who decides if common property can be rented?
Trustees are responsible to manage, administer and maintain common property which collectively belongs to all scheme members in undivided shares based on their participation quotas.
To make a decision on renting out common property, The Sectional Titles Schemes Management Act (STSMA) provides guidance on how to make an official decision regarding the rental of common property – it requires for a special resolution to be taken at a general meeting. These agreements are in relation to members or occupants in the scheme and may not be longer than 10 years. To pass this resolution, a quorum of 33.33% of the members in participation quota value must be present and 75% of the quorum must vote in favour of the resolution.
Where the body corporate wants to rent out portions of the common property for periods longer than 10 years, a unanimous resolution must be passed by the members. These types of agreements may be entered into with members or occupants in the scheme as well as third parties. To pass such a resolution, a quorum of 80% of the members in participation quota value must be present and 100% of the quorum must vote in favour of the resolution.
Once approved, lease agreements of 10 years or more must be registered as a notarial lease of land.
The terms of these agreements must be provided to the members for them to make an informed decision. Issues such as the impact of renting common areas to persons who are not owners in the scheme and the purposes for which these areas will be used is of importance.
Trustees must be vigilant and detailed in their communication with members when asking them to vote on these kinds of resolutions.
Who can common property be rented to?
Common property can be rented to members in the scheme, occupants in the scheme or third parties.
Members or occupants in a scheme will generally rent common property for the purpose of parking, storage or entertainment. Renting to third parties, who are by definition not members of the scheme, may only be agreed to for periods longer than ten years. One such example is an agreement with an outdoor signage company.
Trustees do not have the authority to make decisions when renting portions of the common property to members in the scheme or to third parties. When trustees are approached by someone who want to rent common property, they must ensure that proper procedure is followed and that the members of the scheme are involved in the decision-making process.
The rights of members in the scheme may never be limited by any agreement proposed with members or third parties. The responsibility of trustees to act in accordance with legislation when dealing with the renting of common property can be onerous but essential in protecting each member`s rights to their undivided ownership of the common property.