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Illegal Practises in Developing Sectional Title Projects

Sectional Title Magazine
Article Four
Illegal Practises in Developing Sectional Title Projects
Sectional Title Magazine: 2005

Proposed Editor's Introduction

This column is brought to you by Peter Allsopp, former MD of the National Home Builders Registration Council from 1995-2000 and ex-member of the Estate Agents Board 1996-2000, who is now in private practice, Baobab Consulting, providing trouble shooting and consumer protection services to Home Owners who are in difficulties with their homes.

In line with this month’s theme of corruption in the Sectional Title Industry, I would like to bring to your attention one of the clever, but illegal ways, that some unscrupulous sectional title developers make even more money out of their developments at the buyer’s expense. Before I continue, please do not get me wrong, not all developers do this, most follow the book, but some either do not know the book, or know how to circumvent it.

The book I am referring to in this case is the Housing Consumer Protection Measures Act (Act 95 of 1998). Indeed it IS a book of large physical proportions and when read in conjunction with the several regulations that go along with it, it is no wonder how so many people can be forgiven for not understanding, or even forgetting many parts of it as combined they are almost 200 A4 pages.

Here I have to make an admission and declare that I was part of the three man team who wrote the Act back in 1998, so throw your rotten eggs now and we can get it over with!

The Act recognises that there are two kinds of Home Builders; those who have themselves the capacity to undertake the physical construction of homes or to manage the process of the physical construction (Section 10(6)(a)) and those who in the normal course need to enter into agreements with other home builders in order to procure the capacity… (Section 10(6)(b)). This is because when we were writing the Act we recognised that many entrepreneurs have no qualifications to build homes become developers. Now there is nothing wrong with this at all provided that these entrepreneurs employ a correctly qualified and experienced team of development professionals and builders to undertake the actual delivery of the project. For this reason we wrote into Section 10(7) of the Act that having been classified as a non-builder type i.e. the developer (category 6b) such developer MUST employ the services of a (category 6a) builder, let’s call him the builder to actually build the units.

All of this seams perfectly reasonable, so where do you say are the illegal practices?

Well firstly many so-called developers do not register with the NHBRC.

Secondly what we have been seeing more and more lately is the fact that whilst this division of labour is being practiced, and the developer is registered, what is happening is that it is the builder who is enrolling the units in his or her name, not the developer. This is wrong, because the buyer has a contract with the developer, but the home is enrolled with an entity that is not contracted to the buyer.

From a legal perspective this posses several problems. By example let us say a Body Corporate have a problem of a severe nature, say structural cracking, endemic in their complex. They approach the developer, who because it was just an entrepreneur, Mr Suntan, wanting to make a pension nest-egg, has now made his bucks and closed business; or even if he still exists simply says, “Don’t come to me, Joe Bloggs built your units take it up with him!”

But Joe says "I’m sorry who are you? I don’t have a contract with you, my contract is with Mr Suntan."

Now as naïve as all this seems, at Baobab we find this problem about once a month.

To make matters worse when we investigate the problem deeper, we find that whilst Joe the builder did enrol the units, the enrolment fee at the NHBRC was based upon Joe’s building contract value to Mr Suntan, not as required by the Act, Mr Suntan’s selling price to you the buyer.

The worst case we have come across to date was where the units were being sold at R2,8 million each, by a developer (a private individual who has just arrived in the country) who was not registered at the NHBRC, were enrolled by the builder for only R1,2million!

Invariably the fee for enrolment of the unit is paid by the enroller in sectional title projects.

In enrolment fees that was a saving to the developer of R10 000 per unit. It also shows you just how much the developer was adding for their development costs.

How will this be found out? One of 3 ways

Someone like us at Baobab gets called out to assess the works (which were very poor),

Perhaps the NHBRC actually make an inspection on the property and some clever inspector says “hang on these units could never sell for R1, 2 million”,

Or perhaps you make a claim against the NHBRC, whose engineers inspect the units and say the same.

How will your claim now be handled? Well as I have not been part of the NHBRC for 5 years now, I can’t say, but it’s a worrying prospect isn’t it.

What I can say is that you will most certainly be liable to pay to them the missing fees (Regulation 20658 (6) makes that perfectly clear.)

The moral of the storey:

  1. Always ensure that your developer is registered with the NHBRC. Ask to see their registration certificate and make sure it is up to date as it must be renewed every year.
  2. Always request your unit’s enrolment certificate. It has to be given to you in terms of Section 14(3) of the Act.
  3. Check by whom the unit was enrolled and check the selling price IS what you paid.
  4. If it doesn’t all correspond you know something is not kosher.

I can leave you with an interesting piece of leverage if you find yourself in the middle of construction and have a problem with your builder and or developer. Section 1 0(1)(a) of the Act says “ No person shall carry on the business of a home builder; or (b) receive any consideration in terms of any agreement with a housing consumer in respect of the sale or construction of a home….unless that person is a registered home builder.

In other words and by-passing all the definitions of the Act, this means that unless the person with whom you have contracted, i.e. the developer is registered, (and by implication has enrolled the home) it is illegal for them to receive any money from you.

Now there is an interesting storey!

f you are considering entering into sectional title, or have a problem related to the construction of your home, visit www.baocon.co.za and see what services they can offer you to prevent you from falling into these very common pitfalls.


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