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SECTIONAL TITLE TRUSTEES ARE DUTY BOUND TO DIGEST SECTIONAL TITLES ACT LEGISLATION - NADISHA SINGH

Every member of a body corporate, but most especially its trustees, must ensure that they are familiar with the provisions of the Sectional Titles Act 95 of 1986 and the management rules which regulate the affairs of the body corporate.

Sectional title schemes are managed, controlled and administered by the body corporate, the members of which are all owners of units in the scheme.  A unit is a section, which is one’s apartment/duplex/simplex, together with an undivided share in the common property in the scheme.

The functions and powers of the body corporate are performed and exercised by a small representative group of owners in the scheme who are appointed by the owners as trustees of the scheme to manage the day-to-day running of the scheme on behalf of the body corporate.

The trustees are empowered to exercise all the powers and to perform all the duties of the body corporate within the limitations imposed in the Sectional Titles Act and the management rules of the scheme and subject to any restrictions imposed on the trustees at a general meeting of the owners. 

Contrary to popular opinion that it is the trustees who have an unfettered right to lay down the law in a scheme, it is the owners in a general meeting who have the ultimate decision-making power in a scheme.

The function of the owners in a general meeting is legislative while the trustees have an executive and administrative function, namely, to ensure the day-to-day management of the scheme.

Some of the limitations on the powers of trustees imposed by the Act are as follows:
• Trustees may not sell or let common property without the consent of the body corporate, which consent must be obtained by way of a unanimous resolution. A unanimous resolution must be passed by all the members of a body corporate at a general meeting at which at least 80% of all the members of a body corporate (in number and in value) are present or represented.
• The trustees are empowered to exercise all the powers and to perform all the duties of the body corporate subject to any restrictions imposed on the trustees at a general meeting.  An example of such a restriction is the prohibition of expenditure over a specified amount by the trustees without the consent of the owners. The power of the owners to limit the powers of the trustees is an important power that should not be exercised so as to hinder the trustees in the performance of their duties but should instead be exercised so as to operate as an effective mechanism of control over the decisions of the trustees.

The Sectional Titles Regulations prescribe a model set of management rules which regulates the management and administration of a scheme and which sets out the powers and responsibilities of the trustees.

The management rules may be added to, amended or repealed by unanimous resolution of the body corporate.

Some of the limitations on the powers of trustees imposed by the management rules are:
• Trustees may effect improvements of a luxurious nature – the installation of a pool, for instance – on the common property only if the owners agree to such improvements by way of a unanimous resolution.
• Should the trustees wish to effect improvements of a non-luxurious nature on the common property, such as the erection of a security gate, the trustees are required to first give written notice of their intention to all owners. The trustees must at the written request of any owner convene a special general meeting in order to deliberate upon the proposed improvement, at which meeting the owners may veto, amend or approve the proposals by way of special resolution.

Each trustee stands in a fiduciary relationship to the body corporate. In terms of the Act, this relationship demands that a trustee must act honestly and in good faith towards the body corporate, must not exceed the powers granted to him by the Act, the management rules and the owners at a general meeting, and must exercise his powers in the interest and for the benefit of the body corporate.

A trustee must avoid any material conflict between his own interests and those of the body corporate. In particular, he must not, by reason of his office as a trustee, derive any personal benefit to which he is not entitled from the body corporate or from any other person in circumstances in which that benefit is obtained in conflict with the interests of the body corporate.

He is furthermore obliged to notify all other trustees of the nature and extent of any direct or indirect material interest he may have in any contract entered into by the body corporate.

If a trustee breaches his fiduciary duties by an act or omission that is grossly negligent or performed in bad faith, he will be liable to the body corporate for any resultant loss suffered by the body corporate or any economic benefit derived by the trustee.

Where a trustee has not disclosed the nature and extent of any direct or indirect interest in a contract concluded by the trustees on behalf of the body corporate, that contract is voidable at the option of the body corporate.

From the viewpoint of a trustee of a large body corporate from which a significant number of complaints and issues arise on a weekly basis, it is often tempting to do what the reasonable person would consider is reasonable in the circumstances without resort to the Act or the management rules.

Yet doing so would constitute a breach of the trustees’ fiduciary duties to the body corporate. It is imperative that all members of a body corporate, but most especially its trustees, are familiar with the provisions of the Act and the management rules relevant to the powers, duties and liabilities of trustees.

Experience shows that it is ignorance of the Act and the rules that precipitates the largest number of conflicts among the trustees themselves, and between the trustees and the members of the body corporate.

Nadisha Singh is an associate in the corporate department of Bowman Gilfillan, Cape Town

Tuesday, June 24, 2008