In South Africa, property ownership structures vary, and one lesser-known but significant model is the share block scheme. This scheme provides an alternative to conventional sectional title ownership and is often used for residential, commercial and holiday developments. Understanding how share block schemes work, their advantages and their implications in property transfers is essential for investors and property buyers.

What is a Share Block Scheme?

A share block scheme is a form of property ownership where a company owns immovable property, and individuals acquire shares in the company that grant them exclusive use of a specific unit or portion of that property. Unlike sectional title ownership, where buyers receive a direct property title deed, shareholders in a share block scheme do not own the property itself but rather a stake in the company that controls it.

This form of ownership is governed by the Share Blocks Control Act 59 of 1980, which outlines the legal framework for share block schemes in South Africa.

How Share Block Schemes Work

• The property is registered in the name of a share block company.

• Investors or occupants buy shares in the company, which entitle them to occupy a specific unit.

• A use agreement or lease agreement governs the rights and responsibilities of shareholders.

• The company is managed by a board of directors, similar to a body corporate in a sectional title scheme.

Property Transfers in Share Block Schemes

Unlike conventional property transactions, where ownership is transferred via a title deed registered at the Deeds Office, share block transactions involve the sale of shares in the company. The transfer process includes:

1. Sale of Shares: The seller transfers shares to the buyer, typically through a private sale agreement.

2. Company Approval: The share block company’s board must approve the new shareholder.

3. Amendment of Use Agreement: The buyer and company sign a revised use agreement detailing occupancy rights.

4. Payment of Transfer Duty: Although no title deed is transferred, SARS (South African Revenue Service) still requires transfer duty payments on share block transactions.

5. Registration in Company Records: The new shareholder’s details are updated in the company’s share register.

Advantages of Share Block Schemes

• Lower Transfer Costs: No need for title deed registration reduces costs.

• Easier Administration: The company manages maintenance, utilities, and shared facilities.

• Flexibility: Often used in vacation resorts, making it easy to allocate usage periods.

• Attractive Investment Model: Popular in commercial properties and lifestyle estates.

Challenges and Considerations

• Financing Difficulties: Traditional mortgage loans are generally not available for share block schemes.

• Company Control: Shareholders must abide by company rules and board decisions.

• Transfer Restrictions: Some share block companies impose limitations on share transfers.

• Potential for High Levies: Monthly levies may be higher than in sectional title schemes.

Conclusion

Share block schemes offer a unique property ownership structure that can be advantageous for certain buyers, particularly in holiday homes, commercial properties, and retirement developments. However, potential investors must carefully evaluate the legal implications, financing challenges, and governance structure before committing to a share block purchase.

If you need expert legal guidance on share block schemes or property transfers in South Africa, contact Barter McKellar today. Our experienced property law specialists can help you navigate the complexities of share block transactions and ensure a seamless transfer process.