By Clint Riddin  

Clint RiddinOne of the recent amendments to the prescribed management rules made under the Sectional Titles Act has not generated the debate that I thought it should have.

The rule in question is PMR 36 (1), which now reads as follows:

36. (1) Prior to the commencement of every financial year of the body corporate, the trustees shall cause to be prepared an itemised estimate of the anticipated income and expenses of the body corporate for the ensuing financial year, which estimate shall be laid before the annual general meeting for consideration in terms of rule 56 hereof.

The old rule 3. (1) read as follows:

36. (1) Before every annual general meeting, the trustees shall cause to be prepared an itemized estimate of the anticipated income and expenses of the body corporate during the ensuing financial year, which estimate shall be laid before the annual general meeting for consideration in terms of rule 56 hereof.

It would seem then that the budget must now be prepared and be in the format that would be submitted to the annual general meeting for consideration prior to the start of the financial year; so where a scheme has a February 2013 financial year end, this would suggest that the budget must be prepared prior to March 2012.

This, read in conjunction with PMR 31(4A), would suggest that the intention is to make certain that trustees are given the tools to ensure that the scheme has the financial resources to run effectively:

31 (4A) After the expiry of a financial year and until they become liable for contributions in respect of the ensuing financial year, owners are liable for contributions in the same amounts and payable in the same instalments as were due and payable by them during the expired financial year: provided that the trustees may, if they consider it necessary and by written notice to the owners, increase the contributions due by the owners by a maximum of 10 per cent to take account of the anticipated increased liabilities of the body corporate.

Yet another amendment – the insertion of a new rule, PMR 31(2A) – further strengthens this view. The newly inserted rule reads as follows:

31(2A) Where the financial year-end and the annual general meeting of a body corporate do not coincide, the budget shall coincide with the financial year of the scheme.

This may seem obvious, but over time, and to cater for the need to have the budget approved at annual general meetings, a practice started to develop where budget years ran from one month just after the anticipated annual general meeting. Taking our earlier March to February example; if the annual general meeting was planned for June, to be within the four-month requirement, the budget year would become July to June. The above amendment has now made it clear that this approach is wrong.

It has long been a recognised need in sectional title financial practice to have the levies set at the level necessary to meet the operating and financial needs of the body corporate, for the budget year and financial year to be the same and the new levies to be in place from day one. The above now gives effect to this, unless the new levy is more than 10% higher than the previous year’s levy. Even this should be looked at; trustees are elected to run the scheme and have the power of raising special levies – why not the power to set the levy from day one, irrespective of the required increase? The annual general meeting agenda item can still remain and allow the owners a form of oversight where necessary.

The trustees stand in a fiduciary relationship to the body corporate and so their actions must be in the best interest of the scheme. Where this is proved not to be the case, they can be held to account, so the risk to section owners is minimal and the benefit to the scheme great, as the trustees have one of the most important tools to run the scheme effectively.

 
Article reference: Paddocks Press: Volume 6, Issue 12, Page 2

Clint Riddin of Clint Riddin & Associates is a sectional title accountant specialised in accounting, income tax and secretarial services to bodies corporate.

3 Comments.

  • Kobus Pienaar
    23/10/2017 14:31

    2. All requested to sign attendance register
    2.1 2.1 Quorum present, all agreed that there is a quorum and decisions would be binding.
    2.2 2.2 No objections from floor as to a quorum not being present.
    2.3 2.3 Bertie has all proxy votes – all welcome to inspect and check with him
    2.4 Possible issue – Neil Ah Tow didn’t indicate anything on forms – spoilt ballot11. Annual levy:
    11.1 Increase in annual levy proposed at R2800 per annum. Reduction of R200 if full payment made by 1st
    November 2017
    11.2 Counter proposal from Lloyd to increase the amount to R 3600 per annum so we have additional
    money to do things
    11.3 Basic running costs of HOA equates to R1800 per annum per member
    11.4 Only capex put in for forwarding year is road repair
    Quotations can be seen by any member – request from board
    11.5 Proxy Votes received for proposed levy of R2800 per member per annum, noted as follows:
    Proxy votes: (total 10, 8 for motion, 2 against)
    11.6 Vote on proposed R3600 levy
    • 18 Votes for R3600
    Proxies are for R2800
    8 votes for R2800
    • 6 votes for R2800 from floor
    • 18 votes for R3600 and 14 for R2800
    An annual levy of R3600 is passed
    Is This Legal????

  • Pravin Gopichand
    08/08/2018 15:08

    Please, could you clarify the above position in today’s STSMA context?
    For eg. the FYE is Feb 2018, The AGM held in Aug 2018 and percentage levy increase is recorded at 6%. Notice to pay increased levy effective date 1st October 2018.
    In the above example, seven months the financial year has expired and only five months left for the financial yera to Feb 2019. Can the 6% increase be back-dated to 1st March 2018 or does it commence from 1st October until the next AGM which probably be after June 2019?
    Thank You

    • Paddocks
      17/08/2018 08:58

      Hi Pravin,

      Thank you for your comment. We would love to help, however we do not give free advice. Here’s how we can help:

      – We offer a 1-week Free Basics of Sectional Title short course.
      – We offer consulting via telephone for R490 for 10 minutes. Please call us on 021 686 3950.
      – We have Paddocks Club, an exclusive online club, to help you get answers to your questions about community schemes.

      Kind regards,
      Paddocks