This is the first article in a series of three articles, which will deal with the management of a sectional title scheme. We will first look at the financial management of a body corporate, followed by administrative and then physical management.

The functions and powers of the body corporate, as set out in sections 3, 4 and 5 of the Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”), are performed and exercised, in terms of section 7 of the STSMA, by the trustees of the body corporate, subject to any restriction imposed, or direction given by the members of the body corporate. However, some of these powers can only be exercised along with a resolution of the members.

Managing the financial year end

As from 7 October 2016, with the introduction of the STSMA, all newly established bodies corporate have a financial year which runs from the first day of October each year to the last day of September of the following year. Existing bodies corporate continue with the year end of February. The members, by ordinary resolution, may change the financial year end of the body corporate.

Managing special levies

The trustees, by written trustee resolution, may levy members with a special contribution if additional income is needed to meet a necessary expense that cannot reasonably be delayed until provision is made in the budget for the forthcoming financial year.

Such a special contribution is a contribution other than contributions which arise from the approved budget of the body corporate for the current financial year.

If there is a change of ownership of a unit following the trustee resolution, the purchaser of the unit will be liable pro rata for any such special contribution, or part thereof.

Managing an interim levy increase

The trustees, also by written trustee resolution, may increase the contributions payable by members by a maximum of 10% during the interim period between the financial year end, and the annual general meeting where the budget will be approved by the members. This increase will remain effective until the trustees notify the members of their increased contributions following budget approval.

Managing interest

The trustees may resolve to charge interest on any overdue amount payable by a member to the body corporate. However, the interest rate must not exceed the maximum rate of interest payable per annum under the National Credit Act, compounded monthly in arrears.

Managing reserve funds

The trustees must establish and maintain a reserve fund with such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of the common property, but not less than such amounts as prescribed by the Minister in the Regulations to the STSMA.

The trustees must then determine the amounts to be raised for the above purpose, and prepare the budget for the reserve fund, comprising itemised estimates of the anticipated income and expenses during the financial year for presentation and approval at the annual general meeting.

The trustees must further prepare the written maintenance, repair and replacement plan for the common property, for approval by the members in a general meeting, and must further report on the extent to which the approved plan has been implemented to each annual general meeting.

The moneys kept in the reserve fund must be invested in a secure investment with any financial institution, and only certain amounts may be paid into the reserve fund, while any amounts paid out of the reserve fund must be in accordance with a trustee resolution or the maintenance, repair and replacement plan.

Managing contracts

The trustees may enter into written contracts in respect of the powers and duties of the body corporate, provided that it is signed on the authority of a trustee resolution signed by two trustees or one trustee and the managing agent. Any trustee with a direct or indirect interest in any such contract is recused.

Joining organisations or subscribing to services

The trustees may join organisations or subscribe to services to further the purpose of the body corporate. An example of such a service, which many trustees are members of, is our Paddocks Club. Contact us for further information in this regard.

Delegation

The trustees may delegate one or more of their powers and duties to one or more of their number, to a member/s of the body corporate, agent or employee, as they deem fit, and may at any time, revoke that delegation. The trustees, in such delegation of their powers and duties, must specify in writing the power or duty concerned, a maximum amount of the body corporate’s funds that may be spent for a particular purpose, and any applicable conditions.

Applications to the Community Schemes Ombud Service

The trustees may make an application, to the Community Schemes Ombud Service (“CSOS”), for dispute resolution. The trustees must further ensure that the scheme is registered, that the relevant records of the body corporate are filed, and updated, with the CSOS, and that the required levy is recovered from the members of the body corporate, and paid over to the CSOS when, and as, required.

Keeping records

The trustees must keep proper books of account, separately for the administrative and reserve funds of the body corporate, and must make these books of account and records available for inspection and copying upon the written request of any owner. The books of account and financial records must be retained for a period of six years.

Managing the audit

The trustees must arrange for the preparation, and audit, of the annual financial statements of the body corporate, for presentation and consideration at the annual general meeting, within four months of the end of the financial year.

If you have any queries relating to this article and topic, feel free to contact the writer, Zerlinda van der Merwe, via email at consulting@paddocks.co.za or telephonically on 021 686 3950, for a no-obligation quotation for a consultation.


Article reference: Paddocks Press: Volume 13, Issue 10.

Zerlinda van der Merwe is an admitted Attorney of the High Court, specialist Sectional Title Attorney (BA, LLB, LLM), Zerlinda brings a wealth of experience and forms part of the Paddocks Private Consulting Division.

This article is published under the Creative Commons Attribution license.

Back to Paddocks Press – October 2018 Edition.

6 Comments.

  • Indran Govender
    31/10/2018 10:51

    I live on an Estate that is made up of 500 free hold stands ( HOA under Sect 21 NPC.)
    The Estate also has a few sectional title blocks make up about 180 homes.
    Which law presides over the decisions of the HOA ( being the main body that controls the entire Estate ?

    • Paddocks
      02/11/2018 09:01

      Hi Indran,

      Thank you for your comment. We would love to help, however we do not give free advice. Here’s how we can help:

      – We offer a 1-week Free Basics of Sectional Title short course.
      – We offer consulting via telephone for R490 for 10 minutes. Please call us on 021 686 3950.
      – We have Paddocks Club, an exclusive online club, to help you get answers to your questions about community schemes.

      Kind regards,
      Paddocks

  • Good day Zerlinda,
    may you kindly give clarity on this matter. A chairman of a HOA is the service provider for garden services within the estate. Is such an arrangement allowed without the seeking permission from HOA members? Is such an arrangement legally allowed as the chairman derived payments to himself/ herself? I am thinking of duty of loyalty versus duty of skill, care and diligence covered in a previous article.

    • Paddocks
      02/11/2018 09:03

      Hi Bongani,

      Thank you for your comment. We would love to help, however we do not give free advice. Here’s how we can help:

      – We offer a 1-week Free Basics of Sectional Title short course.
      – We offer consulting via telephone for R490 for 10 minutes. Please call us on 021 686 3950.
      – We have Paddocks Club, an exclusive online club, to help you get answers to your questions about community schemes.

      Kind regards,
      Paddocks

    • There is nothing wrong with that. Provided that owners agreed at the AGM to make use of the particular garden service. It is most probably in the interest of the body corporate as he would also be most probably cheaper than other. At the same time the service he render would be good. He would be stupid to deliver a bad service at a the complex where he is a owner and trustee.

  • Willemina de Jager
    08/06/2020 15:33

    Please advise if the income, levies and interest for the Reserve Fund and the expenses be part of the Statement of Comprehensive Income. Our Body Corporate shows it only in the Statement of Changes in Reserve Funds, which does not look correct for me.