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Trustees – non-professional, but will be liable if they act wrongly

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In many countries the people who look after “sectional title” units must be professional management companies, known as executive managers in our Sectional Titles Schemes Management Act (STSMA).

These management companies are responsible for running body corporate schemes, setting the levies, long-term maintenance funds and so on.

Unfortunately, here in South Africa we have trustees who are elected by owners to supervise the day-to-day running of sectional title schemes.

They can decide to use a managing agent if they want, or not.

Managing agents are only allowed to do what trustees allow them to.

The problem is that trustees are simply elected at an annual general meeting, often without the person making the selection of trustees knowing anything about them as individuals.

There is no requirement that they should have particular skills or that they take any training courses on being trustees.

The STSMA is complicated, convoluted, legalistic and quite difficult even for professional property managers to fully comprehend, never mind applying. 

The result can be devastating to property owners.

Some trustees understand their limitations and employ the services of quality managing agents.

As Platinum Global, we have numerous management contracts that we have been running for several decades.

Some trustees want to do things “their way or no way”. 

Some managing agents are highly capable of running a scheme well on behalf of the owners while others “dabble” in property management.

Trustees are expected to have a fiduciary relationship with the schemes that elect them.

This technical term really means that they must do everything to the benefit of the building or complex and not themselves.

They may not be involved in or be part of a meeting at which they have a personal interest in the subject matter being discussed.

They may not, for example, quote to do work at a building or complex they are responsible for because they will receive a benefit either directly or indirectly.

Also, they cannot chase owners who have not paid levy, but not chase themselves for not paying levy too.

Trustees can have a huge influence on how a building or complex is run.

For example, trustees may want to keep levies as low as possible because they want to maximise their net income from rental.

As a result, there is no saving for future maintenance.

With the current COVID-19 restrictions, schemes whose levies were set at proper levels have been able to survive well, but those that had minimal levies are really battling because some owners are not paying and they have no reserves to fall back on.

Trustees are indemnified against errors and mistakes that they make.

For example, if they allow somebody to make alterations to their unit without permission they cannot be sued for damages by the new owner that must rectify that situation.

However, this does not cover them from gross negligence, defined as serious errors that anyone would have seen that it was wrong or where they have deliberately done something when they knew it was wrong, such as buying a car for the complex when the owners have told them not to.

In such instances, they can be sued in their personal capacities for any losses suffered by the body corporate.

A good example of this is a recent case where we were advising an owner in a complex.

The Act says that levies are based on the size of each unit or the PQ, but in this case they were running different parts of the building as separate schemes, which is clearly unlawful.

Now that it’s been brought to the attention of the trustees, they clearly can be held responsible for any shortfall.

They have however refused to give financial information to the owner after a request from him, again clearly contrary to the Act.

And because these trustees are acting in bad faith or mala fide, in legal terms, they are now personally liable for any costs involved when the owner sues the body corporate to rectify the situation.

Trustees would do well to read and understand the STSMA so that they don’t get themselves into a difficult position.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

Property

City properties need a touch-up to remain attractive

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DILAPIDATED PROPERTIES . . . Older buildings built before the 1980s are in many cases in need of major upgrades

It is apparent that there are more and more buildings, especially in Bloemfontein’s central areas, that are standing vacant and are in a very poor state of repair.

Why is this?

Some of these properties are commercial properties and all buildings have a life cycle.

When new they are effective and efficient but they age physically and socially over the years.

A modern office building is designed very differently from the one that was built in the 1930s.

Young people probably won’t understand how different the working environment was just 30-40 years ago.

At that time there were no computers, no photo copy machines, no fax machines and no cellphones.

Everything was manual – making copies was done by adding extra pages into a manual typewriter with carbon paper inbetween.

Transportation was also very different.

Yes, there were cars but most people did not have one and travelled to work by public transport.

Thus, buildings had little or no parking.

The old UBS building on the corner of Hoffman Square and the mall in Bloemfontein is a 6000-square-metre six-storey building with only 20 basement parking bays.

The Cuthbert’s building opposite has none!

Such buildings have no attraction to modern businesses and are relegated to third-class status.

Having lower incomes, they are marginal properties that are not well maintained and, in many cases, do not generate any net profit income at all.

No wonder they are in the condition that they are in, especially as they can only attract the lowest and poorest class of tenant.

In reality many areas in town should be demolished and regenerated as modern areas to attract business back.

Having said that, the lack of control and enforcement of rules and regulations by council is to blame for many of the woes of city properties.

How can an active council allow buildings to stand in a semi-demolished condition without chasing the owner to fix them up?

Uncollected rubbish, unfixed lights and robots and potholes all tend to diminish the desirability of an area, resulting in lower rentals and a greater problem of deteriorated buildings.

We are now seeing similar problems with some residential buildings.

This is not usually in single residential buildings as when the area gets cheap enough, there appears a type of buyer that can afford to buy up these dilapidated buildings and improve them.

Wilgehof is a great example of this happening.

Built in the 1950s by the Department of Community Development, it used to be an area for poor people but because of its central position and new developments such as Saratoga, the area has grown in stature and improved immensely in condition.

This cannot be said of other areas such as Willows, where lawlessness is rife because of lack of enforcement by the metro.

This is one of the least safe areas in the city and nearly all the family occupants have moved away.

Sectional title legislation also has not made it easy to maintain some older sectional title blocks.

These are community living units with multiple owners.

Older buildings built before the 1980s are in many cases in need of major upgrades, including rewiring and modern electrical connections as well as replumbing of old rusted piping.

But owners have different reasons for owning these properties and there are often conflicts of interest.

One owner living there wants the building to be maintained to a high standard while a landlord owner is looking at the return he obtains and wants the levies as low as possible.

Most owners object to what is perceived as high levies which are necessary to collect enough reserves to be able to tackle these problems resulting in a continuous deterioration in the condition of these buildings.

Current law that makes it near impossible to chase owners who do not pay levies and tenants that do not pay rental and service fees just makes the situation worse.

Again, the difficulty in getting rid of bad tenants such as drug pushers kills most of these buildings.

The current state of the economy does little to make things better.

The high level of rates and taxes and lack of services tends to make it unprofitable for landlords and COVID-19 has reduced the demand for commercial properties.

Theft and vandalism in vacant buildings is a major problem that, combined with low demand, has resulted in many dilapidated buildings around town.

There is no easy solution but it would help if much of the red tape and bias was removed from the property industry.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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Property

Brain drain threatens property industry

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SECTOR NOT SPARED . . . South Africa is losing potential property buyers through emigration

South Africa is faced with a potentially damaging brain involving both newly qualified and experienced professionals across different disciplines.

I will not limit this topic to professionals in the property industry only because whatever happens in one sector has a direct impact on all matters property.

I will explain briefly: if a teacher, medical doctor, artisan or engineer decide to seek greener pastures abroad, it means the property sector has lost some potential customers who were either going to rent at some point or buy their own property.

Of course, some might decide to invest back home, but that possibility is not always guaranteed.

We have also seen professionals in the property industry such as architects, estate agents and quantity surveyors leaving the country, thereby directly impacting on the work done in the sector.

Practically, every time the economy gets tough it is natural for skilled professionals to look for more active areas to live and work in.

This might mean moving to the Cape from the interior because it is perceived that the government of these areas is better as are the opportunities for these professionals.

Artificial barriers to employment for these professionals can result in them seeing opportunities overseas that are not available to them here.

This is what is happening now, and has been happening for some time.

Highly skilled professionals are moving overseas in the search of better opportunities.

Typical of this would be my son who has an accounting degree and another one in internal auditing.

He is a determined and hard-working professional.

Notwithstanding that he can be seen as being at the top of his profession, he found himself being bypassed by less qualified and experienced people here.

The result was that he was required to do the job for his boss.

He eventually went overseas and has gained far higher and well-paid positions because of his abilities – at a total loss to the South African economy.

This is happening in every sphere of professionalism here, especially among the younger family generation.

Political interference, such as state capture, is also resulting in highly qualified black professionals seeing their future overseas.

America and Europe as well as Australia and New Zealand welcome these well-trained and ambitious people with open arms.

They are seen as hard working and innovative people.

It is amazing how many of these South Africans rise to the top of their professions.

Just think how much Elon Musk would have contributed working in South Africa today.

How can this emigration be stopped?

The answer is simple: just make it attractive for these people to stay.

Get rid of the Broad-Based Black Economic Empowerment and allow promotion on merit.

How can you select doctors on colour and not on their academic results?

Taking a person with C grades against one with A grades just does not make sense.

We need to do away with biased allocation of tenders – get rid of racial undertones and appoint people on their ability to do the job.

A huge problem is going to occur is when the current older generation of professionals retire.

Few new property valuers are coming through because it is a profession that requires a high level of understanding of building processes and detailed comparisons of past data.

Schooling is simply not orientated towards creating administrators and professionals and South Africa is going to see a dearth of professionals over the next few years.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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Property

Thoroughly inspect the property before buying

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I recently wrote about the new law making it compulsory for sellers to make a declaration about the condition of the property they are putting on the market so that the buyer is fully aware of its condition including faults that may need to be fixed.

I am told there is a Gauteng family that bought a house at an auction only to find it occupied by “illegal tenants” who did not want to move out.

I have been asked discuss how this can be avoided or addressed.

My advice is simple: sellers should declare what they know about the property and they should draw up a contract that makes it clear that the buyer is buying a property that he/she has seen and done the necessary investigations on their own.

The new law regarding seller declarations has only just come into force and it’s not surprising some people could be facing challenges when buying property and don’t know how the new law could assist them.

To begin with, the new law means that the seller is required to declare any faults or condition of the building that is being sold or those that he should reasonably be aware of.

Remember sellers seldom have the skills necessary to know whether or not there were, for example, problems with the foundations unless these had caused problems in the past.

In my opinion, this is yet another piece of legislation that gives more rights to purchasers than they should have.

While I am happy that sellers should indicate any serious problems that they were aware of or should have been aware of, it should also be a requirement that a buyer should understand that they are not buying a new property and should take reasonable care to know what they are buying.

This includes the physical state of the building and anything else that could be going on at the property.

It has always been the case that a seller could never deliberately hide problems – for example, cover over serious dampness with a bookcase or not let a buyer know about roof leaks.

But, in my opinion, it is simply making it more difficult to contract freely.

On the other hand, buyers should carefully look at properties that they are considering buying.

Nobody can expect them to climb into roof spaces and again buyers cannot be considered experts in buildings.

Normally serious problems would be visible from the inside or outside of a property.

Both sellers and buyers should look carefully to see that water flows properly and that there are no serious problems with the building on the market.

They should also remember that not every small defect is a problem.

I have lived in my house for over 45 years.

Is it perfect?

No.

But those small problems – little cracks or a solar system that trips if there is especially heavy rain are not serious problems.

Bottom line: one is buying a second-hand product and not a new one.

It is therefore important to thoroughly inspect it and be sure about its availability before entering into or concluding any purchase agreement.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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