One of the more frequently complained about aspects of sectional title management is the unauthorised spending of body corporate funds by the trustees or the scheme’s managing agent. Now that South Africans are forced to face the grave economic impact of COVID-19 and the national lockdown, the need to tighten the belt on our own spending, and to pay careful attention to how others spend our hard-earned money, has become paramount.
Let’s take a closer look at the funds into which your levies are paid and the circumstances in which the trustees may spend these funds.
The administrative fund:
This fund must be used by the body corporate to cover the following costs:
- Common property repairs, maintenance, management and administration.
- Rates, taxes and other municipality charges for the supply of electricity, gas, water, fuel, sanitary and/or other services to the building or land.
- Insurance premiums relating to the building or land.
- Fulfilling any of the body corporate’s other obligations and/or duties.
Money may only be paid out of this fund if:
- Such cost is provided for in the budget which has been approved by the majority of the body corporate’s members at the last AGM and
- Such payment is authorised by a trustee resolution.
The reserve fund:
This fund must be used by the body corporate to cover the costs of future maintenance and repairs of common property.
Money may only be paid out of this fund if:
- Such cost is provided for in the body corporate’s maintenance, repair and replacement plan, which has been approved by the majority of its members and such payment is authorised by a trustee resolution; or
- The trustees have passed a resolution that the payment is necessary to have urgent maintenance, repairs or replacement done.
This “urgent maintenance, repairs or replacement” could include:
- Those necessary to comply with a court or adjudication order;
- Those requiring immediate action (and therefore expenditure) to ensure safety or prevent significant loss or damage to persons or property;
- Those that could not reasonably have been foreseen in preparing the maintenance, repair and replacement plan; and/or
- Those required to enable the body corporate to obtain adequate insurance.
The amount(s) that the body corporate may spend on such “urgent maintenance, repairs or replacement” is limited to:
- The amount necessary to achieve the purpose for which it is being spent; and
- any limitation imposed by the body corporate on expenditure.
When the trustees spend money on such “urgent maintenance, repairs or replacement”, they must comply with any restrictions imposed or directions given by members and must report to the members on any such expenditure as soon as possible after it is made.
If you are a trustee or managing agent, making payments on behalf of a body corporate, make sure you have ticked the relevant boxes set out above, to ensure that payments are made legally. In times like these, you are likely to be monitored even more closely by penny-pinching body corporate members.
Article reference: Paddocks Press: Volume 15, Issue 10.
Specialist Community Scheme Attorney (BA (Law) LLB), Ané de Klerk, is a senior associate at The Advisory, a boutique law firm specialising exclusively in community scheme law:. Get in touch with her at www.theadvisory.co.za.
This article is published under the Creative Commons Attribution license.
7 Comments.
Thank-you for this handy reference regarding the control of funds.
There is another source of revenue available to us, as is the case with some other sectional titles retirement villages. We refer to it as an “endowment”. It is a percentage of the difference between the purchase price and the selling price attained on the sale of a section. Before the STSMA was brought into force, this income took the place of what is now the “reserve fund”. As a result, we have never in our history had to raise a special levy. The interest earned on these funds, is credited to our administrative fund, leading to lower levies.
There seems to be no regulation regarding the use of such funds, although we have sought the approval of our members before dipping into this kitty.
ADMINISTRATIVE FUND: we are a village of 270 Units. Our annual Admin Budget is close to R 4 million. It is totally impractical to have EVERY payment made in the process of administering the village approved by Trustee resolution and Minuted accordingly.
LEGAL GENERALLY: Many aspects of the STSMA are completely impractical in a large village. By the same token many of the legal obligations placed on Trustees in small developments (say 6 houses or flats) are onerous and expensive to adhere to. It is time to overhaul this legislation in the light of experience gained in the last five years.
Hi. Is there an Act or document to which managing agents should comply to? Furthermore, if a managing agent failed to recover or include some levy costs such as common property water, electricity and sewerage on the monthly levy statements, can they be held responsible for the under recoveries, and or is this the trustees liability and responsibility? thank you.
Hi Kobus,
Thank you for your comment. Please note that our legal team would need to assist you with your query. Please send the details of the matter to consulting@paddocks.co.za and the team will provide a no-obligation quotation for their assistance with this.
Kind regards
The Paddocks Team
Thank you for the relevant information. I agree with Rod Gush. It is time to realize that one size does not fit all. I have also found that managing agents try to play “god” and use their own interpretation to intimidate owners regarding rules and regulations.
Hi I am a trustee in a body corp recently elected at AGM. we have come across payments by the previous trustees to a contractor. there is no minutes at trustees meetings authorising such payments. there is only emails by two trustees to the managing agent to pay sixty percent deposit and later a final payment. These payments have been made to the contractor even though the job has not been completed
what can I do to recover this money either by the trustees. we have tried to talk to the contractor without success
The very trustees that made these payments did ask the the same contractor to requote to complete the job
When you have all the evidence, take it to an attorney and ask for advice as to whether the BC has a claim, based on an analysis of the documents you have.