PMR 37 states that trustees shall prepare and present at an Annual General Meeting, a financial statement in conformity with generally accepted accounting practice, which statement fairly present the state of affairs of the body corporate and its finances at the end of the financial year concerned.

The financial statement shall include information and notes pertaining to the proper financial management of the Body Corporate, including:

• the customer age analysis of debts in respects of levies, special levies and other contributions;
• the supplier age analysis amounts owed by the Body Corporate to the creditors; and
• the expiry date of all insurance policies.

The trustees are elected by the body corporate at each AGM to manage the scheme and carry out the functions of the body corporate until the end of the following AGM.

The functions of the trustees include:

• keeping minutes of their meetings as well as those of owners;
• keeping proper accounting books and records;
• preparing AGM documents,  including the financial and operational reports for the previous year and plans for the following year;
• insuring the buildings for their full replacement value;
• determining, raising and collecting levies;
• investing the body corporate’s surplus funds; and
• carrying out all body corporate functions.

The trustees have a ‘fiduciary relationship’ with the body corporate, which implies that every trustee must act honestly, in good faith and in the best interests of the owners and the body corporate at all times. This means that if trustees have material interests in any contracts with a body corporate, they must disclose the nature and extent of such interests at the earliest opportunity. This fiduciary relationship exists to protect the body corporate, as it constrains all acts performed by its trustees within the scope of their actual or apparent authority.

No fewer than 50% of trustees must be owners; it is therefore possible for the body corporate to elect non-owner trustees. Owner trustees generally work on a volunteer basis but may be compensated if the body corporate decides to do this via a special resolution to that effect. A non-owner trustee may be remunerated at a rate agreed upon between the body corporate and the trustee without the need for a special resolution.

The trustees generally meet more frequently than the owners do, this being usually monthly or quarterly, to decide on the day-to-day issues necessary to run the scheme. It must be noted that the trustees are the servants of the body corporate, and owners, in general meetings, have the capacity to restrict the scope of the trustees’ decision-making power. For example, the body corporate may give the trustees authority to spend a specific amount of body corporate funds without first consulting the body corporate. Similarly, the body corporate can, by adhering to certain procedures, issue directives compelling the trustees to carry out particular duties. Trustees may resign or be removed from office by majority vote at a general meeting  before completion of their one year appointment, provided that the possibility of this removal from office was disclosed in the notice of that meeting.

It is not compulsory for the trustees to appoint a managing agent, and many smaller schemes manage their affairs without the assistance of a managing agent due to the competence and active participation of their owners. In other schemes, especially medium to large-sized schemes, the workload involved in managing the affairs of a body corporate as well as the usual lack of compensation, encourages trustees to appoint a managing agent to bear most of the workload.

In terms of the prescribed management rules, the managing agent must be appointed by written contract for an initial period of one year, with one month’s written notice of termination to be given by either party thereafter. The scope of the managing agent’s services will be specifically stipulated in the contract of appointment. Generally however, managing agent is appointed to control, manage and administer the common property and any obligations the body corporate has to any public or local authority on behalf of section owners. The functions delegated to the managing agent usually include the responsibility and authority to collect levies.

As managing agents are governed by the Estate Agency Affairs Act and are required to be in possession of a valid Fidelity Fund Certificate (FFC) at all times the body corporates who employ them are protected against theft of their moneys, being collected or received body corporate levies, which are generally held in trust accounts administered by these managing agents. Unfortunately, this requirement is not well-policed and enforced in reality, there are many managing agents practising without FFCs, placing the moneys of body corporates at risk.

Managing agents may be removed from office without notice if they have breached any of the provisions in the contract or if found guilty of conduct that in common law would justify the termination of a contract between employer and employee.

PMR 33(1) refers to luxurious improvements to the Common Property. Luxurious improvements to the Common Property require a unanimous resolution from the owners of the Body Corporate. There are essentially 2 ways of obtaining a unanimous resolution.

The trustees can obtain either written consent of all owners, or call a general meeting of which 30 days notice has been given. If the trustees decide to call a general meeting, at least 80% of all owners need to present in person or by proxy and everybody will have to vote in favour of the proposal, or abstain from voting to pass the unanimous resolution.

Section 1 (3) (b) of the Act defines an abstention at such general meeting as a vote in favour.

PMR 33 (2) requires trustees who want to propose a non-luxurious improvement to the Common Property to write to every owner of the Body Corporate describing the proposed improvements giving details of the cost, why it is needed, how it will be paid and the effect on the ordinary levies. Having sent the letter, the trustees must wait for 30 days before proceeding with the proposed improvement.

On receipt of a written objection from any owner of the Body Corporate within the 30 day notice period, the trustees must call a general meeting, of which a minimum of a further 30 days notice must be given. At that general meeting, the owners may by special resolution accept, amend, or reject the proposal.

If no objections are received, the trustees may proceed with the proposed improvement at the expiry of the notice period.

All special levies raised for improvements, maintenance or repairs must be charged according to the participation quota or values denominated under section 32 (4) of the Act.

• The Sectional Titles Act, of 1986 (“the Act”), is the legislation providing for and governing sectional titles in South Africa. It deals with scheme management including the following: the composition of the body corporate and its functions and powers, the trustees and their functions and powers, rules applicable to schemes, and the duties of owners. Every owner, trustee, chairperson and managing agent should have a copy of the Act and try to familiarise themselves with its management provisions.
• The prescribed management and conduct rules are annexed to the Act and are automatically applicable to a scheme, unless they are amended, substituted, added or deleted. Where this is the case, the scheme operates according to its amended rules.
• The Estate Agency Affairs Act, of 1976, governs managing agents, and, according to its regulations, managing agents are required to be in possession of a valid Fidelity Fund Certificate(“FFC”) at all times when collecting or receiving levies from sectional title schemes.
• The National Building Regulations and Standards Act, of 1977, is also relevant to sectional title schemes, as it prescribes that all building plans must be approved by the local council before any building may commence.
• The town planning scheme regulations govern and restrict the manner in which an occupier may use the sections in a scheme.
• The Occupational Health and Safety Act 85 of 1993 (‘OHSA’), and the various regulations issued under it, govern issues of workplace health and safety in South Africa and is particular relevant if larger sectional title schemes or Home Owners’ Association have direct employees. OHSA adds to, and in some cases clarifies, the common-law duty of care that has traditionally rested on employers.
• National Credit Act of 2005 provides for the control and regulation of ALL credit transactions – mortgages, credit cards, overdrafts, micro loans, pawn broking and contract loans such as hire purchase of assets. The Act also regulates ALL institutions that provide consumer credit including banks, furniture companies, clothing, other retailers, micro lenders, pawnbrokers, and levy finance companies and managing agents provided they offer a levy finance product. The Act also regulates credit bureaux and consumer credit information, providing for free access to the information kept at the credit bureaux, and for a process by which any errors on the credit records of consumers can be corrected. In addition the Act makes provision for the registration of debt counsellors and debt restructuring for over-indebted consumers.
• The Debt Collectors Act of 1998 provides for the exercise of control over the occupation of debt collectors and legalizes the recovery of fees or remuneration by registered debt collectors. The overall goal with the Act is to transform the debt collection system in South Africa by monitoring the conduct and professionalism of debt collectors and promoting a culture of good governance within the profession, thus contributing to protecting the public at large, as well as creditors. The Council for Debt Collectors will exercise control over the occupation of debt collectors.

There is often confusion about what the Managing Agent and Body Corporate should handle and what should be done by owners themselves.

In a nutshell:

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 and by proxy an entitled to vote shall form a quorum.

The trustees may whenever they think fit and shall upon written request of either owners holding 25% of the total quotas of all sections or by any bank holding mortgage bonds not less than 25% in number of units, convene a special general meeting.

If the trustees fail to call a meeting if so requested in writing within fourteen days of the request, the owners or the bond holders concerned shall be entitled to call the meeting.

PMR 64 states that an owner is not entitled to vote at an AGM, except in the case of a unanimous or special resolution, if:

• Any contributions payable by him in respect of his section and his undivided share in the common property have not been paid.
• He persistently breached any of the conduct rules notwithstanding written warning by the trustees or managing agent to refrain from breaching such rule.

However, a disqualified owner’s bondholder is entitled to vote as his proxy.

The Body Corporate is a legal entity made up of all the owners in a scheme. Membership of the Body Corporate is compulsory and occurs automatically when a section is transferred into a buyer’s name. It continues until that person is no longer the owner of a section in the scheme. The Body Corporate exists to manage and control the scheme by ensuring that its financial, administrative and physical needs are attended to.

The functions of the Body Corporate include:

• running the ‘levy fund’;
• operating the scheme’s bank accounts;
• insuring the buildings for full replacement value;
• maintaining the common property;
• keeping owner records;
• providing various types of information;
• ensuring that there is an address where the scheme’s correspondence can be received;
• lodging notifications of rule changes with the Registrar of Deeds; and 
• enforcing the scheme’s rules.

 The way in which a Body Corporate makes decisions is by owner resolutions at duly convened meetings. The Annual General Meeting (“AGM”) is the principal meeting at which the Body Corporate makes important decisions such as electing Trustees, appointing an Auditor or Accounting officer, approving the budget of expenditure for the following year and any other decisions that may be necessary because of the inclusion of items of special business on the agenda.

In the time between AGM’s, Special General Meetings of owners may be called by the Trustees, or by the Owners themselves in certain circumstances. These meetings arise if or when business needs to be considered and/or decided upon before the next AGM. Instead of calling a Special General Meeting, owners can also make certain decisions using the ‘round robin’ process, in which they sign a circulated text setting out the text of the resolution.