Understanding the Landmark Ruling on Section 163(2)(d) of the Companies Act and Its Impact on Property Developers and HOAs

A recent groundbreaking ruling in the case of Crystal Ball Properties 65 (Pty) Ltd and Others v Landsmeer Home Owners' Association NPC and Another has set a significant legal precedent regarding the obligations of property developers within Home Owners Associations (HOAs) in South Africa. This judgment serves as a crucial reminder for property developers that any property still under their ownership—whether developed or undeveloped—will continue to accrue levies, just as any other property within the HOA.

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Read original article on the Judgement here.

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Key Legal Considerations

At the heart of this matter is Section 163(2)(d) of the Companies Act No. 71 of 2008, which grants courts the power to amend a company’s Memorandum of Incorporation (MOI) when it is found that the conduct of a majority shareholder, director, or governing entity is oppressive or unfairly prejudicial to other stakeholders.

The Crystal Ball Properties case involved a dispute over whether a property developer, who retained ownership of several erven within a residential estate, was liable to pay levies on those properties. Historically, the developer had been exempt from paying levies due to certain provisions in the MOI. However, some property owners challenged this exemption, citing a legal precedent that confirmed developers are indeed liable for levies on unsold properties.

Following this challenge, the HOA, where the developer held substantial voting power, amended the MOI to formally exempt the developer from levy obligations. This amendment was subsequently contested in court, where it was found to be unfairly prejudicial to other members of the HOA.

The Court’s Ruling and Its Significance

The High Court ruled that the amendment to the MOI, which allowed the developer to avoid levy payments, was oppressive and must be overturned. The court exercised its powers under Section 163(2)(d) of the Companies Act to enforce a fair and equitable governance structure within the HOA. The ruling reaffirmed that a property developer is not entitled to an exemption from levies on properties still under their ownership, whether developed or not.

This decision is particularly significant for developers, as it clarifies that:

• Developers are obligated to pay levies on any property they still own within an HOA, whether a building has been erected or not.
• An HOA cannot arbitrarily amend its MOI to favour a developer at the expense of other property owners.
• Property owners have the right to challenge amendments that unfairly benefit developers and undermine the financial sustainability of the HOA.

Implications for Developers, HOAs, and Property Owners

For Property Developers

If you are a property developer, this ruling serves as a clear directive: you cannot escape levy obligations simply because you are still selling or holding onto properties within an estate. Whether or not a structure has been built, your properties remain subject to the same levy requirements as those owned by individual homeowners.

For Home Owners Associations

HOAs must ensure that their financial structures are fair and equitable. This ruling reinforces the principle that all properties within an HOA, including those owned by the developer, should contribute toward levies to sustain the shared services and maintenance costs of the estate.

For Property Owners

Individual homeowners within estates should be aware that they have the right to challenge governance decisions that unfairly absolve developers from financial obligations. The ruling confirms that amendments to the MOI that disproportionately favor developers can be overturned by the courts.

Conclusion

The Crystal Ball Properties case provides much-needed clarity on the financial obligations of developers within HOAs. Developers must now recognize that retaining ownership of property—whether built on or not—does not exempt them from levy payments. This judgment strengthens the legal position of property owners and HOAs by ensuring that governance structures remain transparent, fair, and financially sustainable for all members.

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This article is not intended to constitute any form of legal advice.

For more information on how our conveyancing services can benefit your real estate business, please visit www.ewsattorneys.co.za or contact us directly at +27 12 344 6353/4/5 or at reception@serfonteinatt.co.za. We look forward to helping you.

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