A reader and a number of owners in a sectional titles scheme have not been able to extract pertinent information from the body corporate trustees for two years and she wants to know what their rights are.
The first query involves a payment made from the reserve fund for electricity.
Despite a large portion of the amount due being recovered from the various owners, the reserve fund did not increase by that amount. Ostensibly, the funds are unaccounted for.
The second query involves expenditure for security upgrades where an amount in excess of double the approved amount was spent.
The third query also relates to security after the scheme recently experienced a number of burglaries. The reader is concerned that the trustees have not advised the owners of these incidents.
This is of particular concern as some owners believe many of the break-ins are perpetrated by people with access to the complex.
The reader also says the previous managing agent was, despite repeated requests by the owners, only replaced after a year had elapsed, even though the trustees knew the person was not EAAB (Estate Agency Affairs Board) compliant.
See the reader’s question here.
The newly implemented Sectional Titles Schemes Management Act 8 of 2011 provides much of the legislation applicable to the issues raised.
In accordance with the act, a reserve fund means an amount set aside by the body corporate to meet the unexpected costs that may arise, including future costs of maintenance.
Despite the fairly general ambit of the definition of reserve funds, rule 24(5) of the act outlines the payments that may be made from the fund.
Importantly the rule specifically states that the trustees must report to the members on any such expenditure as soon as possible after it is made.
Under sub-rule 6, the payment made may not exceed the amount necessary for the purpose.
Nor may it exceed any limitation imposed by the body corporate on expenditure and it must comply with any restrictions imposed by members.
From the provisions of the rule, it is clear the fund has a particular purpose, primarily to ensure that sufficient funds are available for maintenance and repairs.
In respect of the extensive overspend on security upgrades, it would appear that the trustees acted beyond the scope and limitation of the budget approved.
One of the aspects to be dealt with at the annual general meeting of the body corporate is to approve the budgets for administrative reserve funds for the next financial year.
In respect of the burglaries, the request for information and any proposal as to what may be done, the rules make provision for the members of the scheme to call for a general meeting.
The request for the meeting should include one or more motions or matters for discussion and these should be added to the agenda.
In respect of the first two issues raised, it should be noted that the trustees are obliged to compile and maintain financial records relating to the administration of the scheme.
Additionally, the body corporate’s annual financial statements are required to be audited.
Should the reader maintain that there is some irregularity, she may request copies in writing of, in particular, the budget and financial statements for the current and previous years.
The problems that arose as a result of the appointment and management by the previous managing agent are not clear, but it should be noted that he is in a fiduciary position and should exercise care in the execution of his duties.
It appears that the reader feels the trustees have intentionally or negligently ignored or exceeded the scope of their duties.
In this regard, however, it should be noted that trustees may only be held personally liable for acts or admissions that are grossly negligent or caused by the trustee acting in bad faith.
In the event of such an indemnification not existing, it is unlikely that many members would volunteer for the position of trustee.
Should the reader wish to declare a dispute, she could consider doing so in accordance with the provisions of the Community Schemes Ombud Act.
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