With the lens on the developer of a sectional title scheme, a distinction needs to be made between Developer A, who owns undeveloped land on which they intend to develop buildings comprising a sectional title scheme and Developer B, who owns land on which a building has already been erected, which they intend to convert into a sectional title scheme. In Developer B’s scenario, what would the repercussions be of having existing lessees occupy the building before conversion to a sectional title scheme?
This issue is addressed in the Sectional Titles Act 95 of 1986 (“the Act”) to balance the interests of both the lessee and the developer when an un-sectionalised residential building is to be converted to a sectional title.
Section 4(3) of the Act
The first layer of protection for an existing lessee is provided by section 4(3) of the Act, which provides that where such buildings have already been let for residential purposes, the developer should first notify the lessees in writing, at least 14 days in advance, of a meeting to be held in which the developer shall inform them of the particulars of the proposed scheme and through such engagement, create a platform in which they can ask reasonable questions about the scheme. Secondly, there is a duty on the developer to inform the lessees of their section 10 right of pre-emption at this meeting.
Section 10 of the Act
Regarding section 10 of the Act, which contains the second layer of protection, lessees are granted a right of pre-emption to purchase the unit they currently occupy. This section provides that a developer cannot sell or offer for sale a unit in a residential building occupied by a lessee to any person other than the lessee unless the developer has already offered the unit for sale to the lessee and the lessee has refused the offer within 90 days or the period of 90 days since the offer was made has expired with no acceptance by the lessee.
Furthermore, should the 90-day period expire, the developer may not sell or offer for sale the unit to another purchaser at a price lower than that at which it was offered to the lessee within 180 days following the date of refusal or expiry of the offer. As an exception to this restriction, the developer may sell the unit at a reduced price if he had offered the unit at such a reduced price to the lessee first, and the lessee subsequently either refused the offer or 60 days have lapsed without acceptance by the lessee.
Restriction on eviction
After the expiry of either 90 days after the pre-emption offer or 60 days after the reduced offer, the developer is prohibited from ordering the lessee to vacate the premises within a further 180 days from the refusal or expiry of the first or second offer. The developer may also not increase the lessee’s rent during this period.
Any contract of sale concluded contrary to the provisions of section 10 shall be deemed void, and the developer concluding such contract commits an offence which, if convicted, could lead to a fine of up to R2000 or imprisonment of up to 12 months or both.
It is important to note that the above provisions are only applicable to buildings used wholly or in part for residential purposes and, therefore, do not apply to buildings used for commercial or industrial purposes and won’t apply where the developer is constructing a new building, as contemplated in the Developer A scenario mentioned above.
The developer does not need to have the section 4(3) meeting if all the existing lessees have stated in writing that they are aware of their rights and do not want to purchase the units they occupy. If such a meeting does need to be convened, it must be done before making an application to the Surveyor-General for approval of the draft sectional plan.
The protection provided by section 10 and section 4(3) does not extend to sub-lessees and other occupants not a party to a contract with the developer. While they are entitled to receive notice of the meeting convened by the developers, they are not entitled to the right of pre-emption offered by the developers.
It is, therefore, clear that while a sectional title scheme can be established by conversion of an existing building let for residential purposes, this manner of creation of the scheme requires the protection of existing lessees, some of whom might not be able to afford purchasing a unit in the proposed scheme. The above provisions afford some relief to the lessee without placing an unreasonable burden on the developer.
Authored by Vicky-Lee Willemse and Andrew Heiberg