Sections 37 & 38 of the Sectional Titles Act define the functions and powers of the body corporate, which include: The establishment of a fund to cover all repair and maintenance costs, rates and taxes, insurance premiums and management and administration fees. … Continue reading
Tag Archives: body corporate financials
Sectional title trouble in paradise
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sectional title managers converged for an Estate Agency Affairs Board (EAAB) update on the money paid to CSTM for municipal bills. “I didn’t expect that much anger at that meeting,” says Cindy Nicholls, of Pasco Risk Management, who delivered an update to stakeholders at the request of the EAAB. Nicholls and her team were assigned to figure out how CSTM CEO Quinton Brown managed to allegedly get his hands on trust fund monies. Continue reading
Inner city renewal project unveiled
“One of the intractable parts of inner city renewal remains the turning around of bodies corporate in distress, Continue reading
Amending sectional title conduct rules
Trustees of sectional title schemes need to be fully aware of the procedures they should follow when amending conduct rules. Michael Bauer, general manager of property management company IHFM, says that he frequently comes across cases where trustees and/or their … Continue reading
Liquidation of Constantia Sectional Title Management
LIQUIDATION: THE BODY CORPORATE OF QUINN CENTRE // CONSTANTIA SECTIONAL TITLE MANAGEMENT. We refer to the above matter and write this letter on instruction of Lexstar Trustees CC. On 24 May 2011 the Body Corporate succeeded with their urgent liquidation … Continue reading
Advice to trustees hit by the CSTM demise
sectional-title-property-fraud Continue reading
Paying interest on sectional title levy arrears
Sectional title body corporates are entitled to charge compound interest on levy arrears. The Sectional Title Act states that one of the key functions of a body corporate is to set up a fund for the repair, upkeep, control, management … Continue reading
Sectional Title Levies
A recent court case (Fisher vs Body Corporate Misty Bay) involved a set of facts which will be of interest to sectional title owners, trustees of body corporates and managing agents. Fisher, the owner of a sectional title unit in … Continue reading
Biggest fraud ever for EAAB?
Constantia Sectional Title Managers – currently under curatorship – has allegedly misappropriated a huge amount of money from the 450 bodies corporate that it managed and the curators say missing money could amount to anything between R20-million and R40-million.
Quentin Brown – who ran the operation until an interdict was obtained by the Estate Agency Affairs Board to prevent him from doing so – has been provisionally sequestrated and the Hawks has now launched a criminal investigation into the affairs of CSTM.
According to the curators about R10-million was collected by CSTM from unit owners for the payment of municipal rates, taxes and services but the company is believed to not have paid this money over to the local councils, leaving unit owners high and dry and deeply indebted.
Curator Lawrence Moepi says that there was about R500k in the trust accounts at the end of last month but the income moving through the companies trust accounts amounted to about R300-million a year.
Cindy Nicholls, one of a team of forensic investigators looking into CSTM’s affairs warned that the company could be involved in possibly the biggest case of fraud ever faced by the EAAB.
She has confirmed that the many accounts opened by CSTM did not comply with the Financial Intelligence Centre Act and the investigators, Pasco Risk Management has asked First National Bank to investigate how these accounts were opened and who was involved.
At this stage it appears that the owners of units managed by CSTM would not be able to sell their properties until they received clearance certificates from the responsible body corporate. Moreover, banks would not grant bonds for affected units because the financial statements of these bodies corporate were suspect.
The EAAB investigation has shown that there allegedly were:
- Fictitious payments to municipalities;
- Contractors were paid kick-backs to inflate invoices to body corporates;
- Individual trust accounts were not opened for different organisations;
- Call accounts belonging to bodies corporate were used as security by CSTM for its Nedbank overdraft;
- Financial statements from CSTM were incorrect;
- A number of fraudulent transactions appeared in its management system;
- Almost every account on its books had been meddled with over the past three years.
Source: http://www.property24.com
SECTIONAL TITLE TRUSTEES ARE DUTY BOUND TO DIGEST SECTIONAL TITLES ACT LEGISLATION
Every member of a body corporate, but most especially its trustees, must ensure that they are familiar with the provisions of the Sectional Titles Act 95 of 1986 and the management rules which regulate the affairs of the body corporate.
Sectional title schemes are managed, controlled and administered by the body corporate, the members of which are all owners of units in the scheme. A unit is a section, which is one’s apartment/duplex/simplex, together with an undivided share in the common property in the scheme.
The functions and powers of the body corporate are performed and exercised by a small representative group of owners in the scheme who are appointed by the owners as trustees of the scheme to manage the day-to-day running of the scheme on behalf of the body corporate.
The trustees are empowered to exercise all the powers and to perform all the duties of the body corporate within the limitations imposed in the Sectional Titles Act and the management rules of the scheme and subject to any restrictions imposed on the trustees at a general meeting of the owners.
Contrary to popular opinion that it is the trustees who have an unfettered right to lay down the law in a scheme, it is the owners in a general meeting who have the ultimate decision-making power in a scheme.
The function of the owners in a general meeting is legislative while the trustees have an executive and administrative function, namely, to ensure the day-to-day management of the scheme.
Some of the limitations on the powers of trustees imposed by the Act are as follows:
• Trustees may not sell or let common property without the consent of the body corporate, which consent must be obtained by way of a unanimous resolution. A unanimous resolution must be passed by all the members of a body corporate at a general meeting at which at least 80% of all the members of a body corporate (in number and in value) are present or represented.
• The trustees are empowered to exercise all the powers and to perform all the duties of the body corporate subject to any restrictions imposed on the trustees at a general meeting. An example of such a restriction is the prohibition of expenditure over a specified amount by the trustees without the consent of the owners. The power of the owners to limit the powers of the trustees is an important power that should not be exercised so as to hinder the trustees in the performance of their duties but should instead be exercised so as to operate as an effective mechanism of control over the decisions of the trustees.
The Sectional Titles Regulations prescribe a model set of management rules which regulates the management and administration of a scheme and which sets out the powers and responsibilities of the trustees.
The management rules may be added to, amended or repealed by unanimous resolution of the body corporate.
Some of the limitations on the powers of trustees imposed by the management rules are:
• Trustees may effect improvements of a luxurious nature – the installation of a pool, for instance – on the common property only if the owners agree to such improvements by way of a unanimous resolution.
• Should the trustees wish to effect improvements of a non-luxurious nature on the common property, such as the erection of a security gate, the trustees are required to first give written notice of their intention to all owners. The trustees must at the written request of any owner convene a special general meeting in order to deliberate upon the proposed improvement, at which meeting the owners may veto, amend or approve the proposals by way of special resolution.
Each trustee stands in a fiduciary relationship to the body corporate. In terms of the Act, this relationship demands that a trustee must act honestly and in good faith towards the body corporate, must not exceed the powers granted to him by the Act, the management rules and the owners at a general meeting, and must exercise his powers in the interest and for the benefit of the body corporate.
A trustee must avoid any material conflict between his own interests and those of the body corporate. In particular, he must not, by reason of his office as a trustee, derive any personal benefit to which he is not entitled from the body corporate or from any other person in circumstances in which that benefit is obtained in conflict with the interests of the body corporate.
He is furthermore obliged to notify all other trustees of the nature and extent of any direct or indirect material interest he may have in any contract entered into by the body corporate.
If a trustee breaches his fiduciary duties by an act or omission that is grossly negligent or performed in bad faith, he will be liable to the body corporate for any resultant loss suffered by the body corporate or any economic benefit derived by the trustee.
Where a trustee has not disclosed the nature and extent of any direct or indirect interest in a contract concluded by the trustees on behalf of the body corporate, that contract is voidable at the option of the body corporate.
From the viewpoint of a trustee of a large body corporate from which a significant number of complaints and issues arise on a weekly basis, it is often tempting to do what the reasonable person would consider is reasonable in the circumstances without resort to the Act or the management rules.
Yet doing so would constitute a breach of the trustees’ fiduciary duties to the body corporate. It is imperative that all members of a body corporate, but most especially its trustees, are familiar with the provisions of the Act and the management rules relevant to the powers, duties and liabilities of trustees.
Experience shows that it is ignorance of the Act and the rules that precipitates the largest number of conflicts among the trustees themselves, and between the trustees and the members of the body corporate.
Nadisha Singh is an associate in the corporate department of Bowman Gilfillan, Cape Town
HOAs and Sectional Title schemes are not the same
There seems to be some confusion of late as to the differences between home owners’ associations (HOAs) and sectional title schemes.
Sectional title is a legal arrangement in terms of which parts of buildings can be exclusively owned, in conjunction with shared ownership of other parts of the buildings and the land.
The fundamental concept that underlies this type of title is an abstract division of buildings into some parts that are owned in undivided shares by all participants (referred to as “common property”) and other parts that are exclusively owned (referred to as “sections”).
The Sectional Titles Act, a national statute that applies to the formation and operations of all sectional title developments, also makes provision for “exclusive use rights” in terms of which the owner of a section, who is also the co-owner of all the scheme’s common property, may enjoy the benefits of an arrangement with the other co-owners that s/he alone will have the right to use a specified part of the common property.
HOA developments, by contrast, operate on the basis of a combination of direct and indirect conventional ownership. There is no special type of title involved and no national statute that specifically regulates their formation or operations, although the Companies Act applies to those HOAs that are formed as non-profit companies.
In an HOA development, each owner obtains registered title to a conventional property held under a title deed and described on a registered diagram or general plan (“kaart en transport”) as with any other conventional land in a South African township.
But in addition, each owner of an individual property in an HOA development is automatically a member of the HOA that is usually the registered owner of the development infrastructure. In this case, each owner has indirect rights to the HOA’s property as well as the other rights and obligations that are associated with that membership.
HOAs are one of the biggest and fastest growing sectors of the South African property market. There is a considerable need for Knowledgeable managers for these associations, and thus HOA management can be a lucrative niche for property managers.
Rob Paddock is the operations director for Paddocks. Feel free to visit the website atwww.paddocks.co.za or for free sectional title advice go to www.sto.co.za
Managing Sectional Title Property
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Lifeblood of the body corporate Whether you are an owner, a trustee, a managing agent or an attorney, you will agree that levies are essential to the efficient running of sectional title schemes. Levies are the ‘lifeblood’ of the body … Continue reading
Whose property is it anyway?
We’ve just gone to the polls to put our X where our mouth is, and hopefully the bad guys are out and the good guys are in. But when it comes to more personal matters, are we as decisive?
It’s all about service delivery, and government is not the only area where it’s sadly lacking. As a member of a body corporate or property owner’s association that employs a property management service, you are exposed to the good, the bad or the downright incompetent. If it’s either of the last two, what are you doing about it?
The people have learned the value of burning tyres and lobbing bricks to get their point across. A bit extreme, but a lesson nevertheless. All it needs is a decisive ‘no’ to rid yourselves of poor service when it comes to property management. If you are in any doubt about taking the step to replace your agents, just remember, it’s no exaggeration to say that the value of your property is determined by the quality of its management service. Try selling a unit in a body corporate whose finances are in the red.
Take the test and see how your property management rates: -
Do you know what your levies are spent on? Do your levy invoices arrive on time and are they correct? Do you receive regular financial reports? Are insurance claims properly dealt with? Have you had to pay a special levy because expenses have not been adequately provided for? Is the BC/managing agent responsive to your concerns and queries? Are you subsidising owners who are not paying levies? Are levies being increased because of bad financial management – or lack of recovery of?
Just one iffy answer to any of the above, and you need to make a call.
De La Porte Property Management (DLP) offers you a fresh, comprehensive, professional service at a price that suits the requirements of your complex. So the cost is entirely in line with your budget, and could save you money. We are members of the National Association of Managing Agents (NAMA) and align ourselves with its code of conduct. And just so you know we take this whole business seriously, we use the industry’s ultimate property management software.
Our services include (but are by no means limited to) Commercial, industrial and residential property management. Day to day maintenance and operational support. Arranging and attending POA meetings, arbitration hearings, AGMs & more … Practical application of our in-depth knowledge and understanding of Sectional Title and general property legislation.
We also offer a bookkeeping service with additional benefits, at nearly half the price of the industry standard, for smaller complexes that either can’t afford or don’t need the full management service.
Call us on 021 551 9777 or email us on admin@delaporte.co.za or take a look at our website www.delaporte.co.za to see a detailed list of our services and to find out more about what we do.
We are proud of our bookkeeping service
De la Porte says that the use of professionals is usually money well spent and need not cost a great deal. His company, he says, for instance, offers a bookkeeping only service for smaller bodies corporate that can’t afford a full service manager. Trustees remain in control of maintenance and daily duties, but receive professional bookkeeping services.
“We allow our clients to choose from a menu of services for which we charge individually, and we also consult on an hourly or contract rate. This could include attendance of AGMs or other meetings.
“The inverse to the bookkeeping only service is our management and maintenance facility, where clients want to manage their own finances and do their own letting but don’t want to handle day-to-day maintenance.”
Body corporate fraud: potential to rob owners of their property
Swindling rife, warns property management specialist
Owners of sectional title property, whether commercial or residential, are largely unaware that if their body corporate funds are plundered by incompetence or dishonesty, they could at the very least face crippling special levies to catch up on debt.
“Corruption is rife in the public sector and in private business, and bodies corporate, because they operate largely on trust, are very vulnerable,” says Jonty de la Porte, chief executive of the De La Porte Property Group which specialises in sectional title management and property broking.
“The job of looking after the body corporate funds and administration often falls to the most willing of the owners because everyone wants to keep the costs low. But body corporate fraud has become big business and it usually starts in a small way. Tough financial times can be a temptation for people under pressure to dip into the funds.
“And even if there is no actual dishonesty, general mismanagement can bankrupt a body corporate and the resulting losses can have lasting effects.
“It starts with a lack of budgets, where owners rack up costs and just expect the body corporate to take care of sometimes unnecessary expenses. Amazingly few sectional title owners understand that it is they who are the body corporate, and there’s no fairy godmother to pay the bills. Control of the kitty and the payment of all expenses on time and in full are essentials, just as they are with individual ownership. There’s no difference,” says De La Porte.
To add to the misery, he says, banks are balking at financing sales where body corporate financials are not up to date. Sales have been held up because of this and could lead to eventual devaluation of the individual properties.
“Financial management is the most important element of a healthy body corporate – everything flows from it. Often trustees get tied up or their focus is on maintenance, tenant disputes and so forth, but in tough economic times levies don’t get paid and they are forced into the hands of companies that ‘take over the levy book’, which can turn out very expensive.”
He says the essential issues to be answered correctly by a body corporate to preserve its financial health are: Are records being properly stored? Does everyone know where to find the records? Is there a succession plan in place when trustees move away? Who is responsible for the books and payments? Is legislation being adhered to? Are buildings correctly insured?
“We have found that levy payments improve immediately and bad debt reduces when proper controls are put in place and owners become confident in the billing system. They know that the levies are being well managed and not wasted.”
De la Porte says that the use of professionals is usually money well spent and need not cost a great deal. His company, he says, for instance, offers a bookkeeping only service for smaller bodies corporate that can’t afford a full service manager. Trustees remain in control of maintenance and daily duties, but receive professional bookkeeping services.
“We allow our clients to choose from a menu of services for which we charge individually, and we also consult on an hourly or contract rate. This could include attendance of AGMs or other meetings.
“The inverse to the bookkeeping only service is our management and maintenance facility, where clients want to manage their own finances and do their own letting but don’t want to handle day-to-day maintenance.”
Members of the company’s team can also be hired as impartial arbiters in disputes and De La Porte PG also operates trust accounts on behalf of bodies corporate, as well as other banking where necessary.
Call 021 551 9777 or 082 650 3322, or email jonty@delaporte.co.za.
