With the impending publication of Sectional Title Scheme Management and Community Scheme Ombud Service Bills for public comment, the issue of regulation of the managing agency profession has come sharply into focus.

Prof_Graham_PaddockIn this article I examine the existing position and the suggestion made by Dr. Gerhard Jooste, a leading managing agent, that it would be most suitable for the Community Scheme Ombud Service (“CSOS” and “the Service”)  to take over the regulation of managing agency from the Estate Agency Affairs Board.


Scope and history of managing agency

Specialist managing agency is a relatively recent field of endeavour in South Africa. The concept of property management, also known as facilities management, is by no means new, but until the 1980s firms of specialist property managers tended to act for individual property owners, dealing with the day-to-day management of buildings and letting portfolios for individual and corporate clients. Most share block schemes (now regulated by the Share Blocks Control Act 59 of 1980) were managed by firms of accountants.

With the rapid increase in the number of sectional title schemes in the 1980s, a new market niche appeared. The conversion of many older buildings to sectional title tenure and the substantial number of new developments that are developed as schemes or homeowner associations has continually increased the need for specialist managing agency services ever since.

When one considers the range of “community schemes” as that term is defined in the Community Scheme Ombud Service Bill (“the CSOS Bill”), they all require either volunteer or professional management services. They are obliged to manage themselves in accordance with their various governance provisions and they must collect levies from their members for this purpose. The various types include:

  1. sectional title schemes;
  2. share block schemes;
  3. group and cluster housing schemes (often referred to as “gated villages”) controlled by homeowners associations; and
  4. city and residential improvement districts (created under provincial legislation or  local authority by-laws) that operate various security and other para-municipal services within a neighbourhood.

Retirement housing schemes (regulated by the Housing Development Schemes for Retired Persons Act 65 of 1988) are also community schemes, but most of them are operated by their original developers and do not require the services of independent managing agents.

“Adoption” of managing agents by the EAAB

There is no law that specifically regulates the managing agency industry.  When it became clear to the government that this new industry was entrusted with very large amounts of housing consumer money, that these funds were at risk and the industry needed regulation, the Minister of Trade and Industry decided that most pressing concern was to provide some form of insurance against theft of these funds.

Because the estate agency industry had for some time been regulated by the Estate Agency Affairs Board (“EAAB”), which operated a suitable insurance programme in the form of its Fidelity Fund,  he issued a notice declaring that “collecting or receiving moneys” due to a body corporate or share block company or developer was an “estate agency service”. In this way managing agents became “estate agents”, they became obliged to keep their clients’ money in trust accounts and any money stolen from these accounts was covered by the EAAB’s Fidelity Fund.

Problem solved? – Not from the Managing Agents’ perspective!

While the Minister’s declaration that managing agents were estate agents provided insurance cover for their clients, in fact it made no sense for the profession. The Estate Agency Affairs Act, No. 112 of 1976 is intended to regulate the business activities of persons who directly or indirectly assist clients to sell, buy and rent immovable property.  No part of this Act, its regulations or the Code of Conduct applicable to estate agents under its provisions deals with the activities of managing agents. The EAAB’s jurisdiction over managing agents extends only to their levy collection activities, not the wide range of administrative, legal and financial services they render. So the result is that the public is protected against theft of monies from managing agents’ trust accounts, but managing agency remains largely unregulated.

The managing agency profession has lobbied to have the EAAB’s supervisory role extended to cover other managing agency functions, but no progress has been made in this regard. The EAAB initially suggested that managing agents should form a national association with voluntary membership. The National Association of Managing Agents (“NAMA”) was accordingly formed and it presented  a Code of Conduct designed for managing agents to the EAAB in October 2003. Despite two or three meetings per year ever since and positive verbal feedback, neither the Department of Trade and Industry nor the EAAB has taken any visible steps to recognise managing agents as a separate category of estate agents or to regulate their activities.

Managing agents pay to the EAAB a registration fee for each managing agency business and for each of the principals involved in that business to whom it issues Fidelity Fund Certificates. Portfolio managers remain unregistered. Managing agency businesses also pay the EAAB one half of the interest that accrues on monies in their trust accounts and is not claimed by their clients.

Implementation of the suggestion – not a problem

The question has been raised whether the CSOS is an appropriate body to regulate managing agents. In my opinion the Service would be the most suitable body to perform this function. It is already contemplated that the Service will have jurisdiction to rule on various aspects of managing agency, and it will have the capacity to investigate and deal with complaints against managing agents in the fair and transparent manner it will deal with all other community scheme disputes.  This is by no means a conventional “ombudsman” office. The CSOS will have the power to approve Codes of Conduct relevant to community scheme service providers, so the concept that the Service would register managing agents, arrange for their fidelity insurance and investigate complaints against them as well as disputes in regard to their services is not a major expansion of the currently envisaged scope of Service activities. In my view it is a very sensible suggestion, not because the EAAB is incapable of doing the job but because the EAAB is not fundamentally suited to doing the job and the CSOS is!

Conclusion

If you agree with Dr. Gerhard Jooste’s suggestion that the CSOS should regulate the conduct of managing agents who serve community schemes, as I do, you can say so in your comments on the Community Scheme Ombud Service Bill when – in the next few weeks –  this is published for public comment.

Managing agency under the Sectional Titles Act:

The Sectional Titles Act makes no mention of managing agency at all. But in terms of section 38 it does give a sectional title body corporate the power to appoint such employees and agents as it requires and to delegate its responsibilities.

The prescribed or model Management Rules do make specific provisions for the employment of managing agents, specify various provisions that must form part of the managing agent’s contract and include various other provisions that deal with managing agents. But no provision in or under this Act regulates the conduct of managing agents.

Article reference: Volume 4, Issue 10, Page 1.

This article is published under the Creative Commons Attribution license.  

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