The role of homeowners’ associations

Finding the right home is not only about finding an architectural structure that meets your requirements (three bedrooms, sun in the afternoon, a yard for the dogs, access control for the kids, etc.). The search is as much about finding a community you want to become a part of. For many residents, the community that surrounds them is governed by an entity known as a homeowners’ association (HOA).

HOAs are created in full title or freehold housing establishments and are, at their core, responsible for the wellbeing of a residential area and the community that exists within its boundaries. An HOA will fall into one of two categories: a non-profit company or a common law association. When registered as a non-profit company, the HOA will be governed by the Companies Act and must appoint directors to manage its affairs. A common law association, on the other hand, is created informally and offers more leniency in its management, which is overseen by trustees instead of directors. While the formation of a common law association is indeed simpler, is does lack the security, accountability, and clout found in a registered non-profit company.

The responsibilities of the HOA include ensuring the upkeep of infrastructure and the creation of rules that ensure a harmonious living environment. The main purpose of these rules are to create a community that values the lifestyles and aesthetic preferences of the homeowners that reside within it and to create a sense of harmony. It is important for interested homeowners to familiarise themselves with the restrictions of the Memorandum of Incorporation (MOI) to ensure that they are comfortable with adhering to rules.

The rules created by the HOA are contained in its MOI, which should be made available to all new homeowners who move into the area. The rules of an HOA can include items such as quiet hours and regulate parking on sidewalks but can also include items that promote uniformity, such as what colour the exterior of a property may be painted and what flora may be planted in publicly visible areas.

When moving into a residential area run by an HOA, homeowners are required to become members of the HOA and will usually be required to pay an HOA fee. These fees primarily go towards the upkeep of the community’s infrastructure, including the maintenance of lawns and common areas, such as play areas and parks.

An aspect that is often overlooked when considering the scope of the HOA’s role, is the promotion of community building. Community activities and social events, such as yoga classes, book clubs, and even the classic braai, should be arranged by HOAs to bring the community together. HOAs can also promote activities such as recycling and encourage more environmentally conscious behaviour.

It’s clear that homeowners’ associations can play a vital role in the creation and wellbeing of communities when approached correctly. If you want to learn more about the creation of a homeowners’ association or have questions regarding the one you are a member of, get in touch with one of our professional property practitioners to assist you.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

When should financial statements be audited, reviewed or compiled?

The Companies Act of South Africa (the Act) requires all companies to prepare financial statements within 6 months after the end of its financial year. A very popular question among business owners with regards to financial statements is whether the statements should be independently audited, reviewed or compiled. In determining the engagement type, the Act prescribes the following criteria to be applied:

 

Audited financial statements

 

  1. Any profit or non-profit company that, in the ordinary course of its primary activities, holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;
  2. Any non-profit company, if it was incorporated:
  • directly or indirectly by the state, a state-owned company, an international entity or a company; or
  • primarily to perform a statutory or regulatory function in terms of any legislation, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function;
  1. Any other company whose public interest score in that financial year is:
  • 350 or more; or
  • at least 100, but less than 350, if its annual financial statements for that year were internally compiled.

 

How to calculate your public interest score, to determine if you exceed 350 points or not:

  1. a number of points equal to the average number of employees of the company during the financial year;
  2. one point for every R1 million (or portion thereof) in third-party liabilities of the company, at the financial year end;
  3. one point for every R1 million (or portion thereof) in turnover during the financial year; and
  4. one point for every individual who, at the end of the financial year, is a member of the company, or a member of an association that is a member of the company.

 

Independent review of financial statements

 

The Act prescribes that an independent review of a company’s annual financial statements must be performed if the following apply and the company does not select to be voluntarily audited:

 

If, with respect to a company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is not a director of the company, that financial statements should be independently reviewed.

 

A company and its directors may choose to be voluntarily audited or reviewed if they wish to engage in an assurance engagement, although it has not been prescribed by the Act.

 

Compiled financial statements:

 

If none of the above-mentioned requirements has been met, the financial statements may be compiled.

 

With compilations, or compiled financial statements, the outside accountant converts the data provided by the client into financial statements without providing any assurances or auditing services.

 

If you need any assistance with your engagement in financial statements, do not hesitate to contact our friendly staff.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)