RIGHTS CREATED BY HOMEOWNERS’ ASSOCIATION CONSTITUTIONS

Many residential estates are governed by homeowners’ associations, which have constitutions requiring anyone owning property in that particular estate to belong to the association.

The association owns communal facilities and operates the estate’s infrastructure, including roads, water, sanitation, telecommunications networks and security services. All these are funded by monthly levies, recovered from residents.

The constitution of such associations include a clause stipulating that no member can transfer his or her property unless the homeowners’ association has certified that the member has fulfilled all financial obligations to the association.  These clauses are inserted to prevent any post-transfer problems in recovering amounts owed by residents.

A complication arises if a resident is sequestrated (or wound up, in the case of a corporate entity owning property in the estate).  The trustee or liquidator is obliged to sell the assets, and utilise the proceeds to the benefit of creditors.  Can the homeowners’ association prevent transfer, in such circumstances, if the amounts due to it are not paid?  This was the problem recently considered by the Supreme Court of Appeal in Willow Waters Homeowners v Koka NO & Others 2015 (5) SA 304 (SCA).  The Court approached the issue by considering whether the embargo on transfer of property, contained in the homeowners’ association constitution, constituted a real right as opposed to a personal right.  Broadly speaking, a real right prevails against the whole world and is enjoyed in respect of specific property, whereas a personal right is relative in the sense that it is only enforceable against a particular person, namely the other party to the obligation.  (Van der Merwe, “Sakereg”, pp 60 – 61).

In the Willow Waters Homeowners matter, the Court pointed out that, to determine whether a right or condition in respect of land is a real right, two requirements must be met, namely:

(a) The intention of the party who creates the right must be to bind not only the present owners but also successors in title; and

(b) The nature of the right or condition must be such that it restricts the exercise of ownership in the property saddled with such right.

The Court held that a clause requiring payment to the homeowners’ association of all monies due to it before transfer is intended to create a general security for the payment of a debt by binding successive owners in the township.  By doing so it restricts the exercise of rights of ownership by limiting an owner’s right to freely dispose of the property.  The provision therefore met both of the aforegoing requirements, and is qualified as a real right.  The court rules that the homeowners’ association was entitled to enforce this right against any party, including the trustee of an insolvent estate, where an owner of property in the estate had been sequestrated.

The judgment clarifies an important legal question.  Homeowners’ associations exercise an embargo on the transfer of property in a residential estate, unless and until all monies owed by the transferor to the homeowners’ association have been paid.

Compiled by Kinney Oosthuizen

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)