The Share Blocks Control Act (SBCA) 59 of 1980 is a South African law that regulates share block schemes, which allow individuals to own shares in a company that owns immovable property, giving them the right to use a specific unit within the scheme. It aims to prevent misuse of shareholder investments and ensure fair practices within these schemes.

The SBCA was introduced to bring greater transparency and legal certainty to property ownership models where individuals invest in companies rather than directly owning land or units. Without this legislation, shareholders in these schemes would have little protection against mismanagement or abuse by developers and directors.

What Is a Share Block Scheme?

Shareholders in a share block scheme do not acquire ownership of the immovable property itself but own shares in the company that owns the property. The use of the property is governed by a use agreement and memorandum of incorporation.

Each shareholder's right to occupy or use a specific part of the building is linked directly to the shares they hold. Unlike traditional property ownership, the "ownership" here is an indirect right of use, secured by corporate governance documents. This structure allows for collective ownership and management of properties such as holiday resorts, retirement villages, or apartment blocks without the complexity of individual title deeds for each unit.

Share Block vs Sectional Title

Share block schemes differ from sectional title schemes, as sectional title allows for individual ownership registered at the Deeds Office, while share block schemes were a precursor to sectional title and have often been converted into sectional title schemes.

The main distinction lies in how ownership is recorded and protected. Sectional title owners have their ownership formally registered, providing a stronger and more individualised legal standing. By contrast, share block shareholders rely heavily on the company's stability and the integrity of its governance documents. When considering share block vs sectional title options, it’s important to assess the level of security, financing ability, and flexibility you require as a property user or investor.

Key Concepts of the SBCA

• Share Block Scheme - A scheme where a share, in any manner, confers a right to or an interest in the use of immovable property.
• Share Block Company - A company that operates a share block scheme.
• Share Block Developer - A person controlling over 50% of the shares in a share block company.
• Use Agreements - Agreements that outline the terms of use for the specific unit or space linked to a shareholder's shares.
• Levy Fund - A fund used for the maintenance, management, and administration of the share block scheme and the property.

The success of a share block scheme largely depends on the governance by the share block company and the careful management of levy funds to ensure long-term property value and service delivery. Shareholders are also bound by the conditions outlined in use agreements, which means legal clarity and enforcement mechanisms are essential.

Share Block Control Act Regulations

• Registration - The Registrar of Companies oversees the registration and regulation of share block schemes;
• Use Agreements - Shareholders must enter into use agreements with the share block company, outlining their rights and obligations;
• Levies - Shareholders are responsible for paying levies to the levy fund for the upkeep and maintenance of the scheme;
• Exemptions - In certain circumstances, the Registrar can exempt a company from the provisions of the Act; and
• Conflicts with other Laws - In case of conflicts between the Share Blocks Control Act and the Companies Act, the Share Blocks Control Act prevails.

The Share Block Control Act regulations place significant obligations on share block companies to uphold fair standards of operation. For shareholders, this means there are defined mechanisms for dispute resolution, levy calculation, and property use regulation. Importantly, the regulatory framework ensures that even if conflicts arise between different legal standards (such as corporate law and share block law), the specific protections afforded to share block shareholders are not undermined.

Legal Advice for Share Block Schemes

In essence, the Share Blocks Control Act provides a legal framework for the operation of share block schemes, ensuring that they are managed fairly and that shareholders' rights are protected.

A property lawyer can assist with reviewing use agreements, advising on shareholder rights, and helping resolve disputes that may arise within the share block company.

Expert legal assistance can also help shareholders understand their financial obligations, governance rights, and remedies available if the share block company fails to perform its duties. Early legal advice often prevents costly disputes and provides reassurance when entering or exiting a share block arrangement.

Speak to an Experienced Property Lawyer

VDM Attorneys are qualified property lawyers with over 35 years’ experience in conveyancing, litigation and compliance. If you have a query or dispute with your involvement in a Share Block Scheme, VDM Incorporated can provide you with expert legal guidance and service.

Choosing the right property lawyer ensures that your investment in a share block company is protected from the outset. Whether you are buying into a scheme, managing an ongoing relationship with the company, or seeking to exit, expert advice can make the process smoother and legally sound.