1. 9/28/20161 CSOS & Sectional Title Schemes Management Regulations Select Committee on Public Services 16 August 2016

2. Background  South Africa’s real estate sector was among the main contributors to GDP 2.1% growth in 2012 and the total Community Schemes sector is valued at approximately three (3) billion rands.  Sectional Title Schemes are amongst the fastest growing forms of accommodation, owing to a number of reasons, including heightened security, affordability and a more communal way of life.  Estimated 200 000 sectional title schemes with over 1 million units  Community scheme managers are said to manage assets in excess of R800 billion and approximately R11billion in annual levies Sectional Title Scheme- Seven Miles South- Cape Town Sectional Title Scheme- The Qualis- JHB

3.  Before CSOS – No effective Regulation e.g. quality check and control of scheme governance documents such as body corporate rules & Home Owners Associations (HOA)  Lack of education and awareness about consumer rights  Lack of effective dispute resolution mechanism  High arbitration and litigation costs to settle even minor disputes under Arbitration Act  Power imbalance and financial muscle between an ordinary individual unit owner and a body corporate/managing agent/HOA served as a deterrent.  The establishment of the Community Schemes Ombud Service marked the beginning of a new regulatory regime Background

4. CSOS established to inter alia in terms of SECTION 4 OF CSOS ACT  Develop and provide an alternative dispute resolution service for community schemes that is cost effective and provides value for money  Provide training & general education on rights and obligations in community schemes- conciliators, adjudicators, trustees, owners, occupiers, managing agents and any other person the CSOS deem necessary  Regulate, monitor and control the quality of all sectional titles schemes governance documentation and such other scheme governance documentation as may be determined by the Minister by Notice in the Gazette  Take over control preserve and provide access to all sectional titles and other scheme governance documentation and quality Assure  Promote and monitor good governance of community schemes Enforce the STSM Act 9/28/20164

5. 5 BACKGROUND  Benchmarking studies on regulation of the sector- Australia and Singapore visits by DHS and Portfolio Committee  The Community Schemes Ombud Service Act, 2011 (Act No. 9 of 2011) and the Sectional Title Schemes Management Act, 2011 (Act 8 of 2011), were promulgated and assented to by the President on the 11 th June 2011 and subsequently published in the Government Gazette on the 14 th June 2011. The date of coming into force of both Acts is yet to be proclaimed by the President - once Minister has signed off the Regulations  2011 Establishment of CSOS as an Ombud and Sector Regulator  3 provincial offices established ie. GP to address GP, LP & NW, KZN to also deal with FS & MP and WC to address EC& NC matters

6. 9/28/20166 POWERS TO MAKE REGULATION  In terms of section 14 of the Interpretation Act, 1957 (Act No. 33 of 1957) provides as follows: “where a law confers a power to make Regulations that power may, unless the contrary intention appears, be exercised at any time after the passing of the law so far as may be necessary for the purposes of bringing the law into operation at the commencement thereof”.

7. 9/28/20167 BACKGROUND Enabling \Empowering Legislative Provisions  The powers of the Minister to make Regulations is contained in section 29 of the CSOS Act and Section 19 of the STSM Act respectively.  CSOS Act provides that any Regulations made in terms of this section must, before publication in the Gazette, be approved by Parliament.  STSM Act provides that the Minister must after consultation with Parliament to make Regulations.  The legal opinion from the office of the Chief State Law Advisors confirms that the provisions in this Regulation are intra vires

8. 9/28/20168 INFORMATION SESSIONS & CONSULTATIONS ON DRAFT REGULATIONS  The Minister published the Draft Regulations in terms of section 29 of the CSOS Act and section 19 of the STSM Act in the Government Gazette on 2 October 2015 for public comments  Between on 14 October 2015 and 03 November 2015, information Sessions and Consultations on the draft Regulations were held with key industry stakeholders and the general public in 9 Provinces  A Total of 746 stakeholders attended the sessions nationally.

9. 9/28/20169 INFORMATION SESSIONS & CONSULTATIONS ON DRAFT REGULATIONS

10. 9/28/201610 INFORMATION SESSIONS & CONSULATIONS ON DRAFT REGULATIONS: STAKEHOLDER ENGAGEMENT  In addition to the public consultations, closed focus group sessions were held during November 2015 with the following key stakeholders:-  Office of the Registrar of Deeds  National Association of Managing agents (NAMA)  Association of Residential Communities (ARC)

11. 9/28/201611 PUBLIC AWARENESS ON DRAFT REGULATIONS - MEDIA COVERAGE  In order to raise public awareness, there was a lot of media coverage namely:  21 Newspaper articles published nationally  Radio interviews of CSOS Board members, Chief Ombud, Adjudicator- General and Provincial Ombuds by the following radio stations:-  X-K FM  Gagasi FM  Power FM  Radio Riverside  Nkqubela (KQ ) FM  Umhlobo Wonene  Mafisa FM

12. 9/28/201612 SUMMARY OF COMMENTS A total of 1 648 written comments received from the general public and stakeholders. In summary the comments are as follows:  Support for the establishment of CSOS to deal with corruption of the body corporates, managing agents and trustees who make Irregular payments, conflict of interest, payment to fictitious companies, Irregular appointment (staff) maladministration, poor corporate governance, disregard legislation and any form of regulations e.g STSMA, NAMA rules, and CSOS Act  CSOS and government to address mismanagement and neglect of inner-city flats and rogue landlords

13. 9/28/201613 SUMMARY OF COMMENTS  Concern about CSOS internal capacity and state of readiness to collect levies.  Concern about reliance on municipal valuation to determine levy payable to CSOS due to alleged inefficiencies at municipalities that will cause an administrative burden on the sector. Recommends a new model based on a percentage of the current monthly levy paid by owners.  Concern about well-run schemes and higher income groups cross subsiding lower income groups and suggest a flat rate to be paid by all.  Cross subsidization amounts to tax and not levy

14. 9/28/201614 SUMMARY OF COMMENTS  Fees for application and adjudication are too low and must be increased.  Industry to be given an opportunity to deal with disputes through their own internal mechanism and CSOS intervenes as a last resort.  Proposed reserve fund to be fixed at 25% of the annual Body Corporate budget and must be audited. Some allowance be provided for Body Corporate to build the reserves over time.  Concern about stringent fidelity fund requirements  Review section on insurance and not make it an exhaustive list

15. 9/28/201615 SUMMARY OF COMMENTS  The Time period for Annual General Meetings to be extended to 4 months instead of 2 months  A quorum to be determined in terms of number of votes and a percentage for a quorum be reduced  Review limit on proxy appointments  Review interest cap on arrear levies and align with National Credit Act rates.

16. 9/28/201616 CSOS OF REGULATIONS Regulation 1: provides for definitions of expressions. Regulation 2: provides for Board activities which includes inter alia regularity of meetings, types and means of communication. Regulation 3: provides for Notices for meetings of the Board. Regulation 4: provides for Quorum of meetings of the Board. Regulation 5: provides for adjournment of meetings. Regulation 6: provides for the presiding officer for meetings of the Board. Regulation 7: provides for procedures and making of decision in meetings. Regulation 8: provides for the minutes of the Board.

17. 9/28/201617 CSOS OF REGULATIONS Regulation 9: provides for written resolution taken without convening a meeting of the Board. Regulation 10: provides for execution of documents and validity of actions taken by the Board. Regulation 11: provides for scheme levies and Service fees. It provides for the types and amounts of levies and when such levies and fees becomes payable. Regulation 12: provides for Service fees and costs; and further provides for rates of discount or waiver of fees, with details of qualifications for such discounts or waivers.

18. 9/28/201618 CSOS OF REGULATIONS Regulation 13: provides for payment of interest on overdue levies and any amounts payable to the Service. Regulation 14: provides for duties of schems executives. Regulation 15: provides for fidelity insurance against the risk of loss of money belonging to a scheme suffered as a result of any act of fraud or dishonesty committed by any insurable person. Regulation 16: quality and form of governance documentation.

19. 9/28/201619 CSOS OF REGULATIONS Regulation 17: for purposes of the Service’s training function in terms of the Act, the Regulation provides for accreditation of training courses by the Service. Regulation 18: provides for scheme governance documentation and information which includes annual returns, certificates and forms.

20. 9/28/201620 CSOS OF REGULATIONS Regulation 19: provides for dispute resolution, submission of application for dispute resolution to the Service. Regulation 20: provides for circumstances where legal representation can be permitted Regulation 21: provides for the notice relating to an appeal against the decision of the Adjudicator

21. 9/28/201621 CSOS REGULATIONS Regulation 22: provides for the power of the Adjudicator to enter and inspect any premises. Regulation 23: provides for the Short Title.

22. LEVIES & FEES REGULATIONS Regulation 1: provides for Definitions Regulation 2: provides for the levies payable by a units within the Community Scheme ( section 29(1)(b) Regulation 3: provides for fees payable for the use of the service including inter alia, the Application and Adjudication referrals. Regulation 4: provides for the Discount and Waiver of fees as set out in section 29(1) 9/28/201622

23. LEVY FORMULA  Levy Formula: The lesser of R 40.00 or 2% of the amount by which the monthly levy charged by the Scheme exceeds R 500.00  Units with monthly scheme levies of R 500 per unit or less are entitled to 100% waiver.  All units will be entitled to a waiver of the levy on the first R500.  For units with R 2 500 per unit and more a cap for the CSOS Monthly Levy = R 40.00  The higher the monthly levy the higher the levy contribution to CSOS with a cap of R40.00

24. Illustrative Levy Schedule Municipal Valuation of UnitIllustrative Monthly Levy*Annual Levy Zero to R 500,00 R 0.00 R0 R 600.00R 2.00 R24 R 700.00R 4.00 R48 R 800.00R 6.00 R72 R 900.00R 8.00 R96 R 1 000.00R 10.00 R120 R 1 250.00R 15.00 R180 R 1 500.00R 20.00 R240 R 1 750.00R 25.00 R300 R 2 000.00R 30.00 R360 R 2 250.00R 35.00 R420 R 2 500.00 and aboveR 40.00 R40

25. PRINCIPLES FOR CSOS FUNDING MODEL  CSOS Act envisages the CSOS as a financially self-sustaining entity i.e. government grant funding to be phased out  Levies on Community Schemes are the main income source, cross-subsidising other charges envisaged in S22  Levy is determined at the community scheme level, based on the aggregated value of the individual units within the Community Scheme i.e. invoicing will be addressed to the community scheme, management on-bills to the units within the schemes.  The levy schedule itself is based on a monthly rate-per-unit within a Community Scheme as the basis for invoicing Community Schemes  The CSOS levy is a compulsory charge per CSOS Act  Levy is based on the “progressive” model i.e. levies charged in proportion to the value of the schemes  Fees kept minimal  The CSOS Act envisages a waiver of levies where applicable. The units paying a levy below R 500,00 enjoy 100% waiver of levy

26. RATIONALE FOR CSOS REGULATION  Cost effective dispute resolution- affordable and reliable justice. High private Arbitration and court/ Litigation costs to settle even minor disputes. Court based mediation. ADR  Power imbalance and financial muscle between an ordinary individual unit owner and a body corporate/managing agent/HOA served as a deterrent.  Section 3 (2) of the STSM Act- default in levies may approach CSOS and lodge a dispute.  Section 6(9) A body corporate or an owner who is unable to obtain a special or unanimous resolution may approach the chief ombud for relief.  Administration of Advisory panel  S4 (2)(b) CSOS must provide Education to owners, occupiers, executive management and other persons who have right and obligations- sizeable industry. Massive financial investment  Government scheme governance documentation- quality assurance  Rapid urbanization, growth in Community schemes sector which is 25% of all residential properties with excess of R800 billion and approximately R11billion in annual levies collected by schemes

27. 9/28/201627 SECTIONAL TITLE SCHEMES MANAGMENT REGULATIONS Regulation 1: provides for definitions of expressions. Regulation 2: provides for Minimum amounts for the schemes reserve fund. Regulation 3: provides for any other risks to be insured against by all schemes. Regulation 4: provides for powers of provincial and curator ad litem. Regulation 5: provides for notifications of its service referred to in section 3(1) of the principal Act including to an appointed proxy. Regulation 6: provides for the Rules as prescribed herein and in accordance with section 10 of the principal Act.

28. 9/28/201628 STSM REGULATIONS Regulation 7: provides for the establishment of the Advisory Council and its representative nature. Regulation 8 : provides for commencement of the Regulations. SCHEDULE attached herein to the Regulations include:  The Management Rules;  The conduct Rules;  Notification of change of Body corporate address (form A);  Notification of Amendment of rules; (form B);  Notification and appointment of proxy( form C); and  Complaint Form;

29. 9/28/201629 WAY FORWARD Tabling at Portfolio Committee & deliberations in Parliament Minister signs off and publish the final approved Regulations in the Government Gazette for implementation Regulations will provide for transitional period to allow for compliance by stakeholders Submission to President for proclamation of Act

30. 9/28/201630 THANK YOU “We have come a long way – Celebrating 20 Years of Freedom!”