Before buying an erf or plot as part of a homeowner’s association (HOA), it is extremely important for the buyer to read and completely understand all of the provisions, including building penalties which are laid out by the HOA’s governance documentation.
Members of a homeowner’s association are required to comply with “commencement of construction” and “completion of construction” dates.
Every HOA will have different applicable timelines which are unique and calculated according to relevant factors. As an example. Some HOAs will require construction to begin within 24-36 months of the date of transfer of ownership from developer to member. Failure to comply with these deadlines will result in liability of building penalties.
Additionally, members may be required to complete the construction within 12 months. This provision may be transferred to the following purchaser of the plot who will be required to comply with the provision in the same manner as the original purchaser.
Some HOAs stipulate that the provision allows a subsequent purchaser an extension of the defined period, providing them with more time to comply with the provision.
Once the owner has submitted building plans, the date of building commencement will be defined by the trustees or HOA Architectural Review Committee.
A certificate of occupation which is issued to the member by the Council will serve as proof that construction has been completed.
Any member who fails to comply with the commencement and completion of construction deadlines will be required to pay building penalties as a result of non-compliance. Until the applicable provisions have been met, the building penalty may increase over time.
A penalty is defined by the Conventional Penalties Act 15 of 1962 as the liability to pay an amount of money or to deliver anything which will benefit a creditor.
Any act in contravention of a contractual obligation, which is prescribed by either the HOA’s Constitution or Memorandum of Incorporation, justifies a penalty.
According to the Conventional Penalties Act, reduction of a penalty may be authorised by the court in order to achieve equity and reasonability should the court feel the penalty is exaggerated to over-compensate the creditor.
When the court evaluates to what extent the creditor has been negatively affected, the creditors propriety interest will be considered such as other members being subjected to damage or security risk as a result of building activities which should be complete. Additionally, the negative impact on sale and prices of property within an HOA will also be considered.
The court will then stipulate the nature of the penalty, its aim as well as its amount in order to ensure compliance with governance documentation.
The Promotion of Administrative Justice Act 3 of 2000 defines administrative action as a decision imposing a penalty taken by the jury when performing a public function in terms of an empowering provision which has a negative impact on the rights of any person and has an external legal effect.
When implementing the penalty clause in governance documentation, reference to the Promotion of Administrative Justice Act must be made.
Any penalty which directly and adversely affect the rights of a person must be fair. The fairness of the penalty will be dependant on the circumstances of each individual case.
For a penalty to be considered completely fair, it is required that sufficient notice of the details of the penalty must be given and a reasonable opportunity must be provided to make sufficient representations.
Furthermore, a clear statement of the penalty must be made, the right of review or appeal should be made available and lastly, the right to request the reasons for the penalty.
Contact our property attorneys in Cape Town and Johannesburg for legal assistance regarding homeowner’s associations and building penalties in South Africa.
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