Real Estate Investor Magazine South Africa May 2013 | Page 36

SECTIONAL TITLE

BY IVAN ZARTZ

A Stitch In Time

Will save a homeowners association nine

T

he budget of most Homeow ner s
Associations is notoriously tight and
in many instances even a f iercely
debated issue.
So suggesting that the HOA should consider
spending time and money on obtaining
professional advice to draft a new Memorandum
of Incorporation that complies with the
Companies Act 2008 (“the new Act”) may seem
like heresy.
A f ter a l l, t he Compa n ies Ac t, when
implemented in May 2011, granted recognition
to the status of all “pre-existing companies”
including thousands of HOA’s which had been
incorporated either as a private company or
more usually as a “section 21 company” being
“an association incorporated not for gain”
under the Companies Act 1973 (“the old Act”).
Most importantly, the new Act allowed these
pre-existing companies the right to use their
existing company documents as their governing

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May 2013 SA Real Estate Investor

“constitution” for a period of two years even if
actions taken consistently with such documents
did not comply with a procedure introduced
by the new Act. After the grace period,
which lapses on 30 April 2013, however, the
provisions of old-style company memorandums
of association and articles of association can
only be relied on to the extent that same are
“consistent with” the provisions of the new Act.

or not. We submit it is much easier to start with
a clean slate and tailor-make a Memorandum
of Incorporation (as the single constitutional
document is now known) which suits the HOA
and which is fully compliant with the new Act.

And there in lies the rub – especially since
failure to comply with the new Act can
either result in an action being void or lead to
the Companies and Intellectual Properties
Commission issuing a “compliance notice”
against the company.

• the Articles of Association of many HOAs
were drafted at a time when the developer of
the property still had a substantial interest
in the affairs of the HOA and accordingly
many exceptional powers and protections
were specifically included for the benefit of
the original developer. Especially in more
mature properties it will be important to review
whether those powers and protections are still
appropriate today;

While much of what is contained in the
existing “constitutions” of HOA’s may comply
with the new Act it is an unnecessarily arduous
(and at the end of the day expensive) process to
systematically check each provision against the
new Act to determine whether it is consistent

There are several additional factors (but not
necessarily an exclusive list) which we submit
are applicable in making this decision, namely:

• the provisions of the new Act add a number
of new requirements for what “section 21
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