The south African property market has seen the introduction of housing stock in the form of retirement villages (“RVs”), together with the issuing of the so-called “life rights” as a means to address housing and special needs of retired persons, comprising of frail care centres, 24 hour security, restaurants facilities etc. While these special features of a retirement village are obviously straightforward, there is still minimal legal exposure to this concept among many holders of housing interests, developers and investors. Therefore, there is a lot that needs to be demystified in this regard, not least in relation to the legal framework, acquisition of occupation and ownership rights etc.
The Legal Framework Governing Retirement Villages
All retirement villages are regulated by the Housing Development Schemes for Retired Persons Act , 1988 (“Act 65 of 1988”).
The Act makes provision for the acquisition of either ownership or a right of occupation in a housing development scheme.
The right of occupation is akin to a long lease with a once-off purchase price.
In terms of section 2 of the Act none of the above rights may be alienated unless the sale thereof is in writing and signed
by the parties or their duly authorized agent.
Property Rights/Housing Interests
The following housing interests are recognized by the Act:
• Ownership
• Rights of Occupation
A right of occupation does not grant full title to a holder of a housing interest; in fact the right terminates upon the death of its holder.
It is possible to issue both ownership rights and rights of occupation in one scheme. This is called a hybrid/mixed use scheme.
Compliance Certificate by Architect
A developer may not receive the purchase price unless a certificate has been issued by an architect in terms of section 6
of the Act to the effect that the buildings are in order for utilization
,and that they have been constructed in accordance with the approved building plans and applicable town planning scheme.
Retirement Villages under Sectional Title Development Schemes
Retirement villages in South Africa are predominantly sectional title schemes.
When ownership of a unit which is linked to an exclusive use area is transferred, such exclusive use area must be
simultaneously ceded by means of a Notarial Deed of Cession to the transferee, otherwise the right of exclusive
use area will be forfeited to the body corporate in terms of section 27(4) (a) of the Sectional Titles Act, 1986 (Act 95 of 1986).
Retirement Villages under Share Block Schemes
While the majority of retirement villages follow the sectional title scheme model, there is a considerable number of these developments which are share block schemes.
In share block schemes a purchaser obtains shareholding in a share block company together with occupation rights in buildings owned by the company.
Prohibition of Alienation of Right of Occupation Pending Endorsement of Title Deed
Section 4C of the Act prohibits a developer from alienating a right of occupation unless the underlying title deed has been endorsed to the effect that the land is subject to a retirement village. Consent from the mortgagor, or nominee company in the case of participation bond, is required if the property is mortgaged.
Section 4B of the Act provides that land which is subject to a right of occupation may not be alienated without a consent of at least 75 per cent of the holders of rights of occupation in the scheme; any alienation without consent will render the transaction null and void.
In Flower Foundation Pretoria Homes for the Aged NPC v Registrar of Deeds , Pretoria and Others (942/2020) [2022] ZASCA 8 (20 January 2022) the Supreme Court of Appeal upheld the decision of the Gauteng Division of the High Court refusing to grant the Appellant a declaratory order for it to alienate portion 1 of the land which was subject to rights of occupation without consent of the life-right holders. The court found that the whole property was subject to a housing development scheme.
Practitioners, developers and housing right holders/owners must acclimatize themselves with the Act and its regulations.