Thought of the Week | Converting share block schemes to sectional title

When you stand in front of a block of flats you will not know, without more information about its initial creation, whether it is a share block scheme or sectional title. So where does the difference lie if it is not apparent from a physical inspection?

A share block scheme describes a legal structure where a piece of land is owned by a special type of company, a share block company, on which, typically, a block of flats is erected. Residents in the apartments have individually purchased a grouping of shares in the company, called a ‘block’ of shares, and this purchase went hand in hand with the conclusion of a use agreement. The use agreement grants the holder of the block of shares rights to occupy a certain apartment, and sets out the rights and obligations relevant thereto. Clearly what is owned by the share block holder are shares in the company, not ownership of an apartment. Ownership of the land and the block of flats erected thereon lie with the share block company that is the registered owner of the land.

On the other hand, if the block of flats were described in the deeds registry as sectional title, persons would be able to obtain ownership of individual apartments.

Share block ownership preceded sectional title ownership. This was because, before our first sectional title legislation was passed in the 1970’s, it was not possible to own a part of a building on land, without also owning the land on which it stood. Share blocking was the closest thing to ownership available to occupiers of parts of buildings at the time.

The promulgation of sectional title legislation changed the position and brought the advantage, amongst others, that ownership could be obtained in respect of apartments.

The enquiry then arose whether share block schemes could be converted to sectional title. The answer is yes, indeed.

The Sectional Titles Act makes provision for such conversion in two instances: The first is when 30% of the shareholders have agreed to the conversion; and the second being when the directors of the share block company resolve to convert the share block scheme to that of sectional title.

In the first instance, a meeting of shareholders is called wherein the vote in respect of the conversion is taken. The Share Blocks Control Act lists a number of requirements to be met in order for the shareholders’ resolution to be valid. For starters, there must be proper notice to all shareholders explaining the proposed conversion and furnishing details of the sectional title plan and rules that will apply to the scheme were this to happen.

Once the resolution has been validly passed, notice thereof must be given to all affected parties – i.e., every shareholder of the company, every creditor (owed more than R500) and any person entitled to a share in the company by way of pledge – within 21 days.

Registration in the deeds office of the conversion

Then, after dealing with possible objections and attending to certain administrative matters, proof must be provided to the Registrar of Companies that all requirements for a conversion have been met.

The Company will then appoint a land surveyor to prepare sectional title plans. Upon approval of these plans by the Surveyor General, application can be made by a conveyancer for the approval of a sectional title plan by the Registrar of Deeds.

Once the sectional title plan has been registered at the deeds office and the sectional title scheme opened, all the apartments will be converted to sectional title units and registered in the Company’s name until such time as the units are transferred to individual shareholders.

Shareholders do not necessarily have to take transfer of a unit in the sectional scheme. Their ownership in the property is regulated by their shares in the Share block Company up until such time as they elect to take transfer of a unit.

For more information on this process, contact your STBB conveyancer on www.stbb.co.za or at info@stbb.co.za 

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