Special Resolution Loophole
By Jennifer Paddock
Most people think that passing a special resolution requires 75% of all owners to agree to the resolution.
Not necessarily true.
If you’re not sure what the requirements actually are for properly passing a special resolution, I’ve explained them in detail here.
But moving on to the ‘loophole’…
The reality is that in schemes where there are no particular financial problems, attendance at general meetings tends to be poor. Prescribed management rule (PMR) 58 takes this eventuality into account and provides that,
“if within half-an-hour from the time appointed for a general meeting a quorum is not present, the meeting shall stand adjourned to the same day in the next week at the same place and time, and if at the adjourned meeting a quorum is not present within half-an-hour of the time appointed for the meeting, the owners present in person or by proxy and entitled to vote shall form a quorum.”
This means that if there is no quorum present on the originally scheduled date of the general meeting and if again one week later at the same time and place there is still no quorum – the persons present and entitled to vote at the second meeting will form a quorum and will be able to carry out the business of the meeting.
This seems sensible as the business of the meeting needs attention and may be neglected if decisions cannot be made because owners fail to attend meetings.
However on closer reading, this dilution of the quorum requirement is in fact rather alarming.
The reason being that when one looks at the definition of ‘special resolution’ in section 1 of the Act, it requires that such a resolution is passed by a majority of not less than three-fourths of the votes in value and number of the members of the body corporate personally or by proxy at a general meeting. This definition relates only to the number of persons who are actually present or represented at a general meeting and therefore in terms of PMR 58, special resolutions could be passed at a postponed general meeting where only very few owners are present, very much fewer that the 20 to 50 percent ordinarily required to form a quorum in terms of PMR 57.
Why is this so alarming? Is it really problematic that perhaps 3 out of 100 members of a body corporate could validly pass a special resolution in the absence of the other 97 owners?
On the one hand one can argue that the other owners have failed to exercise their democratic rights to attend the meeting, so they should not complain if decisions are made in their absence. On the other hand when one considers the importance of the decisions that can be authorized by special resolutions some might argue that only a few owners should not be allowed to make these decisions. Special resolutions can authorize:
- an owner’s application to extend his section
- the making of rules conferring exclusive use rights in terms of section 27A of the Act
- the granting of servitudes over the land in the scheme
- the making of rules which alter voting values or contribution liabilities (subject to the consent of adversely affected owners)
- changes to conduct rules
- decisions to sue the developer
- to increase the scope of the scheme’s insurance cover
- to authorize payment of trustees
- to effect non-luxurious improvements to the common property
- to revoke the managing agent’s appointment
- and so the list goes on.
Clearly these important decisions were meant to be made by a substantial majority of owners in a scheme – that is why such items require the authority of a special resolution, normally implying a much higher level of consensus (75% in number and in value) than an ordinary general resolution (51% in either number or value). The fact that these decisions can be validly taken at an automatically postponed general meeting where there is no normal quorum is a glaring loophole in need of legislative attention.
What are your thoughts on this loophole – good, bad, ugly? Share with us by commenting below…
Thinking Inside the Box 
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Great article! However I’m not quite sure why you say the loophole is alarming. Perhaps it’s alarming to those who failed to attend. On the other hand, if you don’t participate in what is happening in your complex what right have you to complain afterwards? I think the writers of the STA were quite right in giving those owners who do participate in their BC affairs a ‘lifeline’ to continue without those who do not care. I say it’s a GOOD loop hole. Without this loophole, nothing would get done.
We all know, rules exist throughout life and consequences of breaking them. Hence we all have the same choices. In other words, people choose to not participate. While reasons exist to prevent one from attending a meeting, there is no reason what-so-ever to not send your proxy. The truth of the matter is, most choose to do neither and saddly it always happens to be the same ‘invisible’ members who somehow just happen to come out of the woodwork when they don’t like decision other’s made on their behalf. Hence if we fail to exercise our rights, we only have ourselves to blame and no-one else.
To prevent the burden and fingers pointed at those who do participate and who inconvenience themselves to attend BC meetings + affairs, I propose an amendment to MR to penalize such members who habitually do not take/make the least interest/efforts or responsibility in their BC affairs and institute a ‘Non Participation Fee’. This would be much the same as late fee payment penalties. Such penalty should apply continuous until such time they either attend or send a proxy. Unlike a late fee, this is 100% avoidable because a simple proxy would suffice.
Hi Martin, what an interesting idea! If you would like to write a article detailing your idea of how the ‘Non participation fee’ would work I can look at posting it on my blog. If you are interested you can contact me on jennifer@paddocks.co.za
I would prefer the carrot to the stick, when dealing with non-attendance at meetings. In some countries, citizens are required by law to vote at elections, and penalized for failing to do so. Unlike such a police state, a ST scheme is a democracy; and people should be free to attend, or not to attend without penalties.
Some thoughts on encouraging attendance:
good Chairmanship;
keeping the meeting short and to the point;
maintaining good relations between the owners and the trustees;
avoiding, or containing confrontations at meetings;
keeping owners well-informed on BC matters (including providing
full information on any special resolutions to be considered);
not permitting matters to be raised which were not on the agenda;
and – last but not least – providing suitable refreshments for attendees (an opportunity for non-resident owners to get acquainted with trustees and resident owners.)
Would this apply also to an unanimous resolution?
Hi Anne, no. To pass a unanimous resolution at a meeting there is a raised quorum requirement of 80% in number and value of all owners. I have explained the requirements in detail here: https://paddocksblog.com/2013/10/17/unanimous-resolutions-how-to-pass-them-properly/