ALIENATION OF PROPERTY FORMING PART OF A RETIREMENT VILLAGE: WHAT YOU HAVE TO KNOW

Apart from the normal legislation applicable to the sale of immovable property, the Housing Development Schemes for Retired Persons Act 65 of 1988 (“the Act”) extensively regulates the alienation of any property forming part of a retirement village.  Read more about the specific requirements that a Developer and a deed of sale must adhere to as prescribed by the Act.

The abovementioned Act contains strict requirements that have to be adhered to when an interest in a housing development scheme is alienated to retired persons.

A “retired person” is defined in the Act as “a person who is 50 years of age or older.”

A “housing interest” in relation to a housing development scheme, means “any right to claim transfer of the land to which the scheme relates, or to use or occupy that land”.

The underlying legal nature of a retirement village is not always easily ascertained and the number of legal structures on which retirement villages can be based, can, broadly speaking, be divided into 3 categories, namely:

1. Schemes where Purchasers acquire housing interests in the form of ownership of the particular housing unit;
2. Schemes where the housing interest for sale amounts to something less than ownership, and which “lessor rights” are defined by the Act as rights of occupation. Examples hereof are shareblock schemes and the granting of so called “life rights”.
3. Mixed schemes, in other words schemes where both rights of ownership and lessor rights (usually in the form of life rights) are alienated by the Developer.

“Life rights” take many forms and the provisions of payment of consideration for the granting of these rights also vary from scheme to scheme.

RETIREMENT SCHEMES WHERE PURCHASERS AQUIRE OWNERSHIP OF THEIR HOUSING UNITS

Where a Developer decides to sell ownership in retirement villages (as opposed to the so called lesser rights) there is a choice between establishing a scheme based on freehold ownership or sectional title ownership.

In freehold retirement schemes a Purchaser acquires ownership in a separate erf with a housing unit already built, or to be built. The Purchaser receives a separate title deed proving his ownership, and the property can serve as security under a mortgage bond. The regulation and operation of a freehold retirement scheme is governed exclusively by the Act.

A sectional title retirement scheme is governed by both the Sectional Titles Act 95 of 1986 in cooperation with the Act.

The most important requirements that a deed of sale between a prospective Purchaser and Developer of a retirement village needs to adhere to, are the following:

• The duration of the housing interest and any limitations thereon;
• A statement as to whether the housing interest is registerable;
• The amount or nature of the consideration concerned;
• A statement of the place where and the hours during which rules, in accordance with which the housing interest concerned is to be utilized, may be inspected;
• A statement of the official language chosen by the Purchaser as the language in which the contract was drawn up;
• The date on which the Purchaser will become entitled to utilize the housing interest and the date upon which the risk of the housing interest will pass to the Purchaser;
• An important point is that the deed of sale must include on estimate, for a period of 3 years in advance, of all expenditure for the control, management and administration of the housing development scheme and all services and facilities concerned and an indication of the person/s who will be liable for the payment thereof.  The Deed of Sale must furthermore include a statement of the basis upon which any levy payable by the Purchaser is to be calculated and an estimate, for a period of two years in advance, of the amount of the levy.

Section 6 of the Act furthermore dictates that no Developer may receive any consideration or any part thereof unless an architect or a quantity surveyor has issued a certificate that the housing development scheme concerned has been erected substantially in accordance with the officially approved building plans and town planning scheme and applicable local authority by-laws. An occupation certificate as issued by the local authority is a prerequisite before the purchase price or any portion thereof may be paid over to the Developer of a scheme.

Contact Marcelle Strydom at MHI Attorneys for advice on Retirement villages.

REFERENCE LIST: 

• The Housing Development Schemes for Retired Persons Act 65 of 1988
• Retirement Villages: An introduction to their legal nature, applicable legislation and the risks faced by investors in such schemes (2) – Lizelle Kilbourn

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.