"Few people realise the full implications of buying into sectional title," said Lew Geffen, chairman of Lew Geffen Sotheby's International Realty. "When you do so, you are not just buying into the bricks and mortar, but also into the finances of the scheme.
"A common mistake people make is investing in sectional title without first making sure it is financially healthy."
Adjunct Professor Graham Paddock, who is head of Paddocks, a specialist sectional title and home owners' association firm, said that as a member of the body corporate you are required to pay a share of the scheme's expenses. You are also responsible for a portion of any debts incurred by the scheme.
"If you fail to make these payments you will face legal debt recovery proceedings, so you need to make sure that you are not buying into a scheme that is in debt. Always ask for a copy of the scheme's latest financial statements before investing," said Paddock. "Also check the amount and type of insurance the scheme has in place before investing.
Sectional title owners are more likely to lose money as a result of bad or fraudulent financial management of the body corporate than any other cause. Fidelity insurance covers the risk of fraud and offers you the best protection."
The Sectional Titles Act, which governs the role of the body corporate, stipulates that the body corporate must establish a fund big enough for the upkeep of the building and public property, as well as make provision for future maintenance and repairs, and repayment of rates and taxes. The building must also be insured against fire and other risks.
Matters like the management of finances are also covered by the Sectional Titles Act, which specifies the duties that the body corporate must perform when it comes to the management, administration and maintenance of the common property of a complex.
If owners don't agree with the way a scheme is being run, they can stand for election as trustees themselves and play a more direct role in management of a scheme.
"Investors must also generally investigate what living within the scheme is like and, very importantly, get a copy of the body corporate's rules to see if they suit their personal needs before investing," said Geffen.
"Something as seemingly simple as a body corporate's policy on pets, for example, could cause major dispute down the line," said Geffen.
"A good real estate agent will be able to guide you through the body corporate's rules, explaining any terms you don't understand and helping to point out possible points of contention. They will also help you understand your role within the body corporate."
