By Dr Gerhard Jooste

Over the years Managing Agents have developed two basic ways in which they manage the trust money of their clients. Some have created individual current accounts for each client and others have a central current account into which all monies are deposited. The question that we ask in this article is: what are the legal requirements in South Africa pertaining to the keeping of trust monies by a Managing Agent, and are the abovementioned practices in accordance with these requirements?

Managing Agents are defined as Estate Agents

The first important point to understand in this regard is that since 1981 Managing Agents that collect or receive levies for a Body Corporate or a Share Block Company have been defined as Estate Agents. Accordingly the Estate Agency Affairs Act (EAAA) applies to Managing Agents and a Managing Agent is obliged to possess a valid Fidelity Fund Certificate in order to act as a Managing Agent. It also means that Managing Agents must manage trust monies in accordance with the stipulations of the EAAA.

What are Trust Monies?

The EAAA defines Trust Monies as “money or other property entrusted to an estate agent in his or her capacity as an estate agent”. Managing Agents often argue that if monies are deposited directly into a client’s account they are not ‘collecting or receiving’ trust monies and need not adhere to the EAAA. However Prof Henk Delport thoroughly analysed the meaning of the word “collect” in an article in 2004 and came to the conclusion that the EAAA uses the word ‘collect’ in both its narrower and wider meaning and the wider meaning he defined as “the steps routinely taken to gather payment from persons normally willing to pay, such as sending invoices, reminder letters, etc”. From this it is clear that a Managing Agent can hardly argue that he/she falls outside the sphere of the EAAA.

The Estate Agency Affairs Act requirements

What does the EAAA stipulate in relation to trust money? Sections 29 and 32 are the most important sections in this regard. Section 29 obliges a Managing Agent to keep a record of all trust money received and to ensure that an audit is done. This audit must be done within four months after the financial year end of the Managing Agent. The point that Managing Agents and their auditors often miss is that all trust monies, whether in an individual account (for the Body Corporate only) or in a collective account, must form part of the audit report of the Managing Agent, and the Auditor of the Managing Agent must report to the Estate Agency Affairs Board (EAAB) on all trust monies.

Section 32 obliges a Managing Agent to open a trust account or accounts with a bank. All monies received on behalf of clients must be deposited into such current account or accounts forthwith. Only after the monies have been deposited into this (subsection (1)) current account may it be transferred to a (subsection (2)) savings or interest bearing account. Both the abovementioned accounts must be in the name of the Managing Agent and must bear reference to section 32(1) or (2) (as the case may be) of the Act. Every account must be reconciled every 30 days. In practical terms a Managing Agent can open one trust account for all his clients collectively or separate trust accounts for each of his clients. Whichever the Managing Agent chooses, both accounts or groups of accounts are trust accounts, and must be in the name of the Managing Agent and contain a reference to the Act.

It is of interest that the Managing Agent is required to notify the EAAB forthwith of the details of the current account (Bank name and account numbers). There is no such requirement for the savings or interest-bearing accounts. This is probably the case because trust funds may not be deposited directly into a savings account. To clarify matters further the EAAB stated in 2004 in a letter to NAMA that trustees may not have signing powers on the trust accounts of Managing Agents and neither may Managing Agents have signing powers on the accounts of the Bodies Corporate. This is interpreted as the intention of the Act to distinguish clearly between, and separate, the powers and control of the Trustees and the Managing Agents.

The Sectional Title Act and Management Rules

Quite often Trustees and Managing Agents argue that the Prescribed Management Rules (PMR) 41 to 44 in the Sectional Title Act provide for more options when handling the monies of the Body Corporate. PMR 41 instructs the Trustees to deposit all monies in a bank account of the Body Corporate. PMR 42 then makes the proviso that the Trustees may authorise a Managing Agent ‘to administer and operate’ these accounts of the Body Corporate. It further provides that the trustees may authorise the Managing Agent to deposit the monies in a trust account in terms of the EAAA. It leaves the impression that the Trustees have the option to instruct the Managing Agent to either manage their funds on their own account or alternatively on the trust account of the Managing Agent. However, although the Management Rules provide two options, the EAAA closes down one of the options for Managing Agents and leaves us only with one option namely: to receive and manage trust funds on a trust account.

Conclusion

Managing Agents may open one trust account for all their clients or a separate trust account for each client. All these accounts must be opened according to the requirements of section 32(1) of the EAAA. All these accounts must be included in the report that the auditor of the Managing Agent send to the EAAB annually.

This article is published under the Creative Commons Attribution license.

5 Comments.

  • Kgomotso Mmekwa
    14/06/2016 21:08

    LAW firm deducts legal costs from BC account.

    I am concerned about the law firm which handles our sequestrations for outstanding levies. The firm has over a period of two years been submitting legal costs invoices directly to the BC, the managing agent pays these invoices without providing progress updates.

    – Is it procedurally / legally fair for these legal costs to be paid from the BC account or should the law firm demand
    payments directly from the affected owners who are in arrears for levy?

    if there are laws / regulations which govern or prohibits the above,, please advise accordingly

    The payments are taking a huge strain on the BC cashflow, why should compliant owners be made to pay for those not honouring their sectional title responsibilities.

    NB: Edit my grammar.

    • Paddocks
      27/06/2016 16:26

      Hi Kgomotso,

      In terms of Prescribed Management Rule 31(5) of Annexure 8 of the Regulations to the Sectional Titles Act 95 of 1986, the body corporate is empowered to recover all legal fees and other charges incurred in the recovery of arrear levy collection. In this regard, the body corporate settles the attorney’s fees and recovers it from the relevant owner either on the levy statement or via a costs order.

      Thanks,
      Paddocks

  • Hi.. Monies was deposited into a trust account and the estate agent was able to access it and used all the money.. And is now refusing or delaying paying money back its been over a year now.. The lawyers which held the account said he will pay in instalments but nothing yet.. Is this theft.. How to proceed

  • hi How do we deal with the recovery of levies if the unit is owned by a trust fund?

    • Paddocks
      14/06/2018 08:24

      Hi Kay,

      Thank you for your comment. We would love to help but unfortunately do not give free advice. Here’s how we can help:
      – We offer a Free Basics of Sectional Title 1-week short course. You’ll be able to ask your course instructor any related questions. Find out more here.
      – We offer consulting via telephone for R490 for 10 minutes. Please call us on +27 21 686 3950.
      – We have Paddocks Club, an exclusive online club, to help you get answers to your questions about community schemes. Find out more here.

      Kind regards
      Paddocks