Dealing With Scheme Governance Issues In Community Schemes

A Critical Analysis Of Certain Aspects Of The Community Schemes Ombud Service Act, No 9 Of 2011

Month 4: April 2019

Dealing With Scheme Governance Issues In Community Schemes 

There are many different community schemes and arrangements in South Africa. For many years there was no regulatory body governing these schemes. The Community Schemes Ombud Service Act 9 of 2011 (“CSOSA”) came into operation in October 2016 and many of these schemes now qualify as community schemes under the CSOSA. Subsequently, the CSOSA established a regulatory body established by government to deal with complaints and disputes in community schemes and to oversee compliance and corporate governance in such schemes. 

The CSOS is designed to provide an alternative, impartial, cost-effective and transparent service for the resolution of administrative disputes in community schemes. The term “community scheme” refers to a wide range of shared land use arrangements, including sectional title, share block and retirement schemes, home owners’ associations and housing co-operatives. 

The CSOSA defines a “dispute” as:

“a dispute in regard to the administration of a community scheme between persons who have a material interest in that scheme, of which one of the parties is the association, occupier or owner, acting individually or jointly”.

This means that the CSOS can deal with disputes regarding the administration of a community scheme if the dispute is between persons who each have a material interest in the scheme, such as executive committee members, owners, occupiers, managing agents and bondholders, and one of the parties to the dispute should either be the association or an owner or occupier.

Section 39 of the CSOSA provides for a list of seven types of orders that a CSOS adjudicator can give in terms of a dispute application. Each month, I will consider one of these seven categories of types of orders from a practical point of view to determine which kind of community scheme disputes can be taken to the CSOS for resolution and how an adjudicator can deal with such disputes. It is important to note that the list of orders provided for in the CSOSA is not exhaustive as the chief ombud is entitled to propose any other order.

Previously I have dealt with disputes relating to financial issues as well as behavioural issues in community schemes. This month I will look at issues which relates to a scheme’s governance documents and how to deal with them. 

A community scheme’s governance documents are fundamental to its operations and vital to the rights and obligations of its association and members. The governance documents should always be considered in conjunction with the legislation applicable to the community scheme to achieve social harmony and stability in the scheme. The CSOSA provides for two different orders relating to scheme governance which I have summarised below. 


Orders relating to new scheme governance provisions 

Any alteration, variation or amendment of a scheme governance provision, having been decided on by the members, requires some action to make the alteration effective. For example, when sectional owners make a conduct rule by special resolution, the trustees must submit that rule to the CSOS for examination and filing, which new rule will only come into operation once it is approved and filed.

Disputes may arise when the community scheme’s association delays or frustrates the process of bringing new governance provisions into operation. In terms of section 39(3)(a) of the CSOSA, an application may be made for an order requiring the association to record a new scheme governance provision consistent with a provision approved by the association. Therefore, even if the association does not support the alteration, variation or amendment, they will have to attend to the amendment if ordered to do so. 

Furthermore, the resolution of a community scheme dispute may require the making of a new governance provision, such as a term included in the constitution of a specific Home Owners Association or a sectional title scheme rule. Again, a dispute may arise if owners refuse to cooperate or frustrate the taking of a resolution necessary to make a governance provision that is reasonable and necessary for good scheme administration. In terms of section 39(3)(b) of the CSOSA, an application may be made for an order requiring the association to approve and record a new scheme governance provision.


Orders declaring scheme governance provisions to be either invalid or unreasonable and requiring amendment

A dispute may arise when someone having a material interest in a community scheme considers a scheme governance provision to be, for some reason, invalid and consequently not enforceable. If the governance provision appears to be in force, the person alleging its invalidity will have to start proceedings to have it declared invalid.

In terms of section 39(3)(c) of the CSOSA, an application may be made for an order declaring that a scheme governance provision is invalid and requiring the association to approve and record a new scheme governance provision to remove the invalid provision.

An application can also be made to have a scheme governance provision removed or changed should someone with a material interest in the community scheme consider the provision to be unreasonable. In terms of section 39(3)(d) of the CSOSA, an application may be made for an order declaring that a scheme governance provision, having regard to the interests of all owners and occupiers in the community scheme, is unreasonable, and requiring the association to approve and record a new scheme governance provision, to remove the provision; if appropriate, to restore an earlier provision; to amend the provision; or to substitute a new provision.

Keep an eye out for next month’s newsletter as I will be looking at issues relating to meetings and resolutions in community schemes. 
 
DANIËL VAN ZYL

ATTORNEY & CONVEYANCER
VAN ZYL KRUGER INC



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