When moving into a new Sectional Title (ST) scheme, owners automatically become members of the Body Corporate, and will need to make decisions about how the estate is to be managed. This can be somewhat confusing, especially if you have no understanding of the Acts governing ST schemes and the administrative work involved.
In this QnA, Andrew Schaefer, MD of leading property management company Trafalgar, advises on the steps that should be followed and provides advice on the appointment of a managing agent (MA).
Q1: At what point does a developer hand over a sectional title development to the Body Corporate?
The Body Corporate (BC) comes into existence on the date of the first transfer of a unit from the developer to another owner. The developer, however, remains the chairperson of the BC until the first General Meeting (the Inaugural Meeting). The physical handover of documents happens at this meeting where new Trustees are elected. So, between the time of the first transfer, which establishes the BC, and the Inaugural Meeting, all owners in the scheme are legally deemed to be Trustees.
Q2: How does a Body Corporate appoint Trustees and, importantly, who then makes the decision to appoint a managing agent/agency?
It is only after the election of Trustees at the Inaugural Meeting that a decision is made to appoint a managing agent (MA). It is also possible for the developer to appoint a MA before the establishment of the BC (first transfer) and then cede the contract to the BC at the Inaugural Meeting. This means the MA can assist the developer with setting up the initial budget and calling the Inaugural Meeting. The owners of at least 25% of the participation quotas can - by way of petition - also request the Trustees at any time to call a meeting to discuss and vote on appointing a MA.
Q3: Are Trustees required to have the MA quotes approved by the Body Corporate?
The Trustees do not have to approach the owners/ members of the BC for approval of a quote from a MA as long as they stay within the budget. However, they do have to consult the owners if they are appointing the MA after the Inaugural Meeting and need to approve a new budget to allow for the fees of the MA.
Q4: How should the Trustees check the credibility of the agent/agency?
They must ensure that the MA has a valid Fidelity Fund Certificate (FFC) from the Property Practitioners Regulation Authority (PPRA).
Respectable MAs are also members of the National Association of Managing Agents, and even though it is not a legal requirement in regard to their appointment, it indicates they are committed to adhering to a written Code of Conduct.
To be able to collect levies, the MA must also be registered at the Council for Debt Collectors.
Trustees should not opt for the MA that charges the lowest management fee; they need to ensure they understand what services they receive for the fee. I also recommend that Trustees ask for references from other schemes the MA manages. A track record is vital in determining the service you will get.
Q5: What are the tasks that the agent/agency undertakes?
These can be split into three categories:
Administrative management:
- Record keeping.
- Meetings.
- Assisting with rules and rule enforcement.
- Assisting with Community Schemes Ombud Service (CSOS) functions.
- Advising the Trustees on the requirements of the Sectional Titles Schemes Management (STSM) Act.
- Human Resources (HR) functions, usually charged separately.
Financial management:
- Assisting with the setup of the budget.
- Collecting the income.
- Paying expenses (with approval from the Trustees).
- Assisting with managing ‘actual’ to ‘budget’ comparisons.
- Assisting with the annual audits.
Facilities management:
- Assisting with maintenance issues.
- Assisting with insurance claims.
- Assisting with the required insurance valuation (every three years).
- Assisting with devising a 10-year maintenance plan.
Q6: Who is responsible for advising the MA of any change of ownership of units?
When the ST scheme is a new development, the MA usually makes contact with the developer’s conveyancing attorney to request ongoing information about new transfers. In an established BC, it is the owner’s (seller’s) responsibility to have the conveyancing attorney contact the MA and request a levy clearance certificate so that the unit can be transferred to a new owner.
Q7: What contribution does the MA make towards the presentation of annual financial figures?
The MA basically keeps the financial records of the BC (the books of account) and should provide monthly financial reports to the Trustees showing the income and expenses for the month and also the performance of the actual versus budgeted figures. This helps to ensure that the year-end audit is easier, as questions regarding the financials have already been asked and answered during the year.
At year-end, the MA collates the books of account and hands these to the auditors appointed by the BC to prepare the financial statements. Once these have been finalised and approved by the Trustees, the MA can assist the Trustees to present the financials to the owners at the AGM.
Q8: Why should a MA be appointed, even in a small ST scheme?
There is nothing in the Sectional Titles Act or STSM Act to stipulate that a MA MUST be appointed. It is, however, very difficult for most schemes to find an alternative with the knowledge and experience of a good MA that is willing to fulfil that role without compensation.
Trustees usually have regular 9-5 jobs and are only able to attend to their trustee duties and meetings after hours. Appointing a MA helps the Trustees to execute their functions and provides the scheme with a professional administrative, financial and governance service.
*. Trafalgar currently has more than 90 000 residential properties worth more than R100-billion under management in more than 1 400 community housing schemes in SA.
