Real Estate Investor Magazine South Africa September 2014 | Page 40

MANAGING

BY MICHAEL BAUER

HOA
Pitfalls to Avoid
Registration of spaces

I

n typical Homeowners Associations (HOAs)
developments, various areas such as roads, the
entrance and parks or green spaces fall into two
categories: public open spaces or private open spaces.
These various areas often remain registered in the
developer’s name and are not transferred with the first
transfer when the scheme is established.
The devil in the detail
If the roads in an HOA are public roads, the
municipality would own and maintain the roads. If the
roads are private roads, the scheme is responsible for
their upkeep. Some of the spaces within an estate, such
as parks or walkways, are usually private open spaces,
which should be transferred to the HOA. Attorneys
should, from the first transfer of a property in this
estate, transfer all the public and private open spaces to
the HOA. But this sometimes is not done.
This could lead to cases where it is found that the
municipal bills have been mounting up for these
various areas over several years, because they were
never transferred. The bigger the estates are, the bigger
the private open spaces are, and the bills for rates and
services to these spaces can be astronomical. I have seen
cases where after ten years there is a massive municipal
bill due - in one particular case, over R500,000 - for
the rates and services. A decade later, no one knows
who the various sections of land are registered to, as
the developer has by that stage moved on and possibly
closed the business.
Hassles for owners
Problems creep in when a home in the development is
in the process of being sold, and the owner has applied
for a rates clearance certificate. Because the property
is linked (via the business partner number) to the

40

September 2014 SA Real Estate Investor

outstanding amounts owed in rates or services, no rates
clearance certificate will be issued until all municipal
accounts have been paid.
The first thing that has to be established is what is
owed by the developer and what is owed by the HOA.
The HOA could then try to recover some of the money
owed from the developer. However, developers will
rarely volunteer payments, as they would have moved
on to other businesses and developments, or may no
longer be in existence, so there is no entity to claim the
money from.
The unfortunate part of this is that the amounts
outstanding will have to be paid by the HOA – and that
means the owners of units in the scheme. The HOA
could challenge the municipality regarding amount
outstanding, but this will take time and they will still
have to make some arrangement to start paying off the
arrears while they build their case. The HOA would
also need to start the process of transferring the various
spaces to the correct entities.
Lessons to be learnt
With new developments, the first thing the newly
appointed directors or trustees of the HOA should do
is an audit, checking the erven and whether they are
transferred to the right entity. The developer will have
run a separate set of books up to the first transfer taking
place and the HOA must check that all the contracts
or servi