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

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.

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