Executive Term Limits in Community Schemes: Legal and Practical Considerations
By Professor Graham Paddock
Term limits for executive management – Trustees or Directors in non-profit Homeowners’ Associations (HOAs) and Sectional Title Schemes (STSs) – have become a significant discussion point in modern community scheme governance. While there is no statutory mandate for them in South Africa, the debate centres on what constitutes “best practice” to ensure such a community scheme is managed effectively, transparently, and democratically.
This article explores the legal standing of term limits, the core arguments for and against their adoption, and a practical model for possible implementation, drawing on recent discussions in scheme governance.
1. The Legal Landscape in South Africa and Internationally
Neither the South African common law nor any of the statutes that govern the management of residential and mixed-use HOAs and STSs – including the Sectional Titles Schemes Management Act of 2011, the Companies Act of 2008 and the Community Schemes Ombud Service Act of 2011(CSOSA)-require mandatory term limitations for executive office, but the Companies Act does allow for MOI-based term limitations.
However, the debate on term limits is not taking place in a regulatory vacuum. It is informed by a robust body of authoritative governance standards, both locally and internationally.
In South Africa, the fiduciary duty to exercise independent judgment under the Companies Act of 2008 (s 76) provides a legal underpinning for measures that prevent entrenched thinking. Furthermore, the Institute of Directors in Southern Africa (IoDSA) consistently guides boards on achieving the balance and diversity mandated by the King V Report on Corporate Governance, for which term limits are a practical tool.
Internationally, while in the USA term limits are not generally required, Florida adopted a statewide mandatory limit of 8 consecutive years in 2018 which will come into effect in 2026 for prior service. Other notable jurisdictions, California, New York and Texas have no such mandatory requirements, however term limits may be adopted voluntarily through governing documents. The Community Associations Institute (CAI), a leading industry body in the United States of America, explicitly recommends term limits as a core best practice for homeowner associations to promote board renewal and prevent entrenchment. In the United Kingdom and key European countries like Germany, France, and Switzerland, the empowering statutes do not legally impose term limits. In all cases, limits are often a voluntary best practice choice by the scheme’s developer or governing body, included in its governance documents.
In the wider corporate governance context, the UK Corporate Governance Code links long tenure to reduced independence and recommends enhanced accountability mechanisms. Similarly, the OECD (Organization for Economic Cooperation and Development) Principles of Corporate Governance emphasise board accountability and effective oversight-objectives that may be undermined by potentially perpetual incumbency.
Therefore, while South African law is silent on mandatory term limits, the prevailing wisdom from corporate and community governance standards, both locally and internationally, supports their voluntary adoption as a hallmark of a proactive, accountable, and well-governed scheme.
2. The Case for Adopting Term Limits
This case is grounded on six key principles:
- Bringing in Fresh Ideas and Perspectives: Regular rotation helps prevent stagnation and encourages the adoption of modern practices. This operationalises the King V objective of maintaining a governing body with a dynamic mix of skills and perspectives necessary for effective oversight (Principle 5)
- Enhancing Skill Diversification: A rotating board can bring different professional skills and backgrounds to the scheme’s executive management over time.
- Preventing Concentration of Power: A mandatory break stops any individual or group from becoming dominant or entrenched, ensuring no single personality can perpetually dictate the scheme’s direction. This directly supports the King V Principle 5 on the composition of the governing body, safeguarding objective decision-making.
- Increasing Member Engagement and Participation: Term limits signal to the general membership that there are opportunities to serve, promoting a healthier succession planning culture. This enhances the scheme’s stakeholder inclusivity, a key focus area of King V Principle 13 (Stakeholders), by democratizing governance participation.
- Improving Accountability and Transparency: Rotation acts as a transparent check on power and ensures that the long-term actions of a few individuals are periodically reviewed by new leadership.
- Promoting Leadership Rotation: Ensures a sustainable management model that does not depend too heavily on one or two long-serving individuals.
3. The Counter-Argument: Retention of Expertise
The primary argument against term limits – or for implementing very long ones—is the practical difficulty in securing dedicated and capable volunteer members to serve. Term limits can lead to the loss of invaluable institutional knowledge and management expertise, which is particularly concerning in schemes that struggle to fill their boards. Retaining management experience and expertise can be crucial for the scheme’s stability and continuity.
In HOAs or STSs that own or operate revenue-generating businesses – such as public-facing golf courses with public-facing shops, restaurants, training academies or estate agencies – the case for term limits gains added urgency. These “ancillary” activities introduce commercial complexities that heighten risks of conflicts of interest or resource misallocation. Long-serving executives may prioritise business profitability over scheme members’ interests, undermining fiduciary duties and CSOSA’s General Regulation 14(1)(d) (“exercising an active and independent opinion with regard to the management of the community scheme”). Rotation ensures fresh oversight of such operations, aligning with King V Principle 1 (Leadership) and Principle 2 (Ethics) on avoidance and management of conflicts of interest.
However, the expertise-retention challenge is acute here: institutional knowledge of vendor contracts, revenue models, and regulatory compliance (e.g., liquor licenses, VAT) is irreplaceable. The non-trustee adviser model suggested in section 5 below may be particularly valuable in this context, allowing termed-out leaders to advise on business continuity without voting rights, thus balancing renewal with operational stability. Schemes adopting term limits should explicitly reference these dynamics in their MOI or rules to demonstrate ‘apply and explain’ compliance, providing a concluding statement on the realization of the King V governance outcomes.
4. The Recommended Best Practice Model
A scheme should aim for a term limit that provides a meaningful rotation while offering a practical mechanism to retain expertise. Based on the typical standard term lengths – one year for STSs and two years for HOAs – I suggest the following scheme-specific models for schemes that choose to adopt term limitations. The suggestions maintain a core principle of two consecutive terms followed by a break of equal duration:
| Scheme Type | Typical Term | Recommended Model | Application (Years) |
| Homeowners’ Associations | 2 Years | Max 2 Consecutive Terms / Min 1 Term Break | 4 Years On / 2 Years Off |
| Sectional Title Schemes | 1 Year | Max 2 Consecutive Terms / Min 2 Term Break | 2 Years On / 2 Years Off |
This model is preferred because it is a robust option for allowing executives to comply with their statutory fiduciary obligations under the CSOS’s General Regulation 14. An executive can use their first term to “take reasonable steps to inform and educate himself or herself about the community scheme, its affairs and activities and the legislation and governance documentation in terms of which the community scheme operates” (Reg 14(1)(a)). They then have a second term to apply their developed expertise, while “taking reasonable steps to obtain sufficient information and advice…” for informed decisions (Reg 14(1)(b)), including avoiding conflicts of interest. At the end of the term limit, they make way for a new executive, giving effect to the principles of rotation, fresh ideas, and prevention of power concentration.
This balanced model not only fulfills the practical needs of the scheme but also resonates with the ‘apply and explain’ philosophy of King V. It demonstrates a conscious application of governance principles – specifically board composition and independence—and provides a clear, explainable rationale for the chosen term structure. The model shows a thoughtful approach to implementing best practice, rather than a rigid adherence to rules, which is the hallmark of modern governance.
5. Mitigating the Loss of Expertise: The Non-Trustee/Director Adviser
To address the risk of losing valuable knowledge during a mandatory break, schemes should consider formalising a Non-Trustee/Director Adviser role within their MOI, Management Rules or Constitution. Under this provision, a trustee who has completed their allowed term could be invited and appointed by the Board to act as a formal non-voting non-director/trustee adviser for the period of their ineligibility. This ensures their expertise is retained and accessible to the current board in defined areas.
Formalising this role in the scheme’s governance document gives it official status, which is important for individuals who may be hesitant to commit to an informal position. The formalisation of the non-director/trustee adviser role is also a key component of best practice in governance. A former executive’s willingness to serve in a non-voting advisory capacity provides a practical mechanism for retaining critical institutional knowledge. The board’s due diligence in making the appointment is paramount; the mandate must be strictly defined to ensure the adviser’s expertise is used solely for knowledge transfer and continuity, without creating an opportunity for undue influence.
This role is not merely a pragmatic solution; it is a sophisticated governance strategy that aligns with King V’s emphasis on effective leadership (KVP 1). King V advocates for the governing body to acquire sufficient working knowledge and take reasonable steps to become informed about matters for decision making (KVP 1). By creating a formal channel to retain the invaluable institutional knowledge of a termed-out trustee, the board consciously applies this principle. This approach responsibly manages institutional knowledge while upholding the core tenets of leadership rotation and independent oversight, ensuring that advice is used to inform, not influence, the board’s authority.
Article reference: Paddocks Press: Volume 20, Issue 11
This article is published under the Creative Commons Attribution license.
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