The campaign by the property management company IHFM to “educate” sectional title trustees and sectional title members in all aspects of sectional title was taken a step further recently when IHFM in conjunction with the levy funding and collection company, Propell, insurance advisers Addsure, and law firm BBM law organised their first workshop in Midrand, Johannesburg.

They have such sessions regularly in Cape Town.  The aim of the Johannesburg workshop was to explain the amendments to the Sectional Title Act of 2010 and certain aspects of insurance as it applies to sectional title.  All IHFM newsletter subscribers and clients were invited.

Marina Constas of the legal firm, BBM Law Inc., spoke on the Act, Mike Addison, a director of Addsure, on insurance.

“In both cases,” said Michael Bauer, general manager of IHFM, “thorny issues were raised.  Constas, reminding us that the Sectional Title Amendment Act has now been promulgated but is not effective yet, warned that under the new rulings a member will be entitled to hold only two proxies on behalf of other members.  This, while eliminating the danger of control by motivated minorities with their own agendas, could also result in meetings time and again failing to achieve a quorum.”

Constas, said Bauer, also discussed the proposed Ombuds Community Scheme Services Bill which will make it possible for members, tenants, and trustees of sectional title schemes, homeowners associations and share blocks to apply for arbitrated resolutions in disputes without going the long and possibly expensive route of taking High Court action.

“The concept here, we were given to understand,” said Bauer, “is logical and worth pursuing – but there does appear to be a grave danger that the nine regional ombudsmen will find it difficult to recruit appropriately experienced arbitrators with expertise in sectional title law, building knowledge, and  accounting skills.  As there are now 800 000 sectional title owners in South Africa and as it has been estimated that 15 to 25% of these are experiencing problems (often relating to levy collection and maintenance), the task facing these ombudsmen and their arbitrators is indeed formidable.”

Mike Addison, said Bauer, had reviewed prescribed management rule 29 (4) as it effects payment of insurance excesses and recovery of these from owners.  Addison made it clear the contract between the body corporate and the insurers make excesses the responsibility of each section affected.

Insurance claims become especially complicated, said Bauer, when more than one section is damaged as a result of a single accident, e.g. a geyser burst, a flood or an electrical fire.

Here, said Bauer, the insurance excess costs have to be allocated proportionately to the damage repair costs incurred in each section.

Where the damage is clearly the result of negligence, the insurance company is still obliged to fund the repairs but, said Bauer, Addison said that the insurance company can then sue the guilty party to recover costs – and this does happen regularly.

Also discussed by Addison were public liability claims on illegally erected extensions on common property.  Illegal extensions, said Bauer, occur more often than many body corporate members realise and such extensions are not covered by the body corporate’s insurance.  In these cases, he said, the trustees have to get the illegal extension removed and should inform the insurer about their new insurance risks.

Addison also pointed out, that on insurance claims owners will try to claim directly from the insurer – but prescribed management rule 27 states that the legal documents on behalf of the body corporate have to be signed by two trustees or the managing agent and trustee – and this includes the claim form because, as mentioned, the policy is between the body corporate and the insurer.

Bauer said that the success of the first Midrand workshop has convinced him that such free trustee workshops for sectional title owners and trustees are worth the effort they require.

“We have therefore decided to have more regular free trustee workshops on all matters relating to sectional title and homeowners associations.  Those who would like to be invited in future should subscribe to our newsletter on www.ihfm.co.za or email Michael Bauer on michael@ihfm.co.za.”

Despite widespread dissemination to sectional title trustees of the Prescribed Management Rules, the procedures by which members’ general meetings have to be conducted are quite often ignored.

“We have recently,” says Michael Bauer, general manager of IHFM, “come across cases where, usually as a result of the sectional title scheme not having an experienced managing agent, quite flagrant departures from the prescribed rules have taken place and we have covered this subject in our newsletter (which can be subscribed to by going to www.ihfm.co.za).”

Bauer reminded those involved in such meetings that in terms of Prescribed Management Rule 60 a resolution put to the meeting has to be decided on by a show of hands.  This rule, he said, applies unless prior to or on the declaration by the chairman of the result of a show of hands, a poll involving all members is demanded by any person entitled to vote at the meeting.

PMR 62, said Bauer, lays it down that the owners of sections have one vote per section.  Attempts to block multiple voting by owners of many sections are, therefore, misguided.

PMR 66, said Bauer, stipulates that where two or more co-owners are entitled to exercise one vote jointly, that vote can only be exercised by one person jointly appointed by the owners to vote on their behalf.  However, the voting representative need not be one of the legal vote holders – he can be appointed by the others as their proxy.

Bauer reminded sectional members that PMR 64 debars them from voting at the annual general meeting (on majority resolutions, but not on special or unanimous resolutions) if any contributions owed by them on their unit have not been paid by the stipulated date or they are in breach of any rule of the scheme.

Members are also debarred from voting if they are deemed by the trustees to have persisted in breaking conduct rules despite written warnings.  However, a disqualified owner-bondholder is entitled to vote as such a member’s proxy.

Sectional title properties remain popular in Gauteng because of the many advantages this form of property ownership offers, say estate agents.

According to Pam Golding Properties (PGP) national sales executive, John Herbst, the sale of sectional title properties makes up a substantial 28 percent of all units (over the selling price of R10 000) sold in Johannesburg.

According to Pam Golding Properties (PGP) national sales executive, John Herbst, the sale of sectional title properties makes up a substantial 28 percent of all units (over the selling price of R10 000) sold in Johannesburg.

“Many sectional title residential developments offer sound value for money and a well-run complex can offer a sound return on investment over the long term,” says Herbst.

He explains that the fact that residents together contribute to the upkeep of the complex and the maintenance of facilities means that many sectional title developments are able to offer a high standard of living.

The ability to share costs such as maintenance, water, insurance, security and garden services keeps the cost of living more affordable.

For the security conscious, sectional title developments are considered secure environments in which to live as many have access control, perimeter electric fences and other security measures in place.

Residents find living in secure estates convenient in that they are able to literally ‘lock up and go’ at short notice.

They value community living, as well as excellent amenities such as clubhouses, restaurants, swimming pools, tennis courts and other facilities, offered by many sectional title developments, he says.

Herbst points out that when buyers purchases a property in a sectional title complex they are buying exclusive ownership of the unit or section that they have purchased.

At the same time they become a joint owner of the common property of the development.

Depending on the type of property purchased, the buyer may also be entitled to the exclusive use of a garden, parking space and staff quarters.

He says the buyer’s section is usually a flat or townhouse and it may be situated within a gated community or estate.

Buyers value community living, as well as excellent amenities such as clubhouses, restaurants, swimming pools, tennis courts and other facilities, offered by many sectional title developments, he says.

“Sectional title schemes are strongly regulated by the Sectional Titles Act, which covers all aspects of owning this kind of property, affording any would-be buyer a good measure of protection.”

Herbst says the value of a sectional title property can vary considerably and depends on such factors as the size of the property, its general condition, how well it is maintained, how attractive communal areas are and what amenities are offered.

Sectional title units are priced from as little as R280 000 and up to R50 million.

Jason Shaw, manager of the PGP office in Fourways/Dainfern, says sectional title unit owners automatically become members of the body corporate when purchasing a property in a sectional title development.

This is an association of titleholders, which has a say in the running of the complex including the maintenance of the common property.

Trustees are elected to handle the day-to-day management of the sectional title scheme and protect the interests of owners.

Shaw says there is very often a direct correlation between how well the sectional title scheme as a whole is managed and maintained and the value of one’s property.

It is therefore important that the body corporate and trustees are competent and well organised.

Another advantage of the sectional title system is that owners can become involved in the body corporate and in the running of their own sectional title development.

“It is recommended that owners become actively involved in their body corporates and attend general meetings,” says Shaw.

Just how do you tell whether a sectional title scheme is well managed?

Shaw says there are a number of aspects to consider:

It is also important for you to ascertain whether the financials are correctly audited and budgets are properly drawn up. Without proper budgeting the viability of the scheme is placed in danger, as it may not be able to meet its financial obligations.

1. Any would-be buyer is entitled to examine the books of the scheme to establish whether the development is financially sound and well governed.

2. Does the development have a positive cash flow and is it up-to-date in its payments to creditors?

If it is heavily indebted and struggling to make payments, this would be a cause for concern.

3. Check whether insurance payments are up to date and that the policy offers proper cover.

It is also important for you to ascertain whether the financials are correctly audited and budgets are properly drawn up.

Without proper budgeting the viability of the scheme is placed in danger, as it may not be able to meet its financial obligations.

Herbst points out that the process of finding a suitable sectional title scheme to invest in is best undertaken with an experienced agent who understands the market and who has your best interests at heart.

This will help to ensure that you choose a property that is right for you and that will grow in value.

“Sectional title schemes tend to be more affordable while offering residents an excellent lifestyle.

Shaw adds that for these reasons, he believes there will be a continued demand for them into the foreseeable future.

WHAT TRUSTEES SHOULD KNOW ABOUT BUILDING INSURANCE IN SECTIONAL TITLE SCHEMES?

ARE YOU AWARE OF THE pending new legislation w.r.t Sectional Titles Schemes Management Bill and Community Schemes Ombud Services Bill as well as the amended Prescribed Management Rules, and the new Companies Act, and how these changes will affect trustees in Sectional Title Schemes?

IHFM (Pty) Ltd in conjunction with BBM Law Inc., Addsure, and Propell will be hosting a free informative trustee workshop on Tuesday the 8^th of May 2012 at the Bytes Conference Centre in Midrand.

The objective of the trustee workshop is to provide practical understanding of the fiduciary responsibilities of trustees w.r.t insurance in sectional title schemes and the pending new legislation w.r.t Sectional Titles Schemes Management Bill and Community Schemes Ombud Services Bill as well as the amended Prescribed Management Rules, and the new Companies Act, and how these changes will affect trustees and owners in Sectional Title Schemes.

EVENT SPEAKERS:
Mike Addison (Director of Addsure (Pty) Ltd)

Marina Constas (Director of BBM Law Inc.)

Venue:                          Bytes Conference Centre
Date:                            8 May 2012
Location:                      Bytes Business Park, Block C 241 Third Road, Midrand, Johannesburg

Start Time:                   18:30pm for 19:00pm

Finish Time:                 21:00pm
Cost:                            Free

Tea, coffee and snacks will be served, seats are very limited…

Book early to avoid disappointment…

For reservations:

Contact:                       Rene Scholtz
Company name:           IHFM (Pty) Ltd
Telephone number:      021 424 7595
Email address              rene@ihfm.co.za

Although it is now clear that at some stage the Sectional Schemes Management Act will become law, right now, says Michael Bauer, general manager of the property management company, IHFM, members of sectional title schemes can still collect as many proxies as possible for the scheme’s annual general meeting and special general meeting –and can, with these, very often get their own way even though this may not necessarily be the right course for the sectional title scheme as a whole.

Bauer has previously drawn attention to the proposed amendment to section 6 (5) of the Sectional Schemes Management Act which will limit the number of proxy votes to two per member.

“I thought that the passing of this new ruling was imminent,” said Bauer, “but I have now learned that it is likely to become law only later this year.

He is in favour of the amendment, he said, because, as indicated, as it now stands the proxy ruling allows one or two motivated members to dominate decisions on matters about which they feel strongly.

However, he said, it has to be recognised that when the new limitation becomes law, there will be a big increase in the number of general meetings at which the owners may fail to meet the required quorum..

In these cases, he said, the Act lays it down that the meeting has to be adjourned and reconvened one week later at the same time and same place.  If at the  readjourned general meeting a quorum is again not achieved, those present have to wait 30 minutes for a quorum before they can proceed and take decisions on behalf of all members, including the many not present.

“Obviously in this situation,” said Bauer, “one or two highly motivated individuals could again take control.  The outcome could then be much the same as if they had used their proxy votes.  However, if members fail to turn up at AGMs and special meetings, they have only themselves to blame if irregularities go undetected or if decisions are taken which they feel are not in the sectional title scheme’s best interests.”

So you have been elected as a trustee of a Body Corporate. Congratulations! The members of your Body Corporate obviously have confidence in your integrity and ability.

The Sectional Title Act requires that all executive functions and powers of a Body Corporate be performed by the trustees. This does not mean that you are the highest authority. Trustees are elected by the members, may be dismissed by members, and must heed the instructions and limitations imposed by members – and all their actions remain subject to the Sectional Titles Act and the Rules contained therein.

It follows that trustees are expected to familiarise themselves with the contents of these, and always maintain the utmost good faith towards their members.

To help you on your way here is a concise list of some of the do’s and don’ts of being a trustee for a Body Corporate.

The do’s:

• DO budget correctly – correct budgeting will leave you with a healthy scheme that is able to meet all of its financial obligations, thereby raising or at least maintaining the value of each of the individual units within the scheme. Correct budgeting is also able to ensure that no unforeseen special levies need to be raised, allowing owners to stick to their own financial commitments with no surprises.
• DO play an active role in the schemes day to day and monthly running. It is vitally important that you know what is happening within your scheme. Know what services and maintenance contracts are being undertaken, so that the scheme is able to keep on top of things at all times.
• As trustees DO appoint “the right people for the job” to assist in your management. Surround yourself with competent people who have the schemes best interests at heart and who are able to dedicate sufficient time and efforts to the scheme.

The don’ts:

• DON’T neglect levy increases to lower your monthly payments. You may feel that you are keeping your members happy by not raising levies, but in the long run this is detrimental to the health of your scheme. Low levies inevitably lead to the need to raise Special Levies. Levies need to be regularly adjusted so as to ensure that they are in accordance with inflation and cost increases in the market.
• DON’T pay contractors without scrutinising the invoice and work completed. Ensure that you know what you are paying for and that the work has been done to the standard you required. Sloppy work by contractors leads to future problems that will invariably cost more to fix than the original problem.
• DON’T neglect maintenance on the scheme. This is one of the most important tasks of the trustees. Neglecting maintenance leads to the deterioration of the schemes buildings and appearance, which in turn lowers the value of the entire scheme and the value of each of the individual units.

Article written by Johan Le Roux, Executive Director of Propell.

The growing popularity of arbitration rather than litigation in sectional title property disputes stems from its being both less expensive and faster, says Michael Bauer, GM of IHFM, the property management company.

Bauer pointed out that the Sectional Title Act’s Prescribed Management Rule 71 was recently amended so that now only the Chief Registrar of Deeds can appoint an arbitrator.  Although this can delay the process slightly (previously any registrar could act in this way) arbitration is still preferable to litigation, he says.

The PM rule allows for arbitration between an owner (or owners) and the body corporate – or vice versa – and between one or more owners and another owner or owners.

“In view of the effectiveness of arbitration,” he said, “it is important that all sectional title trustees and owners know how to go about it.”

The steps in the process are:

• “Serving”, i.e. delivering a first notice of dispute to the other party.  This must state in full the nature of the complaint or dispute.

• Notifying the scheme’s trustees and managing agent of this.

• Waiting 14 days for a response, failing which either of the parties can then demand that arbitration goes ahead.

• Serving a second notice of dispute and proposing two or three suitably qualified and independent persons as arbitrators.

• Allowing three days for a reply, failing which, or in response to which, the complainant can ask the Chief Registrar for an arbitrator to be appointed – who will then guide both parties through the arbitration process.

Bauer said that “thankfully” just the threat of arbitration often brings about a settlement because it is now widely known that the loser may end up having to pay not only what is demanded (if cash is involved) but also the legal costs for himself and his opponent.

He added that PMR 71 will fall away when the Community Schemes Ombud Services Bill comes into the effect.

Michael Bauer is a regular contributor to www.sectionaltitlesa.co.za.  For further information on IHFM’s services go to www.ihfm.co.za or telephone Michael Bauer on 083 255 4442.  He can also be emailed on michael@ihfm.co.za.

The Promotion of Access to Information Act, No. 2 of 2000 (PAIA) is the national legislation that ensures our constitutional right of access to information. The PAIA came into operation in March 2001.

Section 14 of the PAIA for public bodies and section 51 of the PAIA for private bodies came into effect in February 2002. One of the main objectives of the PAIA is to promote transparency, accountability and effective governance of all private and public bodies.

According to section 51 of PAIA, non-government bodies need to create both a manual describing the type of records they hold and procedures for others to access that information.

All bodies corporate, share block schemes, and home owners associations are private bodies and are not exempt from PAIA.

Contents of the Manual:

• Scheme contact details.
• Contact details of the head of the organisation.
• Reference to the South African Human Rights Commission (SAHRC) – the guide that the SAHRC has produced to the Act and how to access it.
• Procedure for requesting information for the organisation.
• Description of what information is automatically available to the public.

You have an obligation to make the manual available to the Public. This includes the obligation that the Manual must be submitted to:

• SAHRC.
• Any controlling body (e.g. for layered schemes).
• Any scheme website.
• Its main office during office hours (or the managing agent’s premises if no office exists).

Anyone has the right to request the information from the scheme, but PAIA does set limits on the types of information that can be accessed. For example, information does not need to be given if it infringes a person’s right to privacy or safety.

It would be advisable that the managing agent or trustees develop a procedure to handle the requests. People can only request the information when the record is required for the exercise of rights or protection of rights. This will require some degree of discretion from the person handling the requests and may end up in disputes.

To wrap up, what you need to do is prepare your sectional title scheme’s PAIA Manual, publish it before 31 December 2015 (it was extended from 31 December 2011), send a copy to the SAHRC, and have it available to be printed and handed over in physical form.

You must also prepare procedures for dealing with requests and make sure the people dealing with those requests know how to handle them.

Should you require any further information in this regard, kindly contact Michael Bauer on 083 255 4442 or email Michael@ihfm.co.za.

For more information, please visit www.ihfm.co.za.

Several new amendments to the Prescribed Management Rules (as set out as Annexure 8 to the Sectional Title Act) came into effect on 28^th October – and these, says Michael Bauer, general manager of the property management company IHFM, will radically change certain traditional practices in sectional title schemes.  It is, therefore, he says, important that all sectional title trustees and members become aware of them.

The most important of these amendments, says Bauer, relate to:

• Budget preparation:

The amendment of PMR 36 (1) requires the trustees to prepare the levy budget, prior to the financial year end, and to lay this before the members at the AGM.  In the past budgets were usually prepared only a few weeks prior to the AGM (and four months after the financial year end) thereby putting strain on the cash flow of the body corporate.

• Notices for General Meetings:

Another amendment, one which will save time, costs and labour, is a substitution of PMR 39 2 (2) and 54 (1).  This allows for the delivery of documents by facsimile or email, provided that the owner consents in writing to this.  Annual notice and supporting documents for the AGM may now be issued in a digital format, whereas in the past these had to be issued by prepaid post.

• Special levies:

Trustees and members of sectional title bodies corporate should note the deletion of PMR 31 (4), which dealt with the special contributions (special levies) and gave the trustees the power to raise these on their own decision. These clauses have been amended, and now allow the trustees to raise special levies only with owners’ consent.

• Use restriction:

Another more useful change is the amendment of PMR 68 1 (v), which now provides a use restriction. PMR 68 is an addition of section 44 (1) and deals with owners duties and obligations. This change allows owners to use their sections or exclusive use areas only for the purpose as indicated on the sectional plans of the scheme. For example, if a section is zoned as a garage on a sectional plan, it may not be used for anything else, e.g. a workshop or storage area.

• Arbitration:

This amendment to PMR 71 (4) is a minor, but possibly impractical change. This change basically now requires the Chief Registrar of Deeds to appoint an arbitrator in dispute cases instead of the local or provincial Registrar of Deeds who performed this function previously.

• Proxy rule:

A change to PMR 67 now stipulates that any owner of a unit in a scheme may not hold more than two proxies. This, Bauer believes, will lead to many re-adjournments and practical problems in holding general meetings in the future because without proxy holders it may be difficult to attain the required quorum and if trustees cannot reach a quorum within 30 minutes of a scheduled general meeting (as it is most often the case), they will have to re-convene seven days later.

This, says Bauer, will increase costs as managing agents will charge for appearing a second time.  In addition, most proxy forms pass the vote to the chairman if the proxy holder does not attend the meeting – but this is no longer possible.  Second meetings are now likely to be seen far more often.

“We understand the thinking behind the new rule,” he said, “but its application will lead to problems.”

The amendments outlined apply to the standard Prescribed Management Rules only.  The Sectional Titles Schemes Management Bill and Community Schemes Ombud Services are yet to be promulgated.  Bauer says that it is just possible that the new rules may in the end apply only to new sectional title schemes, i.e. those launched after 28^th October.  However, he says, this matter has still to be confirmed one way or the other and he is not yet in a position to comment on it.

Download the Amended Sectional Title Act and Amended Prescribed Management Rules Download the Amended Sectional Title Act and Amended Prescribed Management Rules here

The big problem in sectional title schemes, says Michael Bauer, general manager of the property management company IHFM, is that a minority of members, often living an unsustainable lifestyle and paying their hire purchase, retail and other accounts only as and when it suits them, adopt the same lackadaisical approach to their sectional title levy payments.

“Some members of sectional title schemes,” he said, “have legitimate and serious reasons for being unable to pay their levies, but whatever the reasons, the trustees have the fiduciary responsibility to ensure that their body corporate is liquid and remains solvent.  They must, therefore, enforce strict credit controls and treat all non-payers equally.”

“In the long run,” added Bauer, “it is these non-payers who suffer the most because, when put under pressure from the scheme’s lawyers and finally made to pay, they will find themselves (in terms of the Prescribed Management Rules 31 (5)) also having to pay the compound interest on their debt, the legal costs incurred by the trustees and their attorneys, as well as all costs involved in the recovery of their levies and other amounts owed by them.  In addition, they will find themselves with a bad credit record which will be picked up by all future credit providers.”

Any sectional title owner likely to fall behind on his levies, said Bauer, should immediately contact the trustees, or their managing agent, to try and ‘make an arrangement’.  If this is not done and the debts continue to remain unpaid for a significant period, said Bauer, the trustees have no choice but proceed with the collection process.

“The law does provide remedies for body corporate creditors, but these are always time consuming and expensive and need additional funding.”

“All too often,” says Bauer, “trustees have not budgeted for a reserve as well as working capital.  IHFM recommends budgeting for a 10 to 20% addition to the annual levy (depending on the size of the scheme) to ensure that the body corporate remains solvent and has the funds to cover both levy arrears and the legal fees which, although eventually recoverable, do mount up in the interim.

“Trustees have to be strict and deal with debtors in the quickest possible way to ensure that the cash flow of the body corporate is secured.  It has to be made clear that they have a policy of zero tolerance for defaulters.”