A Paddocks Sectional Title Lifestyle Blog
There are various factors that can make management of a sectional title scheme difficult but fighting among owners and trustees is one of the more unpleasant. The end result can be polarisation among the owners with one faction extremely dissatisfied with an executive committee that has enough support to be re-elected every year. Another, perhaps more common result is that no one wants to serve as a trustee. Both of these situations can lead to some owners considering outside control of the scheme. They have two options.
1. Management by an executive managing agent
When an executive managing agent (“EMA”) is appointed, there are no trustees because the EMA performs all the functions and exercises all the powers of the trustees. There are two major advantages to having an EMA.
The scope of their duties and responsibilities is set out in the prescribed rules. The EMA is obliged to manage the scheme with the required professional level of skill and care and is liable to the body corporate for any loss it might suffer if the EMA does not apply that professional level of skill and care. While the trustees have a fiduciary responsibility to the body corporate, in terms of the Sectional Titles Schemes Management Act, 8 of 2011, (“the SMSTA”), the EMA has a fiduciary obligation to every member of the body corporate. The distinction is that trustees’ responsibility is not to individual owners but the EMA’s fiduciary obligation is to the individual owners. The EMA must report to the members every four months and the minimum content of the report is also set out in the rules. The owners are therefore safe in a scheme run by an EMA.
The second advantage to the owners of appointing an EMA is that the EMA’s exercise of the trustees’ functions and powers is subject to the SMSTA and the rules, and the SMSTA provides that the trustees exercise of the functions and powers of the body corporate is subject to the SMSTA, the rules, and any directives or restrictions placed on them by the members in a general meeting. This means that the owners by ordinary resolution taken at a general meeting, can restrict and direct the EMA in his or her management of the scheme. The owners acting as a group therefore retain policy control over their scheme.
2. Management by a court appointed Administrator
The SMSTA allows any owner to apply to the Magistrates Court for the appointment of an Administrator. However, there are conditions that must exist for the court to make the appointment. There must be evidence of serious financial or administrative mismanagement of the body corporate, and there must be a reasonable probability that an Administrator would be able to fix the problem and run the scheme properly.
The court order appointing the Administrator specifies the scope of their duties and the Administrator can exercise those powers without any input from the owners. The Administrator must report on the administration process to the Community Schemes Ombud every three months. The Administrator or the person or persons who applied to the court for the administration order may apply to the court for the Administrator to be removed, replaced, the administration period to be extended, or to amend the terms of the appointment. The court can make a costs order.
Two factors stand out regarding these two choices of outside control of a scheme. The first is that a minority of owners is unlikely to be able to have an EMA appointed and controlled by themselves. The appointment ordinarily requires the authority of a special resolution, which a minority of owners can’t achieve. However, owners who together exercise at least 25% of the vote value can apply to the Ombud to appoint the EMA, but they would not have sufficient voting power to direct or restrict the EMA’s management activities. But that should not be necessary.
The second factor is while only one or a small group of owners could make the application, they would not have any control of an Administrator’s activities. The duties of the Administrator are set out in the court order making the appointment. But as with the EMA, it should not be necessary.
If you have any questions relating to this topic, feel free to contact us via email at firstname.lastname@example.org or call us on 021 686 3950, for a no-obligation quotation for a consultation.