Real Estate Investor Magazine South Africa November 2013 | Page 34

LEGAL

BY RUI MARTO

Can You Be Fined
For not building in time?

T

here have been a number of disputes
between Homeowner Associations
(“HOA”) and landowners arising from
HOA’s levying fines against homeowners who
have failed to build within the period stipulated
in their original agreements of sale. The question
arises whether in fact HOA’s are legally entitled
to issue these fines or penalties and if so, whether
there are any limitations thereto.

General scenario
Ty pica l ly, a homeow ner enters into an
agreement of sale of land within a cluster
complex. One of the terms of the agreement,
is that the homeowner is required to build his
property on the land within a stipulated period.
The agreement further includes a provision that
the HOA is entitled to impose a penalty should
the homeowner not build within the stipulated
period. Generally the period stipulated in the
agreement tends to range from one to five years.
Certain complexes include further limitations
including the size of building, restrictions in
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November 2013 SA Real Estate Investor

design and even construction materials used.
The problem arises when the purchasers
for one reason or another do not finalise the
building timeously. The most common reasons
given tend to be the following:
• The purchaser failed to obtain a building
loan for the construction of the property,
alternatively same was granted but
subsequently declined due to change in
circumstances;
• Change in financial status of the purchaser;
• The purchaser was a speculator who intended
to on-sell the land without intending to build
and failed to find a suitable buyer;
• A dispute arises between homeowner and
either the HOA or the building contractor,
causing a delay in the finalisation of the
building.

The penalty
As a result of the homeowner’s failure to
build within the stipulated period, the HOA

imposes a fine on the homeowner. Where the
agreements are silent on the amount of the fine,
the value of the fine is set per resolution taken
at a meeting of the HOA. The fine is usually a
fixed amount charged per month from date of
resolution or date of default, whichever is the
later, to date of finalisation of construction.
Alternatively, the fine is set at a multiple of the
levy charged by the HOA, for example, five
times the levy amount.
The reasons usually given by the HOA’s for
imposing these penalties are:•

•
•

•

Nuisance resulting from building activity.
The objective is for all homeowners to build
within a common period so as to minimise
nuisance to each other;
Damage resulting from building activity;
Security risks resulting from continued
building activity. At times this requires the
employment of additional security patrols;
Negative effect on property prices.
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