A Paddocks Sectional Title Lifestyle Blog
By Anton Kelly
We all understand that the body corporate of a sectional title scheme does not own the common property, the common property is co-owned by the individuals who own units in the scheme, but it is possible for the body corporate to own units in the scheme.
Section 38 of the Sectional Titles Act (the Act) allows the body corporate to own either immovable or movable property. The question is, who is entitled to decide to buy it and who exercises the ownership rights that are acquired when the body corporate buys property?
While the body corporate is empowered to buy units, section 38(b) makes it very clear that the purchase is only justified if it is essential for the proper performance of the body corporate’s duties. Many schemes see the purchase of a unit, especially one that is sold by an insolvent estate and therefore possibly below market value, as a bargain solution to its financial problems or a way of subsidising the levy fund. But neither of these purposes is essential to the operation of the body corporate. If the scheme needs money, the Act provides that its first port of call is the owners’ pockets, through the levy fund.
Assuming the purchase of a unit is justified, the trustees are entitled to make the decision because section 39(1) grants the board the powers of the body corporate. However, the trustees can only exercise these powers in terms of the Act, the scheme rules, and the directives or restrictions placed on them by the owners in general meeting. Unless the need for the unit is very clear, the trustees should probably consult the owners before going ahead with it.
Ownership of a unit brings with it the entitlement to vote. The vote allocated to a unit owned by the body corporate should be suspended because the body corporate cannot take part in making its own decisions. The participation quota of the section should be removed from the total, so only the vote value of the other owners is counted when calculating the quorum and votes in value.
Section 38(c) allows the body corporate to buy, or hire, moveable property. As a power of the body corporate, this acquisition can be made at the discretion of the trustees. One of the questions that arises in this respect, is the nature of the property. Is it not an improvement to the common property requiring either a special or even a unanimous resolution of the body corporate to approve?
The common property is defined in section 1 as the land in the scheme and parts of the building/s that are not sections. An item of movable property is therefore not common property and its purchase is not an improvement as dealt with in prescribed management rule 33.
While the trustees exercise the powers of the body corporate, section 39(1) makes that entitlement subject to the provisions of the Act, the scheme rules and any directives given or restriction placed on the trustee at a general meeting. If the trustees have serious doubts about buying immovable property or a unit in the scheme, they should call a general meeting and ask the owners for a directive, particularly as the purchase will involve either a substantial part of the scheme’s reserves or raising a loan from a bank.
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