If you are a first time home buyer or you are considering up or downsizing, make sure you understand the ramifications of the choices of property available.
Types of residential immoveable property
The options are freehold property, sectional title, leasehold and, less commonly, shareblock companies. One can also have a type of hybrid of freehold and sectional title property commonly known as clusters.
A freehold property stands independently, is independently owned and the owner is responsible for all the maintenance, rates, services and insurance costs.
In this regard, think of townhouse complexes or flats. A sectional title property is divided into sections (units) that are owned by the owner and communal areas that are jointly owned such as roads, passages, gardens or lifts. A particular section owner could also have exclusive use of a common area such as a parking bay, a designated garden or servant’s quarters. Check whether your exclusive use areas are registered in the deeds office and not merely leased to you. Bear in mind that leases can usually be terminated or the terms altered.
Sectional titles are strictly legislated and a body corporate is elected by the owners to run and maintain the scheme. The expenses are paid in the form of levies that are determined by the body corporate. Prior to signing a sectional title agreement of sale, it is always a good idea to establish if the scheme is well managed and to request a copy of the financial statements to see if the finances are in good order as you are ultimately responsible for the debts of the body corporate. If you are unable to interpret a balance sheet, obtain the opinion of a suitably qualified person.
The leasehold owner does not own the land but leases it from the owner, usually the government or a municipality. This is, typically, for a substantial period of time, usually 99 years. Commonly, after the expiry of the lease, the land and any improvements built thereon reverts to the owner with no compensation to the leasehold owner, unless the agreement states to the contrary.
Shareblock properties, usually older blocks of flats, are owned by a company and the buyer owns shares in the company and is entitled to the use of a unit in terms of a ‘user agreement’. Of late, this type of arrangement has largely become redundant. The company owns the property and as the individual shareholder’s position is as secure as the company is, financial institutions do not like extending bonds in these cases.
Clusters are freehold properties contained in a development with some common property and common responsibilities such as roads, security and a main gate. These developments are rapidly becoming very popular but are generally for the higher end of the market.
Which type of property is best suited to your needs
Freehold properties are a good option if you do not want to be restricted by communal rules. You alone can decide on the lawful alterations you desire to be made to the property. Should you want to paint your house a colour of your choice or want to build income producing cottages or extra garaging, this is the choice for you. If you are a noisy family or have small children or like extensive gardening, this is a good option. If you are a pet lover, this is definitely the property type for you.
Sectional title is a good option for people who are security conscious, desire a lock-up-and-go living option and are open to communal living. Clearly, sectional title residents have to abide by rules that are decided by the majority, to enable peaceful cohabitation. Always request a copy of the body corporate rules prior to signing an agreement to ensure that the rules are not too restrictive for your lifestyle. Also, look out for rules that impose fines as penalties for non compliance with the complex rules. A copy of the rules should be lodged at the deeds office but a simple request to the estate agent or body corporate will usually yield a copy.
Clusters are a good option for people requiring less restriction combined with elements of communal security.
Often people buy into sectional schemes without realising the repercussions of the rules and possible interference and complaints from other owners. Buyers may suffer if they have bought into a poorly run sectional development or find themselves out of pocket due to the poor finances of the scheme. They may be forced to get rid of beloved pets.
Alternatively, some owners may purchase a freehold property only to feel vulnerable to criminals and find that they have not taken into account the expense of an individual security system or armed response. They might find the responsibility of maintenance to the property or a large garden too onerous.
Understand your needs and those of your family before committing pen to paper and making an offer on an unsuitable property type. It would be an expensive mistake to rectify.