This article will focus on the role played by the Community Schemes Ombud Service (“the Service”) in regulating, monitoring and controlling community scheme governance documentation.
In terms of section 4(1)(c) of the CSOS Act, one of the functions that the Service must fulfill is to regulate, monitor and control the quality of all sectional titles scheme governance documentation.
On 1 August 2018 the Chief Ombud issued a circular No. 1 of 2018 entitled “Lodgement of sectional titles schemes rules in terms of the STSMA”. The objective of the circular was to provide operational guidelines and clarity of the procedure for the lodgement of rules with the Service for approval.
The circular provides useful information on the procedure to be followed when lodging rules, the quality assurance measures that the Service will take to ensure that the scheme rules are fair and reasonable and it lists a number of “undesirable rules” which the Service has identified.
While we have a number of concerns regarding the legality and correctness of some of the statements contained in this circular, we believe that one statement in particular deserves further scrutiny. The statement is contained in clause 5.1.2 of the circular and reads as follows:
“CSOS will conduct quality assurance on the schemes governance documentation received and recommend any amendments, if necessary. There will be no need for the body corporate to table the amendments suggested by CSOS in any governance structure for approval. The suggested amendments must be effected and the corrected documentation be submitted to CSOS for final quality assurance before approval.”
This statement suggests that the Service has the power to grant authority to a body corporate to make amendments to its rules without following the necessary approval process outlined in section 10(2)(a) & (b) of the Sectional Titles Schemes Management Act (STSM Act).
A number of our clients have reported that this practice is currently being applied by the Service during the quality assurance process. We have been asked to confirm whether or not the Service is correct in saying that bodies corporate have the authority to automatically implement suggested amendments, without the need to follow due process.
We advise our clients that we are of the view that neither the STSM Act nor the CSOS Act contain provisions which override or relax the requirement for bodies corporate to pass the necessary resolutions to implement amendments to their management or conduct rules and trustees should treat such a request with caution.
On a separate but related note we have received a number of queries from homeowners associations on whether or not the Service has the authority to regulate, monitor and control the quality of their governance documentation.
It is important for the executives of homeowners associations to understand that the Service’s functions in terms of section 4(1)(c) of the CSOS Act only relate to “sectional titles scheme governance documentation” at this stage, however the Minister is entitled to issue a notice in the Gazette if she wishes to extend this function to other types of community schemes. As at the date of publication of this article, no such notice has been issued and therefore the Service only has the authority to regulate the governance documentation of sectional titles schemes.
Should you require advice on how to legally incorporate proposed amendments into your scheme’s management or conduct rules, please don’t hesitate to contact our consulting department at firstname.lastname@example.org for a no-obligation quote to provide the necessary legal assistance.
Article reference: Paddocks Press: Volume 14, Issue 08.
Specialist Community Scheme Attorney (LLB, LLM), Auren Freitas dos Santos, has previously been a Portfolio Manager and a Legal & Compliance Officer of a large managing agency.
This article is published under the Creative Commons Attribution license.