The Developer’s responsibility in regard to the first General Meeting

What is a developer?

In terms of section 1 of the STSM Act ‘‘developer’’ means a person who is the registered owner of land, situated within the area of jurisdiction of a local municipality, on which is situated or to be erected a building or buildings which he or she has divided or proposes to divide into two or more sections in terms of a scheme, or his or her successor in title and includes, for the purposes of rebuilding any building that is deemed to have been destroyed as contemplated in section 17 of the STSM Act, the body corporate concerned.

In simple terms the developer owns the land on which the scheme is built. The developer then works with architects, engineers, builders, land surveyors, the local municipality, conveyancers, and the deeds registry to establish the buildings on the land that will make up the scheme. Once the first unit is sold the body corporate is formed.

Convening the inaugural meeting of the body corporate

In terms of section 8 of the STSM Act the developer must convene a meeting of the members of the body corporate not more than 60 days after the establishment of the body corporate. The agenda for the meeting is as prescribed in the management rules for the meeting. At such meeting the developer must furnish the members with:

• a copy of the sectional plan;
• a certificate from the local authority to the effect that all rates due by the developer up to the date of the establishment of the body corporate have been paid; and
• proof of revenue and expenditure concerning the management of the scheme from the date of the first occupation of any unit until the date of the establishment of the body corporate.

The developer must pay over to the body corporate any residue. A developer who fails to comply with these requirements is guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding two years or to both such fine and imprisonment. The developer must promptly, on demand, pay any moneys due in terms of section 3(1)(c) of the STSM Act to the body corporate. In terms of section 2(2) of the STSM Act the developer ceases to be a member of the body corporate when he or she ceases to have a share in the common property.

The first general meeting is sometimes referred to as the “inaugural general meeting”. In terms of section 2(8) of the STSM Act the developer must convene a meeting of the members of the body corporate not more than sixty (60) days after the establishment of the body corporate. The body corporate is established from the date on which any person other than the developer becomes an owner of a unit in the scheme.

In terms of PMR 16(1) the developer must include with the notice of the first general meeting:

(a) an agenda;

(b) the documents set out in section 2(8) of the STSM Act (referred to below); and

(c) a comprehensive summary of the rights and obligations of the body corporate under the policies and contracts (referred to below).

The agenda for the meeting is as prescribed in the management rules of that scheme. PMR 16(2) states that the agenda for the first general meeting of members must include at least the following:

(a) a motion to confirm or vary the terms of the policies of insurance effected by the developer or the body corporate;

(b) a motion to confirm or vary an itemised estimate of the body corporate’s anticipated income and expenses for its first financial year;

(c) a motion to approve, with or without amendment, the developer’s

(i) evidence of revenue and expenditure concerning the management of the scheme from the date of the first occupation of any unit until the date of the establishment of the body corporate; and

(ii) financial statements relating to the management and administration of the scheme from the date of establishment of the body corporate to the date of notice of the first general meeting;

(d) a motion to ratify or not to ratify the terms of any contract entered into by the developer on behalf of the body corporate (subject to the fact that no debt or obligation arising from any agreement between the developer and any other person is enforceable against the body corporate);

(e) a motion confirming that the developer has:

(i) furnished the meeting with copies of the documents referred to below; and

(ii) paid over any residue (relating to the excess of income over expenditure during the management of the scheme from the time the first unit was occupied until the date when the body corporate was established);  

(f) a motion appointing an auditor to audit the evidence and financial statements;

(g) motions determining the number of trustees and electing trustees;

(h) a motion detailing any restrictions to be imposed or directions to be given in terms of section 7(1) of the STSM Act, or confirming that there are no such restrictions or directions.

Section 2(8)(c) of the STSM Act sets out the documents that the developer must, at the meeting, furnish the members with:

1. A copy of the sectional plan;
2. A certificate from the local authority to the effect that all rates due by the developer up to the date of the establishment of the body corporate have been paid; and
3. Proof of revenue and expenditure concerning the management of the scheme from the date of the first occupation of any unit until the date of the establishment of the body corporate. The developer must pay over to the body corporate any residue of these amounts.

PMR 16(4) further requires that, in addition to the documents referred to above, the developer must at or before the first general meeting furnish the body corporate with copies of:

(a) all building plans approved by the local municipality;

(b) any encroachment permit or other document issued by the local municipality in regard to the improvements in the scheme;

(c) plans showing the location of all pipes, wires, cables and ducts;

(d) the names and addresses of all contractors, subcontractors and any other persons whom the developer has employed to render services or supply materials relating to the development of the scheme;

(e) all warranties, manuals, schematic drawings, operating instructions, service guides, documentation from manufacturers and other similar information in respect of the construction, installation, operation, maintenance, repair and servicing of any common property or body corporate assets, including any guarantee or warranty provided to the developer in respect of any aspect of the building; and

(f) all records the body corporate is required to prepare or retain in terms of PMR 27, including any possible future development rights, the names and addresses of all registered unit owners in the scheme as well as the management and conduct rules.

In terms of section 2(11) of the STSM Act the developer must also promptly, on demand, pay any moneys due to the body corporate in terms of section 3(1)(d) of the STSM Act. This provision requires the developer to pay the body corporate a reasonable additional contribution as may be necessary to defray the cost of rates and taxes, insurance and maintenance including the provision of water and electricity and other expenses and costs in respect of and attributable to the part or parts of common property that are subject to a reserved right of extension of the scheme.

PMR 16(3) sets out that the developer’s vote is suspended for the purposes of voting on the items of business referred to in PMR (2)(c), (d) and (e). This means that where the developer still owns unsold units in the scheme, his vote is suspended on any decision that in any way affect him in his capacity as developer. This includes the ratification of contracts entered into by him on the body corporate’s behalf.

A developer who fails to comply with these provisions is guilty of an offence and liable on conviction to a fine or imprisonment for a period not exceeding two years or to both such fine and imprisonment in terms of section 2(10) of the STSM Act. Furthermore, PMR 16(5) sets out that, if the developer fails to provide the body corporate with any document referred to above, the body corporate must do all things reasonably necessary to obtain or have the specific document prepared and may recover the reasonable costs incurred in doing so from the developer.

PMR 16(6) states that if the developer fails to call the first general meeting in compliance with the requirements as set out above, any member or the body corporate may do so and the body corporate must recover from the developer all costs reasonably incurred in ensuring compliance with the developer’s obligations.