By Michael Jones (Associate at Hayes Incorporated)
Community Schemes Ombud Service Act: A new ombud to resolve disputes of homeowners’ associations and body corporates
The housing market in South Africa continues to be characterised by the development of residential estates and other forms of communal living. This has brought with it an increase in various types of disputes, often concerning residents’ failure to adhere to the rules of the estate, residents being disgruntled with the decisions of the trustees of a home owners association, or disputes between residents themselves.
In order to address these issues, the Community Schemes Ombud Service Act 9 of 2011 (“the Act”) was promulgated. The Act came into force on 7 October 2016 and applies to “community schemes”, which include “any scheme or arrangement in terms of which there is shared use of and responsibility for parts of land and buildings”, and includes sectional title schemes, share block companies, home owners associations, a housing scheme for retired persons, and housing co-operatives. Developers, associations, and any person resident in such establishments should therefore take note of the changes to be brought about by the Act.
The Act establishes the Community Schemes Ombud Service (“CSOS”). The CSOS is tasked with developing and providing a dispute resolution service and promoting good governance of community schemes. The CSOS is required to establish regional offices and appoint ombuds, adjudicators and conciliators. Anyone who is materially affected by a dispute may apply to the ombud for relief. Such an application must be in the prescribed form, accompanied by the prescribed application fee, and set out the relief sought and the grounds for seeking such relief. Both owners and occupiers or tenants of units within community schemes may make use of the service provided.
An application may be made in respect of a number of issues typical of disputes that arise in community schemes, including financial issues, behavioural issues, scheme governance issues, meetings, management services, and works pertaining to private and common areas. Applications may be rejected if they seek relief not within the jurisdiction of the CSOS or if the ombud is satisfied that the dispute should be dealt with in a court of law or other tribunal of competent jurisdiction. Applications to declare a decision of an association or executive committee to be void must be made within 60 days of such decision being taken.
The Act promotes negotiated settlements. Accordingly, if the ombud considers a matter to have a reasonable prospect of settlement, it must be referred to conciliation. If conciliation fails, the application must be referred to an adjudicator. The Act grants adjudicators various powers of investigation, including the power to call for information and documentation, to give evidence in the form of an affidavit, to invite written submissions, and to enter and inspect assets, records and other documents, and private and common areas. Legal representation is only allowed if the adjudicator and all parties consent or if the adjudicator concludes that legal representation is reasonably required. An adjudicator’s decision may be enforced as if it were an order of court. Such a decision may also be appealed in the High Court. However, an appeal must be lodged within 30 days of the decision, and only on the basis that the adjudicator incorrectly applied a legal provision. Factual findings by the adjudicator appear to be excluded as a basis for an appeal under the Act.
An important feature of the Act relates to funding of the CSOS. In addition to money appropriated from Parliament, the CSOS is to be funded from levies collected from community schemes and from application and adjudication fees payable by those making use of the CSOS.
All community schemes are now required to collect from their members and to pay to the CSOS a levy on a quarterly basis. Such levy is payable by each residential unit and is calculated according to the monthly levy charged by the community scheme. Individual units for which the community scheme levy is below R500.00 are exempt from paying a levy to the CSOS. Thereafter, the CSOS levy currently ranges from R2.00 per unit per month to a maximum of R40.00 per unit per month.
Applicants who apply to the CSOS to have a dispute resolved must pay an application fee of R50.00. Adjudication fees are set at R100.00. Persons with net household income below R5,500.00 are exempt from paying application and adjudication fees.
Community schemes are required to file annual returns and copies of their annual financial statements with the CSOS. Furthermore, community schemes are required to have fidelity insurance to insure against loss of funds through fraud or dishonesty by executives, managing agents, employees or other persons with access to or control over the community scheme’s funds.
It is yet to be seen whether the Act will be a success and whether the CSOS will be effective in resolving disputes and promoting good governance among community schemes. The Act clearly places an onerous burden on associations in requiring them to collect levies from its members and pay these over to the CSOS. Associations and all members of community schemes would therefore be well-advised to take cognisance of the Act and its requirements.