SECTIONAL TITLE OR FREEHOLD OWNERSHIP: WHICH SUITS YOU BEST?

Once you’ve decided to purchase a property, you will need to decide whether you are looking for sectional title or freehold ownership —both of which have their own sets of pros and cons. To decide which is best for you, you will need to fully understand what each of these entails...

But, before we can look at what makes these two types of ownership different, it’s important to first understand the concept of ownership and property in the context of South African law.

The definition of “property”

Property law refers to the right a person has in or over a specific “thing.” When a person acquires ownership of property, they have a recognised right over that object and this right is enforceable against the world. They are entitled to the exclusive use, control, and benefits of that property. The owner will hold a Title Deed in their name which is registered at the Deeds Registry – this also serves as proof of ownership.

What is a sectional title property

When you buy into a sectional title complex, you purchase a section(s) and an undivided share of the common property. This is basically where you own everything within the four walls of your property, but external hallways; gardens; elevators, and so on, are co-owned by the rest of the community and are cared for by everyone. Sectional title homes are usually semi-detached houses, townhouses, flats or apartments, and duet houses.

What are my rights and responsibilities as a sectional title owner?

As an owner of a unit within a complex or development, you will have to abide by the rules as set out by the body corporate or Homeowners Association (HOA). They will appoint trustees to take care of the day-to-day operations of the complex. However, this does not mean that you, as the owner, are powerless. The body corporate is established to put the interest of the entire complex first, which means that you have a vote on how the complex is managed. You could even become a member of the HOA or Body Corporate by volunteering. While the HOA or Body Corporate is generally responsible for the maintenance of all common areas and the exterior of all units within the complex, you are responsible for taking care of your own property and for paying your levies on time.

Sectional title advantages and disadvantages

Here are some advantages and disadvantages to keep in mind if you are thinking of buying a sectional title.

Advantages:

• Better security - Most sectional title developments have excellent security around the perimeter and at the entrance of the development, which is all included in the monthly levies.
• Neater curb appeal - With sectional title ownership, you’ll be paying a fixed levy to cover the maintenance of the common property, wages and salaries of cleaners, security and additional staff, plus the water and electricity needed for the common property. As a result, you’ll be guaranteed curb appeal across all units within the sectional title. Everyone will also need to follow the rules set by the complex’s Body Corporate or Home Owner’s Association, which means that none of you neighbours will be able to construct an eye-sore in their front yard.
• Communal living - Because most sectional titles are situated within a gated community, homeowners enjoy a greater sense of community living. Most sectional title schemes boast far greater interaction with your neighbours, especially those with clubhouses or common areas within the complex or estate.

Disadvantages:

• Lack of freedom - You don’t have as much freedom to make external improvements to the property. If you want to renovate the home’s exterior, you’ll first need approval from the Body Corporate.
• Rules and regulations can change - The rules and regulations of any particular complex may change, and, unlike freehold property owners, sectional title investors or owners may not be happy with the changes but won’t have the power to change them in an individual capacity.
• Liable for the debt of the Body Corporate - It’s important to note that all owners within the Sectional Title scheme may be held liable for the debt of the Body Corporate. Therefore, it’s important to assess if the scheme is being managed correctly and that the financial statements of the Body Corporate are in order.

What is a freehold title property?

Unlike a sectional title, a freehold property entitles you to the full ownership rights to the property, which includes all the structures, as well as the land that it is built on.

What are my rights and responsibilities as a freehold title owner?

As the full title owner, you have the responsibility to pay all the bills and take care of the maintenance of the property. This includes property taxes, upkeep, security, electricity, and water bills. But, on the other hand, you have the right to change anything on your property, without needing the consent of a body corporate. Just remember that if you want to change something on the structure, it needs to be cleared by the municipality first.

Freehold title advantages and disadvantages

Here are some advantages and disadvantages to keep in mind if you are thinking of buying a freehold title.

Advantages:

• Independence - You are in complete control and financially responsible for the property in its entirety. This means that you are free to renovate your home however you choose as long as you have received planning approval from the relevant municipality.
• Spacious living - Freehold properties tend to have larger grounds than sectional title units because the whole plot on which the property stands belongs to you alone. This means you’ll usually have a larger garden and more space between you and your neighbours.

Disadvantages:

• Less security - With freehold properties, owners are entirely responsible for their own security – you need to pay to secure the perimeter, and often for an armed response security company to be on call.
• Additional costs - You’ll have to pay for the general upkeep of your home, including the pavement, garden, and exterior of the home. Unlike the levies paid in sectional titles, these costs are not fixed and can be trickier to budget for unless you hire a professional garden service to take care of your property regularly.

How do I convert my sectional title to a freehold title and vice versa?

It is possible to change a sectional title back to a freehold property. In terms of section 14(8) of the Sectional Titles Act, a registered sectional plan shall, subject to certain conditions, only be cancelled by an order of the court. The effect of the cancellation of a sectional plan is that the original title deed will revive. This, in turn, will require that if the body corporate consists of more than one owner, the owners will have to have reached an agreement on the further ownership and subdivision of the land.

Those who have particularly large plots may also want to change a freehold title to a sectional title, usually for investment purposes. To do so, you will need to approach the designated land surveyor (developer) to draft a sectional plan of extension which must be approved by the local Surveyor General Office and registered with the local or relevant Registrar of Deeds. As a rough guide of what to expect during this process, the following must be lodged with the Registrar of Deeds:

1. Application under section 11(1) of the Sectional Titles Act 95 of 1986.
2. Title deed of the land / property.
3. Two copies of the Sectional plan.
4. Schedule of conditions in terms of section 11(3)(b) of the Sectional Titles Act 95 of 1986 read with regulation 10(3).
5. Rules for the scheme.
6. Documents for the extension of the scheme.
7. Consent by mortgagee and mortgage bond.
8. Certificate of real or exclusive use areas – if required.
9. Certificate of real right of extension – this allows the developer the right to extend the scheme right by erecting buildings for a stipulated period of time.
10. Certificates of registered title.

Bear in mind that the developer can only begin construction once funding has been secured. The developer can then transfer the units to a third party and this will establish the body corporate.

Which is the better investment: sectional title or freehold ownership?

Freeholds generally are a good choice for people looking to invest in property as a long term investment strategy and sectional titles generally are a good choice for those who want to build a rental portfolio to generate a steady stream of income. Freeholds generally have a higher house price inflation rate than sectional titles do, which means that a freehold is more likely to show greater appreciation in value over time than a sectional title might show. Every situation is different though. Investing in property is always a good idea, so these legalities depend on what you need from your real estate.

If you are ready to make the decision, contact your local RE/MAX offices and let our professional real estate team find the right property for you.