PRIVATE LAW 451
Overview :
Part A: Sectional titles
Part B: Shareblocks, timesharing & retirement schemes
Table of Contents
1 THE CONCEPT “SHARE BLOCK SCHEME” AND THE SPHERE OF APPLICATION OF ACT 59 OF 1980.............................................4
1.1 THE SHARE BLOCK SCHEME.............................................................................................................................................................4
1.2 EFFECT OF THE COMMENCEMENT OF THE COMPANIES ACT 71 OF 2008 ON SHARE BLOCK COMPANIES......................................................13
1.3 EFFECT OF SECTION 25 OF THE CONSTITUTION.................................................................................................................................13
2 FORMATION OF A SHARE BLOCK SCHEME........................................................................................................................... 15
2.1 THE STEPS OF FORMATION........................................................................................................................................................... 15
2.2 OBLIGATIONS OF SHARE BLOCK HOLDER..........................................................................................................................................19
2.3 THE LOAN OBLIGATION VS THE LEVY FUND.......................................................................................................................................22
3 CONSEQUENCES OF AN ULTRA VIRES ACT............................................................................................................................ 26
3.1 BACKGROUND............................................................................................................................................................................26
3.2 CAPACITY; ULTRA VIRES ACTS & THEIR CONSEQUENCES......................................................................................................................27
4 SANCTIONS AGAINST SHAREHOLDERS................................................................................................................................. 30
4.1 INTRODUCTION.......................................................................................................................................................................... 30
4.2 FINANCIAL SANCTIONS.................................................................................................................................................................31
4.3 EFFECT OF S 34 OF THE CONSTITUTION (ACCESS TO COURTS).............................................................................................................32
4.4 SANCTIONS FOR CONTRAVENTION OF THE USE RULES.........................................................................................................................36
4.5 EFFECT OF THE CONSTITUTION S 26(3)..........................................................................................................................................37
5 VOTING RIGHTS OF SHAREHOLDERS AND RESTRICTIONS ON RETENTION OF CONTROL BY THE DEVELOPER.........................38
5.1 VOTING RIGHTS OF SHAREHOLDERS................................................................................................................................................38
5.2 RESTRICTIONS ON RETENTION OF CONTROL BY DEVELOPER..................................................................................................................40
6 THE USE AGREEMENT.......................................................................................................................................................... 43
6.1 PURPOSE OF USE AGREEMENT.......................................................................................................................................................43
6.2 INDIVIDUAL OR COMPOSITE USE AGREEMENT?.................................................................................................................................43
6.3 ENTRENCHMENT OF RIGHTS..........................................................................................................................................................44
6.4 RELEVANT CASES........................................................................................................................................................................ 47
7 MARKETING OF SHARE BLOCKS........................................................................................................................................... 50
7.1 INTRODUCTION.......................................................................................................................................................................... 50
1
, 7.2 FORMALITIES FOR A CONTRACT TO ACQUIRE A SHARE BLOCK...............................................................................................................51
7.3 CONSEQUENCES OF NON-COMPLIANCE...........................................................................................................................................52
8 USE OF THE SHARE BLOCK AS SECURITY............................................................................................................................... 56
8.1 BRITZ NO V SNIEGOCKI............................................................................................................................................................... 56
9 DEVELOPMENT OF A SHARE BLOCK SCHEME IN PHASES....................................................................................................... 58
9.1 BACKGROUND............................................................................................................................................................................58
9.2 TWO BASIC METHODS................................................................................................................................................................. 58
10 DISSOLUTION OF SHARE BLOCK SCHEMES, OTHER THAN BY CONVERSION TO SECTIONAL TITLE.........................................61
10.1 INTRODUCTION........................................................................................................................................................................ 61
10.2 CONVERSION OF ENTIRE SCHEME TO SEPARATE TITLE.......................................................................................................................62
10.3 PARTIAL EXPROPRIATION OF PROPERTY SUBJECT TO SCHEME.............................................................................................................66
10.4 CASE STUDY ON THE INNOVATIVE USE OF SHARE BLOCKS: ORANIA.....................................................................................................68
11 DISPUTE RESOLUTION FOR SHARE BLOCK SCHEMES UNDER CSOSA 9 OF 2011 COMPARED TO THE PREVIOUS STATUTORY
ARBITRATION REGIME FOR SECTIONAL TITLES....................................................................................................................... 70
11.1 INTRODUCTION........................................................................................................................................................................ 70
11.2 INTERNAL DISPUTE RESOLUTION MECHANISMS................................................................................................................................71
11.3 ARBITRATION OF SECTIONAL TITLE DISPUTES.................................................................................................................................71
11.4 CRITICISM............................................................................................................................................................................... 72
11.5 THE COMMUNITY SCHEMES OMBUD SERVICE ACT 9 OF 2011 – A FRESH START..................................................................................74
11.6 IMPROVEMENTS....................................................................................................................................................................... 74
11.7 POSSIBLE CONCERNS................................................................................................................................................................. 75
11.8 PRACTICAL EXAMPLE................................................................................................................................................................. 77
12 CONTENT OF A TIME SHARE FROM A LEGAL PERSPECTIVE................................................................................................. 79
12.1 INTRODUCTION........................................................................................................................................................................ 79
12.2 TIME SHARE ORIGINALLY A COMMERCIAL CONCEPT..........................................................................................................................79
12.3 LEGAL NATURE: BUNDLE OF RIGHTS AND OBLIGATIONS.....................................................................................................................80
12.4 CHARACTERISTIC RIGHT: PERIODIC EXCLUSIVE USE RIGHT..................................................................................................................80
13 STATUTORY CONTROL OF TIME-SHARING SCHEMES.......................................................................................................... 86
13.1 PROPERTY TIME-SHARING CONTROL ACT......................................................................................................................................86
14 METHODS FOR TIME-SHARING SCHEMES........................................................................................................................... 89
14.1 INTRODUCTION........................................................................................................................................................................ 89
14.2 SECTIONAL TITLE METHOD..........................................................................................................................................................89
14.3 SHARE BLOCK METHOD..............................................................................................................................................................91
14.4 CLUBS.................................................................................................................................................................................... 93
15 TIME-SHARING SCHEMES BASED ON POINTS..................................................................................................................... 95
2
, 15.1 BACKGROUND..........................................................................................................................................................................95
15.2 LEGAL BASIS............................................................................................................................................................................ 96
15.3 STEPS..................................................................................................................................................................................... 97
15.4 DANGERS................................................................................................................................................................................ 99
15.5 CASE LAW.............................................................................................................................................................................100
16 THE LIMITATIONS OF PROTECTION PROVIDED BY DISCLOSURE........................................................................................108
16.1 SHORTCOMINGS OF DISCLOSURE................................................................................................................................................108
16.2 STATUTORY PROTECTION OBVIOUSLY IN ADDITION TO THE COMMON LAW.........................................................................................110
17 A USE RIGHT WITH REAL EFFECT...................................................................................................................................... 112
17.1 A USE RIGHT WITH THE STATUS OF A REAL RIGHT..........................................................................................................................112
17.2 BOLAND BANK BPK V ENGELBRECHT..........................................................................................................................................114
18 RESTRICTIONS ON RECEIPT OF CONSIDERATION BY THE DEVELOPER................................................................................117
18.1 RESTRICTIONS IN RESPECT OF DIFFERENT SCHEMES........................................................................................................................117
o
3
,1 The concept “share block scheme” and the sphere of
application of Act 59 of 1980
Prescribed:
LAWSA volume 27 par 355-361
Pienaar 13-15 (fragmented property holding),
Pienaar 301-310 (share blocks: key concepts and presumption in s 4,
Trustees for the Time Being of the Hunter Family Trust v Duin-en-See (Pty) Ltd [2022]
ZAWCHC 141 (first exception from para 5)),
Pienaar 331-334 (share blocks and section 25 of the Constitution).
Introduction to Part B:
Sectional titles vs share blocks:
o If an investor (purchaser) can choose, then a sectional title is the better option.
o A share block development in the wrong hands has an element of risk, inherent
in a personal right (ABM).
Discussion of share blocks has two additional aims:
o It improves insight regarding sectional titles,
o Share blocks legislation applied company law.
1.1 The share block scheme
What is a share block?
o LAWSA 355: A share block, as the term is generally understood, consists of a
block of shares in a company granting the shareholder a personal right to
occupy a particular part of a building owned or leased by the company.
Share block schemes have a commercial objective:
o An NB difference between a share block & a sectional title is that a share block
does not need to be owned, it can also be leased.
Thus share block legislation was developed to place persons in a similar
position to that of an owner (without actually being an owner).
o The purpose of a shareblock scheme is to provide each participant with
occupation rights to a certain portion of a building for the duration of the scheme
through shareholding in a company.
Primary disadvantage of a share block:
o Persons only acquire a personal right (bundle of personal rights), they do not
acquire ownership (real rights).
Two most important practical consequences:
a. Financial interdependence of share block holders
4
, In respect of a share block scheme (“SBS”), where 2 or 3 out of 100
shareholders are unable to pay their levies, the financial stability of the
share block will not be threatened.
However, if 80% of the shareholding still sits with the developer & then
the developer encounters financial problems, then the SBS would need to
be rescued as the 20% minority shareholders will generally not be able to
cover the shortfall.
Whereas with a sectional title scheme (“STS”), where a number of
sectional titles holders (owners) don’t pay their levies, then the
responsibility to deal with them falls on the trustees.
In addition, there are other practical ways to manage a potential financial
crisis, such as placing the SBS under administration.
b. Financing of the buying & resale of share blocks.
What is a purchaser able to use as security?
In terms of a STS, the purchaser acquires an unencumbered unit
from the seller (real right). Over which a bond can be obtained as
security, of course provided that the unit is sufficient to cover the
purchase price.
In terms of a SBS, all that can be offered is a bundle of personal
rights. One could obtain a possible credit loan amount in respect of
the occupancy & use agreements. But the consequence is that
security in respect of a SBS is much less satisfactory than the real
rights obtained through a mortgage bond in terms of a STS.
Historical background
o Share blocks developed in SA in the 1950s as a result of the Roman law maxim
“superficies solo cedit” (“the building becomes part of the land”).
Meaning that one could not be the owner of the apartment on the top floor
unless that person was the owner of the whole building.
o Then the Sectional Titles Act of 1971 came into operation in 1974 with the
expectation that existing share block schemes would fall into disuse as they
would convert into sectional titles.
o HOWEVER, this did not happen, the original mechanism provided to covert SBS
into sectional titles didn’t work (that was fixed in the Share Blocks Control Act/
“SBCA”). But there was still a need for share blocks, particularly where the
sectional title developer could not acquire ownership of the land she/he used for
the development.
o So SBS remained in existence but certain abuses occurred in practice.
LAWSA 356: For example:
5
, The failure to disclose adequate information to investors in
shareblock schemes,
Attempts to grant loaded voting rights to developers enabling
them to retain control to the detriment of other investors, and
The retention of shareholders’ contributions towards the
shareblock company’s mortgage obligations by the developer to the
potential prejudice of the shareblock company and its shareholders
o Therefore the Share Blocks Control Act 59 of 1980 (SBCA) came into
operation to regulate such schemes.
o Note:
The Sectional Titles Act (“STA”) is primarily an enabling Act. It enables
people to do what they otherwise couldn’t do.
The SBCA & the Property Time-sharing Control Act (“PTCA”) are regulatory
legislation to prevent abuses. Meaning, they aim to control such schemes,
NOT enable them to take place.
What particular schemes are subject to the SBCA?
o Sphere of application of the Act can be derived from a number of definitions, in
section 1 of the Act, as discussed in Lawsa par 357-360. Those definitions are:
“Share block company”
“Share block scheme”
“Share”
o NB to note, there is a presumption to prevent evasion of the Act, in section 4:
Where a company whose shares confer the right to occupy land, it
will be presumed to be a share block company, whether it complies with
the provisions of the SBCA or not.
Example of a company where they acted as though the law only
applies to other people, not to them:
o Trustees for the Time Being of the Hunter Family Trust
v Duin-en-See (Pty) Ltd [2022] ZAWCHC 141
The company in this case, formed in 1958.
Since 1981, the company had never thought it
necessary to comply with the SBCA.
Note: to see the relevance of whether or not the
company was a share block company or not, look at
the discussion of the first exception in para 5 onwards.
*summary below
o In respect of the 3 definitions, it is NB to understand:
6
Overview :
Part A: Sectional titles
Part B: Shareblocks, timesharing & retirement schemes
Table of Contents
1 THE CONCEPT “SHARE BLOCK SCHEME” AND THE SPHERE OF APPLICATION OF ACT 59 OF 1980.............................................4
1.1 THE SHARE BLOCK SCHEME.............................................................................................................................................................4
1.2 EFFECT OF THE COMMENCEMENT OF THE COMPANIES ACT 71 OF 2008 ON SHARE BLOCK COMPANIES......................................................13
1.3 EFFECT OF SECTION 25 OF THE CONSTITUTION.................................................................................................................................13
2 FORMATION OF A SHARE BLOCK SCHEME........................................................................................................................... 15
2.1 THE STEPS OF FORMATION........................................................................................................................................................... 15
2.2 OBLIGATIONS OF SHARE BLOCK HOLDER..........................................................................................................................................19
2.3 THE LOAN OBLIGATION VS THE LEVY FUND.......................................................................................................................................22
3 CONSEQUENCES OF AN ULTRA VIRES ACT............................................................................................................................ 26
3.1 BACKGROUND............................................................................................................................................................................26
3.2 CAPACITY; ULTRA VIRES ACTS & THEIR CONSEQUENCES......................................................................................................................27
4 SANCTIONS AGAINST SHAREHOLDERS................................................................................................................................. 30
4.1 INTRODUCTION.......................................................................................................................................................................... 30
4.2 FINANCIAL SANCTIONS.................................................................................................................................................................31
4.3 EFFECT OF S 34 OF THE CONSTITUTION (ACCESS TO COURTS).............................................................................................................32
4.4 SANCTIONS FOR CONTRAVENTION OF THE USE RULES.........................................................................................................................36
4.5 EFFECT OF THE CONSTITUTION S 26(3)..........................................................................................................................................37
5 VOTING RIGHTS OF SHAREHOLDERS AND RESTRICTIONS ON RETENTION OF CONTROL BY THE DEVELOPER.........................38
5.1 VOTING RIGHTS OF SHAREHOLDERS................................................................................................................................................38
5.2 RESTRICTIONS ON RETENTION OF CONTROL BY DEVELOPER..................................................................................................................40
6 THE USE AGREEMENT.......................................................................................................................................................... 43
6.1 PURPOSE OF USE AGREEMENT.......................................................................................................................................................43
6.2 INDIVIDUAL OR COMPOSITE USE AGREEMENT?.................................................................................................................................43
6.3 ENTRENCHMENT OF RIGHTS..........................................................................................................................................................44
6.4 RELEVANT CASES........................................................................................................................................................................ 47
7 MARKETING OF SHARE BLOCKS........................................................................................................................................... 50
7.1 INTRODUCTION.......................................................................................................................................................................... 50
1
, 7.2 FORMALITIES FOR A CONTRACT TO ACQUIRE A SHARE BLOCK...............................................................................................................51
7.3 CONSEQUENCES OF NON-COMPLIANCE...........................................................................................................................................52
8 USE OF THE SHARE BLOCK AS SECURITY............................................................................................................................... 56
8.1 BRITZ NO V SNIEGOCKI............................................................................................................................................................... 56
9 DEVELOPMENT OF A SHARE BLOCK SCHEME IN PHASES....................................................................................................... 58
9.1 BACKGROUND............................................................................................................................................................................58
9.2 TWO BASIC METHODS................................................................................................................................................................. 58
10 DISSOLUTION OF SHARE BLOCK SCHEMES, OTHER THAN BY CONVERSION TO SECTIONAL TITLE.........................................61
10.1 INTRODUCTION........................................................................................................................................................................ 61
10.2 CONVERSION OF ENTIRE SCHEME TO SEPARATE TITLE.......................................................................................................................62
10.3 PARTIAL EXPROPRIATION OF PROPERTY SUBJECT TO SCHEME.............................................................................................................66
10.4 CASE STUDY ON THE INNOVATIVE USE OF SHARE BLOCKS: ORANIA.....................................................................................................68
11 DISPUTE RESOLUTION FOR SHARE BLOCK SCHEMES UNDER CSOSA 9 OF 2011 COMPARED TO THE PREVIOUS STATUTORY
ARBITRATION REGIME FOR SECTIONAL TITLES....................................................................................................................... 70
11.1 INTRODUCTION........................................................................................................................................................................ 70
11.2 INTERNAL DISPUTE RESOLUTION MECHANISMS................................................................................................................................71
11.3 ARBITRATION OF SECTIONAL TITLE DISPUTES.................................................................................................................................71
11.4 CRITICISM............................................................................................................................................................................... 72
11.5 THE COMMUNITY SCHEMES OMBUD SERVICE ACT 9 OF 2011 – A FRESH START..................................................................................74
11.6 IMPROVEMENTS....................................................................................................................................................................... 74
11.7 POSSIBLE CONCERNS................................................................................................................................................................. 75
11.8 PRACTICAL EXAMPLE................................................................................................................................................................. 77
12 CONTENT OF A TIME SHARE FROM A LEGAL PERSPECTIVE................................................................................................. 79
12.1 INTRODUCTION........................................................................................................................................................................ 79
12.2 TIME SHARE ORIGINALLY A COMMERCIAL CONCEPT..........................................................................................................................79
12.3 LEGAL NATURE: BUNDLE OF RIGHTS AND OBLIGATIONS.....................................................................................................................80
12.4 CHARACTERISTIC RIGHT: PERIODIC EXCLUSIVE USE RIGHT..................................................................................................................80
13 STATUTORY CONTROL OF TIME-SHARING SCHEMES.......................................................................................................... 86
13.1 PROPERTY TIME-SHARING CONTROL ACT......................................................................................................................................86
14 METHODS FOR TIME-SHARING SCHEMES........................................................................................................................... 89
14.1 INTRODUCTION........................................................................................................................................................................ 89
14.2 SECTIONAL TITLE METHOD..........................................................................................................................................................89
14.3 SHARE BLOCK METHOD..............................................................................................................................................................91
14.4 CLUBS.................................................................................................................................................................................... 93
15 TIME-SHARING SCHEMES BASED ON POINTS..................................................................................................................... 95
2
, 15.1 BACKGROUND..........................................................................................................................................................................95
15.2 LEGAL BASIS............................................................................................................................................................................ 96
15.3 STEPS..................................................................................................................................................................................... 97
15.4 DANGERS................................................................................................................................................................................ 99
15.5 CASE LAW.............................................................................................................................................................................100
16 THE LIMITATIONS OF PROTECTION PROVIDED BY DISCLOSURE........................................................................................108
16.1 SHORTCOMINGS OF DISCLOSURE................................................................................................................................................108
16.2 STATUTORY PROTECTION OBVIOUSLY IN ADDITION TO THE COMMON LAW.........................................................................................110
17 A USE RIGHT WITH REAL EFFECT...................................................................................................................................... 112
17.1 A USE RIGHT WITH THE STATUS OF A REAL RIGHT..........................................................................................................................112
17.2 BOLAND BANK BPK V ENGELBRECHT..........................................................................................................................................114
18 RESTRICTIONS ON RECEIPT OF CONSIDERATION BY THE DEVELOPER................................................................................117
18.1 RESTRICTIONS IN RESPECT OF DIFFERENT SCHEMES........................................................................................................................117
o
3
,1 The concept “share block scheme” and the sphere of
application of Act 59 of 1980
Prescribed:
LAWSA volume 27 par 355-361
Pienaar 13-15 (fragmented property holding),
Pienaar 301-310 (share blocks: key concepts and presumption in s 4,
Trustees for the Time Being of the Hunter Family Trust v Duin-en-See (Pty) Ltd [2022]
ZAWCHC 141 (first exception from para 5)),
Pienaar 331-334 (share blocks and section 25 of the Constitution).
Introduction to Part B:
Sectional titles vs share blocks:
o If an investor (purchaser) can choose, then a sectional title is the better option.
o A share block development in the wrong hands has an element of risk, inherent
in a personal right (ABM).
Discussion of share blocks has two additional aims:
o It improves insight regarding sectional titles,
o Share blocks legislation applied company law.
1.1 The share block scheme
What is a share block?
o LAWSA 355: A share block, as the term is generally understood, consists of a
block of shares in a company granting the shareholder a personal right to
occupy a particular part of a building owned or leased by the company.
Share block schemes have a commercial objective:
o An NB difference between a share block & a sectional title is that a share block
does not need to be owned, it can also be leased.
Thus share block legislation was developed to place persons in a similar
position to that of an owner (without actually being an owner).
o The purpose of a shareblock scheme is to provide each participant with
occupation rights to a certain portion of a building for the duration of the scheme
through shareholding in a company.
Primary disadvantage of a share block:
o Persons only acquire a personal right (bundle of personal rights), they do not
acquire ownership (real rights).
Two most important practical consequences:
a. Financial interdependence of share block holders
4
, In respect of a share block scheme (“SBS”), where 2 or 3 out of 100
shareholders are unable to pay their levies, the financial stability of the
share block will not be threatened.
However, if 80% of the shareholding still sits with the developer & then
the developer encounters financial problems, then the SBS would need to
be rescued as the 20% minority shareholders will generally not be able to
cover the shortfall.
Whereas with a sectional title scheme (“STS”), where a number of
sectional titles holders (owners) don’t pay their levies, then the
responsibility to deal with them falls on the trustees.
In addition, there are other practical ways to manage a potential financial
crisis, such as placing the SBS under administration.
b. Financing of the buying & resale of share blocks.
What is a purchaser able to use as security?
In terms of a STS, the purchaser acquires an unencumbered unit
from the seller (real right). Over which a bond can be obtained as
security, of course provided that the unit is sufficient to cover the
purchase price.
In terms of a SBS, all that can be offered is a bundle of personal
rights. One could obtain a possible credit loan amount in respect of
the occupancy & use agreements. But the consequence is that
security in respect of a SBS is much less satisfactory than the real
rights obtained through a mortgage bond in terms of a STS.
Historical background
o Share blocks developed in SA in the 1950s as a result of the Roman law maxim
“superficies solo cedit” (“the building becomes part of the land”).
Meaning that one could not be the owner of the apartment on the top floor
unless that person was the owner of the whole building.
o Then the Sectional Titles Act of 1971 came into operation in 1974 with the
expectation that existing share block schemes would fall into disuse as they
would convert into sectional titles.
o HOWEVER, this did not happen, the original mechanism provided to covert SBS
into sectional titles didn’t work (that was fixed in the Share Blocks Control Act/
“SBCA”). But there was still a need for share blocks, particularly where the
sectional title developer could not acquire ownership of the land she/he used for
the development.
o So SBS remained in existence but certain abuses occurred in practice.
LAWSA 356: For example:
5
, The failure to disclose adequate information to investors in
shareblock schemes,
Attempts to grant loaded voting rights to developers enabling
them to retain control to the detriment of other investors, and
The retention of shareholders’ contributions towards the
shareblock company’s mortgage obligations by the developer to the
potential prejudice of the shareblock company and its shareholders
o Therefore the Share Blocks Control Act 59 of 1980 (SBCA) came into
operation to regulate such schemes.
o Note:
The Sectional Titles Act (“STA”) is primarily an enabling Act. It enables
people to do what they otherwise couldn’t do.
The SBCA & the Property Time-sharing Control Act (“PTCA”) are regulatory
legislation to prevent abuses. Meaning, they aim to control such schemes,
NOT enable them to take place.
What particular schemes are subject to the SBCA?
o Sphere of application of the Act can be derived from a number of definitions, in
section 1 of the Act, as discussed in Lawsa par 357-360. Those definitions are:
“Share block company”
“Share block scheme”
“Share”
o NB to note, there is a presumption to prevent evasion of the Act, in section 4:
Where a company whose shares confer the right to occupy land, it
will be presumed to be a share block company, whether it complies with
the provisions of the SBCA or not.
Example of a company where they acted as though the law only
applies to other people, not to them:
o Trustees for the Time Being of the Hunter Family Trust
v Duin-en-See (Pty) Ltd [2022] ZAWCHC 141
The company in this case, formed in 1958.
Since 1981, the company had never thought it
necessary to comply with the SBCA.
Note: to see the relevance of whether or not the
company was a share block company or not, look at
the discussion of the first exception in para 5 onwards.
*summary below
o In respect of the 3 definitions, it is NB to understand:
6
