Real Estate Investor Magazine South Africa October 2014 | Page 8

ASK THE EXPERTS Q Q Nicky M asks: Can the body corporate charge money for the grant of exclusive use rights to common property such as a parking bay? A A This is a common question and, typically, the common property involved will be a parking bay, garden area, courtyard, patio or balcony, or even the roof space above an original ceiling, a basement or an open space below the owner’s section. The question of payment does not always arise, particularly when all owners are being given roughly the same rights at the same time. However, where just one or a few owners are getting new rights, it is not at all unusual for them to be asked to pay for those rights. The common property is owned in undivided shares by all owners of sections. In granting exclusive use rights, the owners are not losing that ownership, but they are giving up their use rights for that part of their shared property. Perhaps they would never have used the area in question anyway, but it is not unreasonable that they should want to be compensated, particularly if the area could potentially be rented out or turned to account in some other way. The Sectional Titles Act does not deal with this aspect at all, but after the scheme is established, exclusive use rights can only be created by way of an owner resolution, preliminary to other formalities. So if owners will only vote for the required resolution on condition the owners who will receive the rights agree to pay, that agreement is the basis of the claim for the payment. A number of issues then arise. Firstly, how do you establish a fair price? We suggest obtaining advice from Adj. Prof. Graham Paddock, Senior Partner at Paddocks answers: an estate agent or registered valuer to determine the value of the rights. As exclusive use rights can only be held by unit owners, the “market” for these rights is not the general public, but only the unit owners. Will the price be retained by the body corporate (BC) to subsidise its operating costs or add to its reserve funds, or will it to be paid to the owners, directly or via the BC? If it is to be paid to the BC, the trustees should ensure that there will be no income, capital gains or other form of tax due by the BC, or that this liability is taken account of. If it is to be distributed, directly or indirectly, to owners, the trustees must ensure the payment will be considered to be of a ‘capital nature’, so that the prescribed management rules permit the BC to make those payments. Is the payout to owners to be calculated on a prorata basis or on participation quotas? Will the owner getting the rights be excluded from the payout? If more than one owner is to get the exclusive use rights, how will they be obliged to contribute to the price and other costs? Our recommendation is that once a price has been settled and the details have been negotiated, there should be a contract between the BC and the owners concerned, setting out the arrangements in detail and annexing the resolutions that are required to give effect to it. Do you have a property question you would like answered by our experts? If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] 8 October 2014 SA Real Estate Investor www.reimag.co.za