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.