New Trustee's or thinking about it.

Top 5 tips for first time sectional title trustees by Paddocks

By Paddocks

The trustees in sectional title schemes are elected at the annual general meeting (“AGM”) and very often the same people are elected year after year. Even if new trustees are elected there is usually someone who has been a trustee before and knows the ropes. It is possible though, that an entirely new board of trustees is elected. In this article, we will look at the basics that these new, inexperienced trustees need to know, especially if the body corporate does not employ a managing agent and is self-managed

1. Get educated

To manage a scheme effectively and legally, the trustees need to be pretty familiar with the Sectional Titles Schemes Management Act (“the STSM Act”), the scheme’s management and conduct rules and the Sectional Titles Act. Additionally, they need to know the provisions in the Community Schemes Ombud Service Act regarding dispute resolution, the Community Schemes Ombud Service “the CSOS” levy and the CSOS regulations on duties of scheme executives and fidelity insurance.

There is a host of other legislation they need to know about, some of it in detail. The local municipal by-laws, and occupational health and safety and labour legislation all spring to mind.

The trustees need to have ready access to the scheme’s records, particularly the financial and maintenance records, the sectional plans and the minutes of previous and future meetings.

2. Make sure the annual contribution is raised properly

A vitally important task the trustees must complete very soon after they are elected at the AGM is to meet, elect a chairperson and take the trustee resolution raising the annual contribution. The members must be notified in writing of their liability to pay the contribution within 14 days of the AGM. If the trustees do not take this resolution, the members are not legally liable to pay the contribution and it will not be possible for the body corporate to recover arrears from members who do not pay.

3. Your duty is to the body corporate

The STSM Act provides that the trustees have a fiduciary relationship to the body corporate. While the body corporate is made up of the owners in the scheme, it is a legal entity separate from them and it is to this entity that the trustees owe their fiduciary duties of skill, care and diligence, not to the individual members. The trustees’ test of what they do is always, “is this in the best interests of the body corporate?”

4. Do not use your position to further your own interests

As most trustees are volunteer owners, the STSM Act protects them from personal liability for ordinary mistakes and requires the body corporate to indemnify them from any loss or expense they suffer while doing their trustee duties, except for breaches of their fiduciary relationship to the body corporate.

However, if the body corporate loses money, or a trustee benefits economically because of something the trustee did that was in breach of their fiduciary relationship to the body corporate, that trustee is personally liable for the loss the body corporate suffered, or must pay to the body corporate the economic benefit they made.

5. Act only within the powers of the trustees

The trustees perform the functions and exercise the powers of the body corporate. The STSM Act lists these functions and powers – and of course also makes a catch-all “whatever else is reasonably necessary” provision, but the functions and powers of the body corporate are specific and limited to the control, management and administration of the common property for the benefit of all owners. The trustees must therefore be very careful not to do anything that is outside of these listed functions and powers or outside the spirit of those functions and powers. For example, one of the common abuses of body corporate power that trustees make is in authorising operations that constitute improvements to the common property without the input of the members.

New

11 actions trustees can approve in sectional title

Before 2011, the trustees were empowered to approve many actions within sectional titles schemes. For example, the trustees were entitled to let a portion of the common property to any owner or occupier of a section for a period of less than ten years. Such a lease agreement can only be entered into now on the authority of a special resolution of the body corporate. Another example is that the trustees could consent to the placement or construction of any structure or building improvement to an exclusive use area, such as the installation of a gazebo or swimming pool. This action can only be authorised by an ordinary resolution of the body corporate, and provision is made for the imposition of conditions and the withdrawal of the consent.
Since the Sectional Titles Schemes Management Act 8 of 2011 (“the STSM Act”) came into operation on 7 October 2016, the list of actions that the trustees are entitled to consent to has been reduced to eleven actions.
1. Subdivision and consolidation of sections
The STSM Act only provides one circumstance in which the trustees consent is required. Section 7(2) of the STSM Act states that the trustees of the body corporate must receive and may consent to to applications for subdivision of a section or consolidation of two or more sections, made by the owners of sections.
2. Keeping of pets
The Prescribed Conduct Rules (“PCRs”), contained in Annexure 2 to the Regulations made under the STSM Act, contain various circumstances that require the consent of the trustees. PCR 1 states that he owner or occupier of a section must not, without the trustees’ written consent, which must not be unreasonably withheld, keep an animal, reptile or bird in a section or on the common property. The trustees may provide for any reasonable condition in this regard, and may withdraw any consent if the owner or occupier of a section breaches any condition imposed.
3. Refuse bins
PCR 2(2) gives the trustee the discretion to decide what type of dustbin for refuse is acceptable and must designate where on the common property that bin must be kept. PCR 2(3)(a) gives the trustees the power to designate the place and time that the owners or occupiers must move the dustbin.
4. Parking vehicles
The written consent of the trustees, as well as the duration of such permission, is required before an owner or occupier of a section may park a vehicle, allow a vehicle to stand or permit a visitor to park or stand a vehicle on any part of the common property other than a parking bay allocated to that section or a parking bay allocated for visitors’ parking (except in the case of an emergency) in terms of PCR 3.
5. Damage common property
In terms of PCR 4(1) the owner or occupier of a section must not, without the trustees’ written consent, mark, paint, drive nails, screws or other objects into, or otherwise damage or deface a structure that forms part of the common property.
6. Safety device and screen
In terms of PCR 4(2) the trustees have the discretion to approve, in writing, the design, colour, style and materials of a locking or safety device to protect the section against intruders, or a screen to prevent entry of animals or insects, if the device or screen is soundly built.
7. Change external appearance
The owner or occupier of a section must not, without the trustees’ written consent, make a change to the external appearance of the section or any exclusive use area allocated to it unless the change is minor and does not detract from the appearance of the section or the common property in terms of PCR 5(1).
8. Erect washing line
The owner or occupier of a section must not, without the trustees’ written consent, erect washing lines on common property in terms of PCR 5(2)(a).
9. Hang laundry
The owner or occupier of a section must not, without the trustees’ written consent hang washing, laundry or other items in a section or any exclusive use area allocated to it if the articles are visible from another section or the common property, or from outside the schemein terms of PCR 5(2)(b).
10. Signage
The owner or occupier of a section must not, without the trustees’ written consent display a sign, notice, billboard or advertisement if the article is visible from another section or the common property, or from outside the scheme in terms of PCR 5(2)(c).
11. Storage of flammable substances
The owner or occupier of a section must not, without the trustees’ written consent, store a flammable substance in a section or on the common property unless the substance is used or intended for use for domestic purposes in terms of PCR 6(1).
If you require any assistance with drafting trustee resolutions please contact us at consulting@paddocks.co.za or call 0216863950.

Article reference: Paddocks Press: Volume 13, Issue 3.
Dr Carryn Melissa Durham is one of the most highly qualified Sectional Title Attorneys in the country (BA, LLB, LLM and LLD), Carryn forms part of the Paddocks Private Consulting Division.

Trustees Fiduciary Relationship With The Body Corporate

In this post from Paddocks (Thinking inside the box) we look at the importance of the legal and moral relationship trustees and the body corporate members.

Paddocks Article

Each trustee of the body corporate stands in a fiduciary relationship to the body corporate, and its members. Section 40 of the Sectional Titles Act 95 of 1986 (“the Act”), defines this important type of relationship by placing a fiduciary duty on the trustees to:

• Act honestly and in good faith;
• exercise their powers to manage or represent the body corporate, in the interest and for the benefit of the members of the body corporate;
• not to act without or exceed their powers as set out in the Act; and
• avoid a conflict of interest.

Trustees shall further avoid any material conflict between their own interests, and those of the body corporate. For example, in situations where a trustee may acquire a financial or any other type of personal benefit from a trustee decision, the trustee shall disclose their conflict of interest or potential conflict of interest, and recuse themselves from any decision, which directly or indirectly personally involves them. Where a trustee fails to disclose a (potential) conflict of interest, and it becomes known to the body corporate that the trustee has an undisclosed interest in the contract entered into, the contract may be voidable at the option of the members of the body corporate, unless a Court, upon application, orders that the body corporate is bound to the operation of the contract.

Should a trustee breach any duty arising from their fiduciary relationship to the body corporate, through their mala fide (fraudulent) or grossly negligent act or omission, they shall be liable to the body corporate for any loss suffered as a result by the body corporate, and any resultant economic benefit derived by them.

A trustee’s conduct does not constitute a breach of a fiduciary duty if the conduct was authorised (before or after) by the written approval of all the members of the body corporate, who are aware of all the material facts of the conduct.

In terms of Prescribed Management Rule 12 of Annexure 8 of the Regulations to the Act, the trustees shall be indemnified by the body corporate against all costs, losses, expenses and claims, which they may incur or become liable for, by reason of any act done or omission by them, in the discharge of their duties. This indemnification applies, except in so far as the act or omission was fraudulent or grossly negligent.

It is the duty of the trustees to pay the indemnity from the funds of the body corporate, or to ensure that there is fidelity guarantee in place, which will be used to refund any loss of monies belonging to the body corporate, or for which it is responsible, as a result of fraud or dishonesty committed by any trustee.