Understanding the Difference Between Share Block and Sectional Title Ownership

1. Ownership Structure

• Share Block Ownership: In a share block scheme, an investor purchases shares in a company that owns the entire industrial or commercial property - such as a warehouse complex or office block. These shares grant the investor the right to use a specific section of the property, but ownership remains with the company.
• Sectional Title Ownership: This structure allows an investor to directly own a specific section of the property (such as a warehouse unit or office space) along with a proportional share of the common areas - like parking lots, corridors, or shared facilities. Ownership is registered in the investor's name at the Deeds Office.

2. Legal Framework

• Share Block: Governed by the Share Blocks Control Act, 1980, the property is owned by a company, and shareholders' rights and responsibilities are defined in the company's Memorandum of Incorporation (MOI) and shareholder agreements.
• Sectional Title: Regulated by the Sectional Titles Act, 1986, this framework provides legal certainty by registering each unit owner's title deed, giving direct and independent ownership rights.

3. Financing and Transfer

• Share Block: Securing financing for share block schemes can be challenging since banks do not offer traditional mortgage bonds. Instead, investors must obtain share block loans, which often come with stricter terms and higher interest rates.
• Sectional Title: Investors can access conventional mortgage bonds, making it easier to finance commercial or industrial properties. The transfer process involves registering the title deed in the buyer's name through the Deeds Office, with standard transfer duties applying.

4. Management and Control

• Share Block: The property is managed by a board of directors representing shareholders. Decision-making power is often proportional to the number of shares an investor holds. This structure may limit an investor's ability to make independent decisions about their specific section.
• Sectional Title: Managed by a Body Corporate consisting of all unit owners. The Body Corporate enforces rules regarding the use and maintenance of common areas, with decisions typically made through democratic voting at annual general meetings (AGMs).

5. Costs and Levies

• Share Block: Monthly levies paid to the company usually cover property maintenance, rates, taxes, and possibly loan repayments on the property. These levies may be higher due to the centralized management structure.
• Sectional Title: Owners pay levies to the Body Corporate, covering shared costs for common areas and services. Additionally, each owner is responsible for their own municipal rates and taxes.

6. Resale and Transfer

• Share Block: Selling a share block property requires the board's approval, and the process involves transferring shares rather than a title deed. Transfer duties may apply, but the formal registration of ownership does not take place at the Deeds Office.
• Sectional Title: Sales follow a more straightforward process, with the transfer of ownership registered at the Deeds Office. Buyers must pay transfer duties unless VAT applies.

Which Ownership Structure is Better for Industrial or Commercial Investments?

• Share Block ownership may be suitable for properties requiring unified management - like business parks or commercial complexes - where shared decision-making is essential.
• Sectional Title is often preferred by investors seeking direct ownership, easier access to financing, and clearer legal standing over their property. It allows for greater flexibility and autonomy over individual units.

Ultimately, the choice depends on your investment goals, financing needs, and the level of control you wish to maintain over your property. Consulting with a property attorney or commercial real estate expert can help ensure you make an informed decision.