Right to extension in sectional title schemes

In a sectional title scheme, provided for in the Amendment of section 25 (1) of the Sectional Titles Act 95 of 1986, a developer can register the right to extend the sectional title scheme.

It says:

“A developer may, subject to the provisions of section 4 (2), in his or her application for the registration of a sectional plan, reserve, in a condition imposed in terms of section 11 (2), the right to erect and complete or include from time to time, but within a period stipulated in such condition, or such extended period as may be agreed upon by unanimous resolution of the body corporate and bondholders, from time to time prior to the expiry of the stipulated period, by way of a bilateral notarial deed, for his or her personal account -

(a) a further building or buildings;
(b) a horizontal extension of an existing building;
(c) a vertical extension of an existing building,”

This obviously, says Lanice Steward, managing director of Knight Frank Residential SA, would ring alarm bells for any potential purchaser.

In many instances the right of extension has been registered but the developer has no intention of ever exercising this right. There could be an extension registered that neither the transferring attorney, body corporate, the seller nor the agent is aware of, she said.

The developer may have no intention to exercise this but is this not a case where the body corporate should in fact have this cancelled?, she asks

This will, she says, affect the values of the property, even though the chances of the extension being built are slim. All parties involved must be made aware of the situation, she said. The agents, attorneys, body corporate, buyer and seller should know what the situation is so that an informed decision can be made as to whether to continue with the deal, or not.

In some cases where properties have been rezoned, as experienced by Michael Bauer, general manager of the sectional title property management company, IHFM, problems can arise where originally the developer had the right to build a three storey apartment block but on reassessment of the new zoning regulations he is now entitled to build a 16 storey apartment block. If there has been no stipulation of the time frame of the extension and no limit placed, the developer can then exercise his right to continue to build upwards and the owners of the block can do nothing about it, he said.

It is important to check, firstly, before signing an offer to purchase in a sectional title scheme, whether there is a right of extension in place, and secondly whether there is a time limit set. If there is no date or limit to the number of years, this right could be exercised at any time.

Another important thing to note, he said, is that the developer does not necessarily have to develop the extension himself, he can sell this right to another developer, who may then decide to use it.

The ST Act was last year amended again slightly to say that, should the developer decide to use the right of extension, he does have to compensate the current owners, should there be any damage to their property in the course of building onto the existing building.

“Unfortunately, if the right to extension is open-ended, there is nothing the owners can do to prevent him exercising the right,” he said.

Article by: www.knightfrank.co.za/

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