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Share Block Schemes and use agreements

Understanding the Share Block Use Agreement (South Africa) In South Africa’s share block property model, investors and homeowners buy shares in a company that owns an entire development (e.g. an apartment block or resort), rather than purchasing a unit with a traditional title deed. The Share Block Use Agreement is the binding contract that “confers the right to, or interest in, the use of the immovable property” corresponding to those shares. This agreement defines which specific unit or portion of the property each shareholder may occupy and under what conditions. Because the law requires it, the Use Agreement essentially serves as your customized lease or “deed” for the unit – spelling out your rights, obligations and limitations in the property investment. What Is a Share Block Use Agreement? The Use Agreement is the legal contract between a shareholder and the share-block company that grants the right to occupy a particular unit. It clearly identifies the unit (for example, “Apartment 5B and Garage 12”) and defines how that unit can be used. In plain terms, the Use Agreement is like a tailor-made lease for your share – you get the benefits of owning the property (such as exclusive occupation of a unit and a share of profits) without holding legal title to the land. Key elements typically covered by a Use Agreement include: Unit allocation: Which exact portion of the property you may occupy (e.g. flat number, garage, garden). Exclusive use rights: Your exclusive enjoyment of that unit and any private amenities (and which common areas you can use). Usage restrictions: Rules on occupancy (often “residential only”), limits on alterations, pets or noise. For instance, one agreement limits use to personal residential purposes. It may also identify reserved areas or activities prohibited on the property. Occupancy conditions: How many people can reside or visit, and any approval needed for guests or changes. Duration of use per period: In time-share style schemes, the agreement may specify the week or season you use each year. (In non-timeshare schemes, this is typically indefinite as long as you hold the share.) Financial obligations: Payment of levies, utilities, rates, insurance, and sometimes an “allocated loan” portion of the company’s mortgage. Shareholders usually pay contributions to a common fund or take on part of the property’s debt to cover maintenance and running costs. Subletting or rental: Whether you may lease out the unit. Some Use Agreements allow subletting only under strict conditions or advance notice; others may forbid it entirely. Transfer conditions: How your rights pass on sale. The agreement will spell out the process for assigning your use rights to a new owner when you sell your shares. Typical restrictions in a Use Agreement may include: Usage limits: Use for agreed purposes only (often strictly residential). You might need permission for any structural changes or business activities. Occupancy rules: Maximum number of occupants or guests, with manager approval required for extra people. Alterations and maintenance: Shareholders usually must keep their unit in good repair and cannot alter the structure without consent. Behavior and conduct: Abiding by any conduct rules set by the company or directors (e.g. no nuisance or illegal activity). Subletting: As mentioned, renting out the unit may be restricted or controlled. Common-area rules: If there are shared facilities (pools, gyms, roads), the Use Agreement or company rules will govern their use. In one case, a share-block company even designated certain roads as “reserved” to protect owners’ privacy. All these obligations and restrictions are enforceable under the agreement. Duration and Transferability Use Agreements generally last for as long as you hold the shares. When you do sell your share, the Use Agreement (and any associated loan account) is transferred to the buyer. South African law makes this formal – any sale of share-block shares must include the signed Use Agreement. In practical terms, transferring a share-block “unit” involves ceding the share certificate and assigning the Use Agreement to the new owner – there is no conveyance at the deeds office. Why the Use Agreement Matters For investors, retirees and homebuyers, the Share Block Use Agreement is the key document defining your property rights. Since you do not hold a title deed to the unit, this agreement is effectively your legal “ownership” of the right to occupy. It guarantees your right to use the unit and protects you by spelling out the company’s duties. By contrast, without reading the Use Agreement you might be surprised to find restrictions on pets, noise, or subletting, or hidden costs for maintenance. Keywords: #ShareBlock #UseAgreement, #property #South Africa, #propertyinvestment, #ownershiprights, #realestate. Sources: South African Share Blocks Control Act and legal analyses, among others.