Thinking Inside the Box

A Paddocks Sectional Title Lifestyle Blog

Trustees squander scheme money

South-Africa-Rand-Money-Notes-Coins

By Paddocks

An owner in a sectional title scheme objected to the idea of the body corporate building up a large cash reserve that the trustees could just squander.

It is true that a properly managed reserve fund will probably contain quite a large amount of money, especially if the body corporate needs to save for really expensive replacements of capital items such as lifts. However, the trustees cannot spend that money willy-nilly on things they want to do. There are several layers of provisions that stop them from doing so.

Any spending of body corporate money must be backed up firstly by member approval and secondly by formal trustee resolution. The amounts paid into both the reserve and administrative funds are determined by the budgets for each of the funds. The budgets must be itemised in detail and the budget for the reserve fund must be prepared according to a formula provided in the prescribed management rules. The members’ approval of the budgets at the annual general meeting constitutes a decision they make together to spend specific amounts of their money on those specific items.

The trustees must take a formal resolution to spend body corporate money. The resolution is planned and included in the agenda for their meeting and the text of each resolution and the result of the vote must be recorded in the minutes of the meeting. The trustees may only resolve to spend money from the administrative fund on the items that are contained in the administrative fund budget. Equally, they may only resolve to spend money from the reserve fund on the items in the maintenance, repair and replacement plan, or on emergency maintenance of common property and then only under specific conditions.

If the trustees do not follow these legislated processes and spend body corporate money other than as planned and approved, they would be exceeding their powers and would be in breach of their fiduciary duty to the body corporate. Trustees who act in breach of their fiduciary duty are personally liable for any loss the body corporate might suffer.

Trustees squandering body corporate money do so at considerable personal financial risk.

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

Image source: businesstech.co.za

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One comment on “Trustees squander scheme money

  1. Robyn Woollett
    December 14, 2018

    Much is written about Sectional Title. What about Light Rights where large sums of cash are paid for the ‘Right of Occupation’. Surely this money should be regarded as Trust money and treated as such. Surely there should be legislation on how this money can and cannot be spent. Our Board of Directors have been given carte blanche on our finances regarding spending. They have permission to spend what they want and how they want – SGM 23/6/2018. We are all elderly pensioners and do not have financial resources to seek legal advise. The Companies Act is silent on this subject and there are no policies/resolutions within our Community Scheme.
    We are talking about millions of Rands. Every year we end with a huge deficit. You have to ask yourself how do you run a community scheme with a monthly levy of R625.00 which includes water. Simple answer is you can’t the money has to come from some other source. To date we have not been presented with a Budget for 2018 nor have we held our AGM (MOI states 6 months after end of financial year – thats February).

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