DEVELOPER’S LEVY LIABILITY IN NEW TOWNSHIP QUESTIONED
Prospect SA Investments 42 (Pty) Ltd v Lanarco Home Owner Association (13346/12)  ZAKZPHC 39 (30 June 2014)
There are fairly regular incidences of matters where developers question their liability for HOA levies in respect of erven in townships opened on large parcels of land they own. This judgment adds a further chapter and confirms that upon opening the township register on land so owned, the developer becomes owner of the newly established erven in the township. If an HOA comes into existence with a constitution requiring payment of levies by owners of erven for a clearance certificate to pass transfer, then the developer is an owner for that purpose.
SUMMARY OF FACTS
Prospect SA Investments 42 (Pty) Ltd ("the Developer") was the owner of a large tract of land in KwaZulu-Natal. After obtaining a certificate of registered title (‘CRT’) in respect of a portion of the land, it proceeded to establish a township thereon. In November 2005, the Department of Local Government and Traditional Affairs approved the layout of the proposed township subject to certain conditions. One of these required the lodgment of a general plan of the proposed township with the Surveyor General (‘SG’) for approval. Thereafter the approved general plan, together with the relevant title deed, had to be lodged and registered in the local deeds office for registration of the township. (These conditions are in accordance with the provisions of the Deeds Registries Act 47 of 1937 (‘the DRA’) relating to the opening of a township register on a portion of a property.)
The conditions were duly attended to and the title deed was endorsed to reflect that the relevant land was now laid out in numbered erven in accordance with the general plan (‘the endorsement’).
Further relevant conditions for establishment of the township were that:
• Prior to the transfer of the erven in the township, 3 erven (that would comprise common property in the development) had to be transferred to a home owners association and each owner of a property had to become a member thereof. (The Lanarco Home Owner Association (‘the HOA’) was duly established as a result.)
The conduct rules of the HOA specifically provided that “owner” referred to “the registered owner of any erf or sectional title unit within the estate” and that “owners are members of the association by virtue of ownership of a property”.
A dispute arose with regard to the payment of levies for the issuing of a clearance certificate for the transfer of the common property erven to the HOA. The Developer approached the court and sought a declaratory order that it was not a member of the HOA and consequently not liable for the payment of levies. It also sought an order compelling the HOA to furnish the necessary clearance certificates. The Developer’s arguments denying liability were based on the allegations that:-
(i) the individual erven did not yet exist for the purposes of membership of the HOA;
(ii) it was the registered owner of the whole of the remainder of the township and not each individual erf;
(iii) it did not automatically become a member of the HOA as the articles of the HOA required a written application; and
(iv) there was no contractual nexus between it and the HOA requiring it to be a member of the HOA.
The HOA sought a declaratory order that the Developer was liable for the payment of all levies imposed in respect of each property it owned in the development during the period it was the owner thereof. The HOA contended that in terms of (i) the conditions of the establishment of the township as well as (ii) the HOA’s conduct rules, the Developer was a member and as such liable for the payment of levies in respect of the properties that it owned.
Relevant provisions of the DRA:
• Section 102 of the Act defines “erf” to be “every piece of land registered as an erf, lot, or stand in a Deeds Registry, and includes every defined portion, not intended to be a public place, of a piece of land laid out as a township, whether or not it has been formally recognised, approved or proclaimed as such”.
• “Owner”, in relation to immovable property, is “the person registered as the owner or holder thereof”.
Re Developer’s arguments (i) and (ii):
• In terms of the DRA, a township cannot be created on a portion of land before a certificate of registered title (CRT) in respect of the portion of land has been issued and a general plan, depicting the various erven has been registered in the Deeds Registry. A developer can only alienate individual erven once this has been done.
• In the present matter, when the CRT and general plan were registered, the relevant erven (as depicted on the registered general plan) substituted the land that was previously held by virtue of the CRT. The Developer was therefore no longer the owner of the farmland but of various erven in a proclaimed township. The conditions of establishment of a township further compelled the Developer to deal with the erven in accordance with the registered general plan.
• It followed that if one had regard to the definitions of “erf” and “registered” as outlined, the individual erven existed and came into existence upon registration of the general plan. The Developer’s contentions that the individual erven did not yet exist was therefore without merit.
Re Developer’s arguments (iii) and (iv):
• The Developer submitted, correctly, that the original title deed as well as the CRT contained no provisions which required it to become a member of the HOA. However the endorsement on the CRT confirmed that the erven formed part of a registered general plan. As such, the conditions relating to the approval of the township were significant. These required (a) transfer of the common property to the HOA and (b) that each property owner become a member of the HOA. These had to be fulfilled prior to the transfer of any of the remaining erven or lots. As such, clearly, the Developer as owner of all the remaining erven, was obliged, upon transfer of the common property, to become a member of the HOA.
• It was further contended on behalf of the Developer that the aforesaid conditions, at most, imposed obligations upon owners to become members of the HOA, but did not automatically have that effect – more so since the articles of association required written application for membership of the HOA.
• The latter argument had to fail. The conditions of establishment (approval) of the township were imposed by the Minister in terms of the relevant KwaZulu-Natal Town Planning Ordinance. The Ordinance has the force of law in the province and the Developer, notwithstanding the terms of the HOA’s articles of association, automatically, as owner, became a member of the HOA. (In fact, without becoming such a member, the Developer was prohibited from establishing the township.)
• The provisions in the articles of association that membership be open “to all qualified and interested parties who shall be individuals with professional or other interests in the operational areas of the association” may apply to non-property owners who wish to be associated with the HOA. The Developer and all further property owners within the development were compelled, by virtue of the conditions of establishment of the township, to be members of the HOA.
• The nexus between the Developer and HOA was therefore created and established by the conditions of establishment (approval) of the township. The conduct rules clearly defined the members of the HOA “by virtue of the ownership of a property”.
The court accordingly concluded that the Developer was a member of the HOA and consequently liable to the HOA for the payment of levies in respect of each immovable property owned by it within the boundaries of the development.
Source: Smith Tabata Buchanan Boyes Attorneys