Property owners are increasingly exploring sectional title schemes to unlock the potential of their properties. By sectionalising a full title property, owners can divide the land into multiple units, each with its own title deed. These units can then be sold or rented out independently, offering flexibility and financial benefits. Here’s a guide to creating a sectional title scheme. It covers the process of sectionalising a property. The guide also explains what to consider along the way.
What is a Sectional Title Scheme?
A sectional title scheme divides a single property (or erf) into individual units, each with its own title deed. These units, called “sections,” are privately owned. Shared areas like driveways or gardens are managed collectively by the body corporate. This setup is governed by the Sectional Titles Act, which ensures fair management and shared responsibilities.
Let’s look at an example. I have a friend who invests in the Moot area in Pretoria. He buys a small property on a big piece of land. He then redevelops the property to have multiple units. If he is planning to rent out all the properties, it would make sense to keep the structure as is. However, if he wants to sell some of the properties to investors or individuals, he should split the property. Splitting can be done either into separate full title stands or into sections.
The separate properties are often worth more than the sum together.
Why Create a Sectional Title Scheme?
Creating a sectional title scheme can be beneficial to:
- Increase Property Value: Smaller, more affordable units are appealing to buyers and tenants.
- Generate Income: Renting or selling individual sections can provide cash flow and passive income.
- Simplify Ownership: Each unit has its own title deed and municipal rates account.
- Family Investment: Owners can create separate homes for family members within the same property.
How to Sectionalise a Full Title Property
It could be quite complicated to sectionalise a full title property. You will need to get approval from the municipality and jump through legal hoops. I recommend checking out the municipality bylaws first before starting on your journey. After that, speak to specialists such as a conveyancing attorney, architect and town planner, as required. With the help of your architect and surveyor, you will be able to prepare plans for the sectional title. The plans need to include the sections as well as details of the common property. It would then need to be submitted to the municipality for approval. As departments such as engineering, roads, water and electricity are affected, the verification and compliance process could take some time.
Once approved, the sectional title scheme can be registered with the deeds office. The application must include the approved sectional plans, house rules for the body corporate and the updated title deed documents. Once approved, the Deeds Office will issue individual title deeds for each section. These deeds allow for the sale or leasing of each unit independently.
Converting Sectional Title Back to Full Title
If you want to dissolve a sectional title scheme, an agreement/resolution needs to be in place. You must appoint a surveyor to survey and separate the plots of land. This process will be followed by a municipal submission. If approved, the subdivision and rezoning will be applied. To finish the process, the deeds office will need to be updated.
Legal and Financial Considerations
- Title Deed Restrictions: Some full title properties have conditions that limit sectionalisation. Consult your attorney to amend these restrictions.
- Zoning and Rezoning: If your property is not zoned for sectional title, apply for rezoning. This can take several months and may incur additional costs.
- Endowment Fees: Municipalities charge fees to cover infrastructure demands from the new sections. Fees vary depending on the area.
- Bondholder Consent: If your property has a bond, the bank must approve the sectionalisation.
Municipal Regulations for Sectional Title Schemes
Each municipality has its own rules for sectionalising properties:
- Cape Town: Strict subdivision rules apply, especially in high-end suburbs. Owners must consult with neighbours and adhere to zoning regulations.
- Johannesburg: The city encourages sectionalisation but imposes density requirements and rezoning fees.
- Durban: Environmental assessments are often required for properties in sensitive areas.
- Nelson Mandela Bay: Removing restrictive title deed conditions is common before sectionalisation.
The Ombud for Sectional Titles
All sectional title schemes need to be registered with the Community Schemes Ombud Service (CSOS). CSOS helps resolve disputes in sectional title schemes. They handle issues like levy disputes, maintenance disagreements, and enforcement of body corporate rules.
Final Thoughts
Creating a sectional title scheme is a powerful way to maximise your property’s potential.
You may aim to boost its value.
You might want to earn rental income.
Sectionalising a full title property can also provide housing for family members.
This can unlock new opportunities.
Please stay in the law!
Happy investing!
