Like any other ‘artificial person’ the body corporate has no physical existence, so this provision authorises the trustees, whoever they may be from time to time, and acting as a group, to exercise the functions and powers specified in the Act. But this provision also allows the owners, acting as a group, to place restrictions on the trustees’ discretion in exercising the body corporate’s powers or performing its functions, or to give them specific directions as to how they should do so.
What does section 39(1) allow owners to do?
The owners, by majority vote at a general meeting, are entitled to place restrictions on or to direct the actions of the trustees. An example of a restriction would be a decision of owners that the trustees may not spend or borrow more than a specified amount without first consulting and obtaining the approval of the body corporate. A direction by owners may be a decision instructing the trustees to display copies of the draft minutes of their meetings on a secured notice board in the building foyer, as soon as they have been prepared.
Section 39(1) is seen as providing the owners in a scheme with a substantial amount of power and ultimately, confirming that the trustees are not the ‘masters’ of the body corporate, but that they are obliged to act on the basis of the owners’ instructions (provided of course that these instructions are legal and not contrary to the Act or the scheme’s rules).
Restrictions and directions can only be imposed by a majority decision of owners at a general meeting. These decisions must be minuted and kept in the body corporate’s minute book in order to form a permanent record [(PMR 34)].
The imposition of monetary restrictions by the owners on the trustees in sectional title schemes is fairly common. The rationale behind these impositions could be anything from a real history of body corporate fund mismanagement to cautious owners who believe that the trustees need to be supervised when they spend substantial amounts of body corporate money.
A question often asked when a monetary restriction has been imposed by owners in a scheme is whether its effect lasts only until the next AGM or indefinitely, until it is reversed. It has been argued, based on the wording of section 39(1) of the Act which refers to the “trustees… holding office in terms of the rules”, that monetary restrictions apply only to the trustees upon whom they are imposed and because PMR 6 states that the trustees “shall hold office until the next succeeding annual general meeting”, the restriction only lasts until then. However, it can also be argued that in the context of section 39(1) the phrase ‘holding office in terms of the rules’ is merely descriptive of the trustees, and does not serve to limit the duration of any monetary restriction.
A question often asked in relation to the owners’ power to give directions to or place restrictions on the trustees is whether or not this power includes the ability to increase consensus levels as required by the Act. For example, in terms of section 38(i) read with section 39(1) of the Act the trustees are able, by simple majority decision, to let a portion of the common property for less than ten years to an owner in the scheme. Could the owners give a direction to the trustees that provides that they shall not do so without a special resolution of the body corporate? In terms of section 39(1), the functions and powers of the body corporate must be performed and exercised by the trustees, subject to any direction given by the owners.
To learn more about the Law of Sectional Title Meetings, click here.