How to HOA part 2 | Different types of governance documentation in HOAs
20 June 2024 | Nicole Nel
In my previous article I broke down the difference between the 2 (two) types of HOAs that are prevalent in South Africa, namely common law HOAs and Non-Profit Company HOAs in terms of the Companies Act 71 of 2008 (“the Companies Act”).
As we have learnt, common law HOAs are established in terms of the Spatial Planning and Land Use Management Act 16 of 2013 (“SPLUMA”), and the relevant Municipal By-Laws within the province where they are present.
However, the aforementioned legislation and By-Laws in no way provide a legal document outlining the objects and powers of the HOAs, nor does it set out what the rights and duties of owners within these types of HOAs are. These are just a few critical HOA matters that are not addressed by SPLUMA or the relevant By-Laws.
Because of the above, it is so important for common law HOAs to have up-to-date governance documentation that accurately reflects the realities of living within that specific HOA.
Now I keep going on about “governance documentation”, but what does this actually mean? Well, it is what it says, it is the documents of the HOA that govern how the HOA operates in respect of all its duties and functions.
In terms of a common law HOA, typical governance documentation you would see includes:
A Constitution
Think of this as the “management rules” of the HOA, and all issues relating to administration, management and operation will be regulated in this document. It is the highest-ranking document within a common law HOA, and almost always requires a special resolution of the members to amend. Once approved by the members, the Constitution will need to be submitted to the relevant Local Authority for their approval.
Estate / Conduct Rules
Similar to a body corporate, these are the rules of the HOA that regulate all conduct and behaviour of all those within the HOA, i.e. owners, occupiers, tenants, and their visitors, contractors or employees.
Architectural Design Guidelines
This is a document that is quite unique to HOAs. When someone purchases into an HOA, it is usually because of 2 (two) reasons, the aesthetic and harmonious appearance of the properties and the security that living within the HOA offers. Therefore, it is understandable that most HOAs have this document to preserve the harmonious and aesthetic appearance within the HOA, and all owners within the HOA will need to consult and comply with any requirements and/or guidelines as set out in this document before undertaking to any alteration and/or renovation works to their property.
Now don’t be fooled by the fact that the Companies Act is the overarching legislation that regulates Non-Profit Company HOAs (“NPC HOAs”), because, and I regret to inform you, despite having this legislation, there are still shortfalls in the regulation of the administration and management of NPC HOAs.
It is because of this, and similarly to the case of common law HOAs, that NPC HOAs also have up-to-date governance documentation that accurately reflects the realities of that particular HOA.
Typical governance documentation that NPC HOAs must have includes:
A Memorandum of Incorporation (“MOI”)
You may be familiar with this term for traditional companies but let me assure you that the layout of an NPC HOA MOI is very different to that of a MOI of a traditional company. This is because, despite the unalterable provisions of the Companies Act that must be included in the MOI and the Schedule 1 of the Companies Act which include provisions that are specific to NPC HOAs, there are no other guidelines in the Companies Act to address issues like how the HOA raises levies, or which decisions within the HOA require which level of authority, or even the dispute resolution mechanisms that must be followed within an NPC HOA. It is for these reasons, and more, that an NPC HOA must have an up-to-date MOI that not only complies with the provisions of the Companies Act, but also accounts for the unique matters that arise in relation to HOA living;
Estate / Conduct Rules
These are the same as in a common law HOA, but interestingly in a NPC HOA, the Board of Directors may make the rules, and they are simply ratified by the members, by ordinary resolution, at the next annual general meeting of the NPC HOA, and
Architectural Design Guidelines
This document would be the same as in a common law HOA.
It is important to note that once the MOI has been approved by the members, by way of special resolution, in terms of the Companies Act, the amended MOI must be lodged with the Companies and Intellectual Property Commission (“CIPC”).
An interesting governance point relating to both types of HOAs is that the Community Schemes Ombud Service (“CSOS”) only has jurisdiction with regard to dispute resolution within HOAs, and has no jurisdiction with regard to the approval or quality assessment of an HOA’s governance documentation. This means that once the Local Authority or CIPC has approved an HOA’s Constitution or MOI, the HOA does not have to submit this document, or its Conduct Rules/Architectural Design Guidelines to the CSOS for their approval.
However, the CSOS is very aware of their limited jurisdiction with regard to HOA governance documentation, and this is certainly something that they are wishing to address with the, not very soon, amendment of the CSOS Act.
Further to the above, there have even been whispers in the industry that the CSOS are looking to introduce a generic Constitution/MOI for HOAs in South Africa, similar to the Prescribed Management and Conduct Rules found in the Sectional Title Schemes Management Act (“STSMA”).
I do hope that the above remains but a whisper, because if the unique aesthetic appearances and security policies of HOAs are reduced to being governed by a generic document, then the very basis for HOAs face a huge threat, and this ever-growing form of community living could soon expect a decline.
Should you require any more information regarding this topic, don’t hesitate to contact us today on 061 536 3138 or at info@tvdmconsultants.com
If you haven’t read the first article in this series, where Nicole focuses on what the difference is between Common Law and Non-Profit Company Homeowners Association, then click here to do so.
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About the Author:
Nicole Nel is a Community Schemes Consultant at TVDM Consultants, Click here to learn more about her.