Body corporate arbitration process needs an overhaul

in terms of Management Rule 71, if disputing sectional title parties cannot agree on an arbitrator, the matter must be referred to the Chief Registrar in Pretoria. Continue reading →

Easier dispute resolution in sectional schemes

For too long owners in sectional title schemes and housing estates governed by property owners association rules had difficulty in resolving disputes with their governing association, largely due to the existing Sectional Titles Act or specific Property Owners Association Rules … Continue reading →

New community scheme ombud services will be the key to dispute resolution in the sectional title sector

Many of those trustees now controlling sectional title bodies corporate may not as yet be aware that significant changes will soon be made to the Sectional Title Act as a result of new amendments that will come into being soon … Continue reading →

Questions to ask when buying into a sectional title scheme

The quality of a scheme is almost invariably linked very closely to the quality of its management. Those contemplating a purchase in a sectional title scheme often do not take sufficient trouble to investigate just how efficiently – or inefficiently … Continue reading →

CPA impact on Sectional Title law

The content of these notes is subject to copyright protection. Reproduction of the content, or any part of it, other than for personal, non-commercial use, is prohibited without prior consent from Marlon Shevelew. The information provided in these notes is … Continue reading →

New legislation for sectional title and other communal housing schemes – Part II

Community Schemes Ombud Services Act, 9 of 2011 – The “Who” This is the second in a series of notes in which we guide you through the essentials of two new related Acts that deal with the management of various … Continue reading →

New legislation for Sectional Title schemes

establish an Ombud to deal with the specific disputes that typically arise between those living in communal schemes and such schemes’ administrators. Continue reading →

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 →

Sectional title arbitrators aren’t playing the game

The essence of arbitration has been eroded, and expectations of a quicker, cheaper forum to resolve the many types of disputes in sectional title complexes lacks credibility. Marina Constas, a specialist sectional title attorney and a director at BBM Attorneys, … 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 →

Sectional title trustees must get involved

The serious problems – and loss of big sums of money – caused by the collapse of Constantia Sectional Title Management to thousands of sectional title owners have resulted in managing agents being branded with an ‘incompetent, unreliable’ stigma, but this is … 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

Sectional title trustees can’t dodge responsibilities

The Sectional Titles Act recognises that the trustees of sectional title bodies corporate, unlike the directors of independent companies, are unpaid volunteers and may lack the full experience required for their positions.

For this reason it indemnifies trustees against prosecution for what are clearly errors, but still retains its full powers should they try to defraud their schemes or act with gross negligence.

Although protected in this way, sectional title trustees are responsible for the financial health of their schemes, the care and maintenance of their buildings and facilities and the welfare and security of their members, says Michael Bauer, general manager of IHFM property management company.

“It is all too easy for a trustee to take the attitude that the body corporate was desperately short of volunteers so they have allowed themselves to be elected, but that not much should be expected of them. This laid-back approach to a trustee’s responsibilities can be very harmful to a body corporate,” he says.

“There will be times when trustees need to be proactive and, possibly, hard. They have to stand up to members who are letting the side down by not paying their levies or by behaving in a way that is distasteful to other members. This can be uncomfortable if trustees are living in the same scheme as those who need to be disciplined. It often makes being a trustee unpopular – but that is something they have to accept.”

He says many trustees have come from backgrounds where they had no or limited chances to acquire financial, accounting or legal knowhow. But this does not alter the fact that they have to get to grips with the sectional title scheme’s accounts, if necessary calling in an accountant to help them.

“A “get-involved” message has also to be given to body corporate members: if they don’t attend special and annual general meetings, they have only themselves to blame if things go wrong.

“Not long ago, the slackness of members and their trustees in a certain scheme allowed a managing agent (who was later declared bankrupt) to misappropriate funds and to accumulate R500 000 in municipal charges arrears. Had the members attended the AGM and discussed the accounts or taken them to a creditable auditor, the problem need never have arisen.

“One of the trustees’ most important tasks may be to appoint a good managing agent. Here experience has shown that it can be unwise to select an estate agent, even one who may have been highly effective as a salesperson.

“Good salespeople are not often good administrators because they usually dislike clerical and figure work. The ideal managing agent would be an accountant with a good dose of common sense and a sound understanding of the Sectional Title Act for legal matters.”

Source: SA Property News http://www.sapropertynews.com

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.

Companies Act No. 71 of 2008 is in operation

By Graham Paddock

The new Companies Act that came into effect on 1 May 2011 has been described as “a revolution for South African corporation law”. While this replacement legislation is arguably the most important statute that exists from a South African commercial law perspective and is certainly a fresh start for company law, in my view it is an evolutionary development rather than a revolutionary one.

The provisions of the new Act and its Regulations, Forms and Notices, all of which are available online in Paddocks Club, updates South African company law and brings it in line with that of our major trading partners. Our company law has always been closely modeled in that of the United Kingdom, as has that of Canada, Australia and other Commonwealth countries. The new legislation integrates the best practices of these analogous jurisdictions, most notably Canada, with South African common law and commercial requirements. It also takes into account the recommendation of the King Commission reports and thus signals a fundamental shift in corporate governance principles.

The Act is much more accessible than its predecessor, being drafted in plain language and logically structured. My principle interest in the Act is its effect on Homeowners Associations that were established as section 21 (now “non profit”) companies. In this article I will give a very brief overview of this newly implemented legislation.

First, some highlights:
1. While the Close Corporations Act will remain in force for as long as it is needed to cater for existing CCs, it will be amended so as to incorporate the new features of the Companies Act. No new CCs can be formed.
2. The new Act provides a simpler approach to corporate structures. There will only be Profit Companies (of which there are just a few types) and Non Profit Companies. All new companies will have a single fundamental governance document, a Memorandum of Incorporation.
3. Directors are more strictly responsible and their responsibilities and liabilities are more clearly set out.
4. There is a requirement for “plan language” in company communications
5. There is provision for electronic communication and online meetings.
6. A local variation of the “business judgment” rule has been introduced.
7. Most of the sanctions for non-compliance with the requirements of the new legislation are civil, not criminal.

Looking further at the issue of accessibility, the Act consists of 225 sections (the previous legislation had twice as many) and they are clearly labelled. The government has created a really impressive Commission website: www.cipc.co.za, at which all the legislation, forms and many guidance documents are available.

The South African version of the business judgment rule is worth looking at in detail. The Act provides that a director is protected against actions for breach of the duties of care, skill and diligence and the duty to act in the best interests of the company in relation to a matter where that director has:
(a) taken reasonably diligent steps to become informed about the matter,
(b) either had no conflict of interest in relation to the matter or complied with the rules on conflicts of interest and
(c) had a rational basis for believing, and did believe, that his decision was in the best interests of the company.
In acting as such, a director may rely on information given by and actions taken by persons such as employees and advisers who that director reasonably believes to be reliable and competent.
These provisions mark a step towards greater accountability on the part of directors – no more initialing at the bottom right of each page without looking at the content, at least not without risk!

As to structure, the Act is divided into 9 Chapters and it has 5 Schedules. The Regulations are divided into 8 Chapters and they have 3 Annexures. Finally there are a set of Forms and Notices. Given the very wide scope of commercial and non-commercial activity that is governed by the new Companies Act, it is as compact as it could reasonably be. No one said it was going to be really short, so we each need to identify the bits that apply to our activities and read them.

For the directors of home owners’ associations, I suggest the following initial readings:

In the Preamble & Chapter 1: Interpretation, Purpose and Application I suggest you first look at Part A: Interpretation and focus on section 1. Definitions and 5. General interpretation of Act. Then in Part B: Purpose and application, read sections 8. Categories of companies and 10. Modified application with respect to non-profit companies.

In Chapter 2: Formation, Admin. & Dissolution, head for Part C: Transparency, accountability and integrity of companies and go through section 24 to 34. These cover important issues of company records, information and returns. In Part F: Governance of companies, I suggest that you hunker down and read sections 57 to 78. These cover internal company governance issues such as member’s rights, meetings and directors – all important material.

Have a quick look at Chapter 6: Business Rescue and Compromise with Creditors (the new procedures that replace the previous Judicial Management provisions) and then in Chapter 7: Remedies and Enforcement, go to Part B: Right to seek specific remedies and look at sections 162 an 163. Chapter 8: Regulatory Agencies and Administration of Act deserves a quick look and then in Chapter 9: Offences, Miscellaneous Matters and General Provisions I suggest you go to Part A: Offences and penalties and read sections 214 to 217.

Of the Schedules to the Act, I suggest that you read both Schedules 1 and 5 carefully. In the Regulations I suggest that you should look Chapter 2 – Formation, Administration and Dissolution of Companies, Part C– Transparency, accountability and integrity of companies. Here regulations 21 to 30 are important, dealing with company offices, records, information, financial years, reporting standards and annual returns. And by the way, all HOAs will have to render annual returns.

Right, so here is what you have to do:
(a) Get access to a copy of the Act, Schedules, Regulations, Annexures, Forms and Notices. Bear in mind that the original Act 71 of 2008 was amended by Act 3 of 2011 just before it came into operation, so make sure you have the amended Act. (All of these documents are accessible online to members of Paddocks Club under the heading HOA in the Library.)
(b) Start by reading the parts identified above – you won’t struggle with the language.
(c) Go to http://www.cipc.co.za/ and look around, read the explanatory texts and bear in mind that the prescribed forms have a lot of embedded explanatory material, so they are worth going through.
(d) Starting now, apply the provisions of the Companies Act 71 of 2008 to your corporate Homeowners Association and bear in mind your new responsibilities as a director under this Act.

Source: http://www.paddocks.co.za

Sectional title property best performer

It is the fastest growing sector in SA property. The latest FNB property survey, compiled by the bank’s respected economist, John Loos, has shown that sectional title units have recently been far and away the best performers in the residential … Continue reading →