Turning a bad building around

Private Property South Africa
Michael Bauer

It sometimes happens that sectional title buildings encounter problems of mismanagement and become run down, even possibly unsafe in some cases and where the trustees have not taken due care of the management of the building. It sometimes even happens that the managing agent or administrator has not been effective in managing the scheme.

As a result, these schemes then become insolvent and no one is able to sell their units because banks will not grant mortgage loans for an apartment in an insolvent scheme.

Trustees then have to take control of the finances in cases such as these and hire an experienced, diligent managing agent who knows what to do to sort out the mismanagement of the finances and work out a plan of action. The scheme must not get to the point of being handed over to administrators. The first thing to do is hire a managing agent who is capable of working with the trustees to turn the management of the building and finances around.

Secondly, they would have to have a careful look at the debtors’ book and determine how much is in arrears and at what rate levies are being paid. Often, most people are prepared to pay their levies but when the scheme is mismanaged and things such as broken gates, graffiti on walls or lifts that do not work properly creep in, the residents, rightly, will be unhappy to pay each month if nothing is being done to remedy these problems.

Trustees must then meet with the owners regularly and state clearly what the plan of action will be and execute it visibly. Of utmost importance in all sectional title schemes is that the body corporate has its own bank account so that owners know that their levies can be accounted for and are controlled by the trustees. Managing agents should not have one bank account for many schemes. Trustees and owners should be able to see what the actual income and expenditure of their scheme is.

The next step for the trustees would be to assess what is owed to creditors and work out a plan of action to pay any arrears. Negotiate with creditors if necessary to pay back over time once you know what the income will be. If the payment rate is under 50%, this needs to be sorted out as a matter of urgency.

Ultimately the leadership in the management of sectional title schemes must come from the trustees who are not afraid of making tough decisions. Managing agents will carry out the decisions taken by the trustees and bring the finances and maintenance back on track but they are not owners or direct stakeholders in the building so need the active participation and control to come from the trustees.

It can sometimes be a long process in getting a building back to the point of being resalable, liveable and safe for the residents but experience has shown that, depending on how quickly the trustees act, the turnaround of the scheme can take 16 to 24 months.

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