Don’t Sink Your Financial Ship

Private Property South Africa
Lea Jacobs

Rising utility costs, wage increases and the cost of maintaining a sectional title development have undoubtedly impacted on bodies corporate around the country. It can be said with a fair amount of certainty that bodies corporate are actively looking at ways to cut costs without compromising service levels and the overall standards needed to keep a complex shipshape.

Trustees are being forced to take a far more active role in the day to day running of sectional title schemes and are becoming increasingly reluctant to outsource jobs that can be carried out internally. This is not the only area of sectional title ownership that has come under the spotlight.

The need to monitor the actions of those involved in the daily financial affairs of a sectional title scheme were highlighted in dramatic fashion recently when it came to light that homeowners in a Durban complex who were unable to keep up with the astronomical levies imposed were simply abandoning their homes. The crisis experienced by these homeowners stretches back some 10 years and clearly emphasises the dangers of allowing a third party to administer a scheme without the correct checks and balances being in place. From various reports, it appears that the development first started having problems when the complex was converted to a sectional title scheme.

Badly managed from the outset by the various trustees appointed by the owners at the time, the scheme soon started to run into trouble. This, coupled with allegations of corruption, left homeowners high and dry and faced with mounting debts. According to one resident, 25 families have already lost their homes and many others have been forced to move out because of the arrears.

At this stage, the homeowners are responsible for the repayment of a R3-million loan raised to cover an outstanding amount owed to the eThekweni Municipality for outstanding rates to the tune of R1.6-million. While it isn’t clear why such a large loan was required, it is not the only headache that homeowners now face. In addition, residents also have to pay a special levy, an insolvency levy, a water meter levy, a loan levy and a painting levy as well as the normal monthly levy of R672.50.

Although extreme, the above example clearly indicates what can happen when sectional title schemes are not well managed. Unfortunately, given that many sectional title complexes are undoubtedly feeling the pinch, there are bound to be instances where the powers that be appoint a managing agent who, although he promises the world for less, is not actually up to the task of managing this somewhat complex area of property ownership.

Pinching pennies and mowing the lawn yourself is one thing, giving someone carte blanche over the scheme’s financial affairs without monitoring the situation on a continuous basis could well prove to be financial suicide.

Before appointing a managing agent, trustees should consider the following:

• It is vital to establish that the managing agent is registered with the Estate Agency Affairs Board (EAAB). Although not a compulsory body, most credible managing agents are members of the National Association of Managing Agents (NAMA).

• The scheme should receive a mandate from the managing agent clearly stating what duties will be performed.

• It is essential that each and every body corporate receive annual financials as well as a report from the appointed auditor of the scheme.

Although the Sectional Title Act is an extremely complex area of law, common sense plays an enormous role in sectional title living. Things should never be taken at face value and if any trustee or homeowner is unhappy or uncertain of the facts they should delve a little deeper to ensure that all is well within the scheme.

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