Body corporate or scheme rules play a critical role in regulating the governance, management, and operational functioning of sectional title schemes. However, confusion often arises about their exact legal nature. Are they contracts, servitudes, or a form of legislation? This distinction is not merely academic; it has profound implications for how these rules are created, amended, enforced, and applied.
While academics have debated this issue extensively and courts have leaned on contractual analogies for convenience, rather than as a definitive categorisation, the prevailing and most authoritative view comes from Prof. CG van der Merwe, who concludes that body corporate rules are “legislative instruments created by a unique statutory association.” This categorisation aligns with the statutory framework of the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and is supported by STSMA regulation 6(1), which provides that these rules “must be considered to be and interpreted as laws made by and for the body corporate of that scheme.”
Theories suggesting that body corporate rules are contracts or property servitudes fail to account for their legislative and regulatory nature. Unlike contracts, they bind subsequent owners, occupiers, and visitors without consent. Unlike property servitudes, they govern conduct and management, rather than creating real rights. This article will further explore the implications of this subsidiary legislative character and its practical implications.
Key Distinctions Between Contracts and Body Corporate / Scheme Rules
- Purpose and Scope: Contracts govern individual rights and obligations between parties, with terms negotiated by the parties themselves. Any contractual terms are enforceable, provided they comply with public policy and relevant laws. By contrast, body corporate rules govern the collective management, control, and operation of the sectional title scheme. They must relate to these statutory purposes and cannot exceed the powers granted under the STSMA.
- Restraints on Content: Contracts may contain almost any lawful provision, subject to limited constraints such as consumer protection laws. On the other hand, body corporate rules must be appropriate to the scheme, objectively reasonable in its context, apply equally to all owners, and relate only to the control, management, and operation of the scheme.
- Creation and Oversight: Contracts require no external approval beyond compliance with applicable laws, however body corporate rules can only be adopted, amended, or repealed following the procedures set out in the STSMA. These include approval resolution of owners and prior approval by the Community Schemes Ombud Service (CSOS).
- Binding Effect: Contracts bind only the specific parties who enter into them, whereas body corporate rules bind all owners, occupiers, and visitors to the scheme, regardless of their consent or awareness of the rules.
Practical Implications of Legislative Scheme Rules
The legislative nature of body corporate rules ensures consistency and fairness within sectional title schemes but imposes certain limitations and obligations:
- CSOS Supervision: Rules are subject to CSOS oversight to ensure compliance with statutory requirements, and parties with material interests can apply to CSOS for the amendment of the rules on an equitable basis. This oversight ensures that rules, as originally determined and as amended, will not be unreasonable, discriminatory, or beyond the body corporate’s statutory powers—or if they are, they can be corrected by a CSOS adjudicator’s order.
- Non-Negotiability: Owners cannot opt out of scheme rules they disagree with, unlike a contractual party who may refuse to enter into an agreement. This binding nature is essential for the orderly management of the scheme.
- Uniform Application: Scheme rules must apply equally to all owners. This contrasts with contracts, where terms may vary widely depending on the parties’ negotiation.
Conclusion
The distinction between the contractual and legislative nature of scheme rules is fundamental to understanding the governance of sectional title schemes. Contracts are agreements between specific parties, grounded in the principle of freedom of contract and subject to minimal statutory oversight. Scheme rules, by contrast, are subsidiary legislative instruments created under the STSMA to regulate the management, control, and operation of the scheme. They are subject to statutory constraints, including oversight and possible amendment by CSOS, and must be appropriate, reasonable, equitable, and uniformly applied.
For trustees and owners, appreciating this distinction is essential to ensure compliance with the law and effective governance of sectional title schemes. Understanding the legislative nature of scheme rules ensures that managing agents and trustees approach the processes of rule creation, amendment, and enforcement with clarity and authority, promoting general understanding and harmonious scheme governance.
Article reference: Paddocks Press: Volume 19, Issue 12.
This article is published under the Creative Commons Attribution license.
