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HOA legislation

Which legislation applies to HOAs?

When it comes to the Sectional Title Schemes Management Act (STSMA), the Community Schemes Ombud Service (CSOS) and the Community Schemes Ombud Service Act (CSOSA), it is generally understood that the STSMA and CSOS applies to sectional title schemes; however, there is some confusion as to whether it applies to homeowners’ associations (HOA).

Since the CSOS is a body that provides a service to community schemes, this would include both sectional title schemes and HOAs.

What is not applicable to HOAs?

The STSMA includes conduct and management rules as well as a set of regulations. In terms of the management of HOAs, neither the STSMA nor the Regulations apply to HOAs.

HOAs that are registered as non-profit companies will rely on their memorandum of incorporation (MOI) and the Companies Act for rules relevant to the scheme, while associations registered as common law associations will rely on their constitutions for guidance.

HOAs must only comply with the CSOSA, its regulations and schedule to the regulations.

What does apply to HOAs?

All HOAs must be registered with CSOS. This means that the HOA must provide information pertaining to their financial affairs (annual financial statements), documents such as the MOI or constitution (whichever is applicable) and its annual return.

Once these documents have been provided, the financial statements, along with the memorandum of incorporation (MOI) or constitution (when amended), must be submitted annually.

The HOA must pay levies on a quarterly basis to CSOS; these levies are collectable from each owner in the scheme. The levies are calculated as 2% of the owners` levy minus R500. The monthly levy per person may not exceed R 40 per month.

Whereas the STSMA is very particular when it comes to insurance for schemes, HOAs only need to comply by having sufficient fidelity insurance to cover all the funds held by the scheme, including reserve funds. This protects the scheme against any fraudulent activities which may see their funds being misappropriated by scheme executes or managing agents.

Disputes between owners and residents are common in any community scheme. Members in HOAs and the HOAs themselves may use the dispute resolution services provided by CSOS. A minimum fee must be paid when registering a complaint, accompanied by a standard form available on the CSOS website.

Important to note that before pursuing this route, all attempts must be made to resolve their issues before approaching CSOS for assistance.

The CSOSA further provides guidance to scheme executives in terms of good governance. These include:

  • Taking reasonable steps to educate themselves in all areas pertaining to the scheme and its governance documents;
  • Taking the necessary steps to obtain all required information about matters relating to the scheme, enabling themselves to make conscientious and informed decisions on behalf of the scheme;
  • To, unless excused or on reasonable grounds, attend all executive meetings and the annual general meeting of the scheme;
  • To actively hold an independent view on all matters to be decided on and show due diligence in preparing for any business to be discussed at executive or general meetings of the scheme.

Summary

Whether registered as non-profit companies or as common law associations, HOAs are not governed by the Sectional Titles Act or the Sectional Titles Schemes Management Act. They are obligated to pay prescribed levies to CSOS which, in return, provides the option of dispute resolution between owners, residents and the HOA.

This is an inexpensive and valuable service to make use of when disputes cannot be resolved internally and all efforts have been exhausted.

HOAs must rely on their MOIs and the company law or their constitutions for management guidance and directives, and must ensure that relevant financial and governance documents are submitted to CSOS annually for record-keeping purposes.

 

More about HOAs: How HOAs are different from sectional title schemes