When buying into a residential estate, most people know they'll automatically become members of the homeowners' association (HOA). What many don't realise is that the HOA itself is a legal entity with its own rights, obligations and governance requirements.

One of the first questions we are often asked is: 'What type of company should a homeowners' association actually be?'

In the vast majority of residential estates, the homeowners' association is established as a non-profit company (NPC) under the Companies Act 71 of 2008.

Why are most homeowners' associations non-profit companies?

Its purpose is to manage and maintain the estate for the benefit of everyone who owns property within it.

  • Maintaining roads and common areas
  • Managing security
  • Landscaping and gardens
  • Enforcing architectural and conduct rules
  • Managing levies and budgets
  • Appointing service providers
  • Maintaining estate infrastructure

Because these functions exist for the collective benefit of members rather than to distribute profits, a non-profit company is usually the most appropriate legal structure.

Can an HOA be a profit company?

A profit company exists primarily to generate financial returns for shareholders. A homeowners' association exists to administer and preserve the estate. Income from levies should be used to operate, maintain and improve the development rather than generate dividends.

Membership usually follows ownership

When you purchase a property within an estate, you automatically become a member of the HOA. Membership generally ends when ownership is transferred to a new owner.

The Memorandum of Incorporation is critical

Every HOA should have a properly drafted Memorandum of Incorporation (MOI), which regulates:

  • Membership
  • Voting rights
  • Appointment of directors
  • Meetings
  • Levy obligations
  • Director powers
  • Governance procedures
  • Dispute resolution
  • Developer rights during the development phase

Many disputes arise because the MOI is outdated or inconsistent with current legislation.

Directors have legal duties

Directors, even when serving voluntarily, must act in good faith, exercise reasonable care, avoid conflicts of interest, act in the best interests of the HOA and comply with the Companies Act and MOI.

What about sectional title schemes?

A homeowners' association should not be confused with a sectional title body corporate. Bodies corporate are governed by the Sectional Titles Schemes Management Act, while most HOAs are incorporated under the Companies Act and manage freehold or full-title estates.

Why choosing the correct structure matters

The legal structure affects governance, director responsibilities, levy collection, rule enforcement and dispute resolution. Ensuring the HOA is correctly established helps prevent future legal disputes.

Need advice on your homeowners' association?

At VDM Attorneys, our Community Schemes Department advises homeowners' associations, developers and estate directors on:

  • Establishing homeowners' associations
  • Drafting and updating Memoranda of Incorporation
  • Governance reviews
  • Levy collection
  • Rule enforcement
  • Director responsibilities
  • Estate compliance and dispute resolution

Whether you're establishing a new residential estate or reviewing the governance of an existing HOA, our team can help ensure your association is legally compliant and built on a strong foundation.