The success or failure of sectional title schemes today is dependent to a large extent on the body corporate trustees and their managing agents. However, this simple fact is often forgotten by the developers who appoint the managing agents for the first year and by the body corporate members/owners who have to elect the trustees who will run the development going forward.
“The biggest cause of failure in sectional title developments is ignorance,” says Paul Henry, Managing Director of Rawson Developers. “Trustees are seldom aware of their responsibilities towards the members of their body corporate as determined in the Sectional Titles Act. They may be experienced business men and women in their own right but they have never properly studied the Sectional Title Act.”
“In the circumstances, the performance of your managing agent is crucial,” says Henry. “The managing agent’s portfolio manager, responsible for a particular body corporate should be fully au fait with the requirements of the act and should provide guidance to trustees in all their decision-making. Trustee meetings should be attended and managed by a managing agent who is capable of guiding the trustees in practicing good corporate governance and correct procedure and not by a clerk who has been sent there to take the minutes.”
Reminding the property investment public of these facts, Henry said that he has seen many instances where the elected trustees and/or their managing agents were disinterested or ineffective. There have also been certain rare cases where the managing agents have embezzled thousands of rands which were entrusted to them. Managing agents lack of presence and input, he said, almost invariably led to developments deteriorating as a whole and losing their value and this applied almost as much to smart upper bracket projects as to those in the more affordable groups.
It has to be realized, Henry added, that before a bank will grant a mortgage bond for a sectional title scheme, it will insist on seeing the development’s accounting records. If these then reveal any inefficiencies or negative trends, the loan will not be forthcoming. This, in turn, means that sales in the scheme will become difficult or even impossible and its deterioration will be inevitable.
“The first year in the life of a development,” said Henry, “is probably the most crucial time of all. It is in this first year that the disciplines have to be established and body corporate members and their tenants must be made aware of their responsibilities to each other and to the development as a whole. Furthermore, it is the trustees’ duty to establish and enforce the rules through which the development is run. This can often involve embarking on a comprehensive educational programme for owners and their tenants, especially in the more affordable developments where it can happen that many of the residents will never before have lived in close proximity with each other.
“In that first year, too,” said Henry, “the board of trustees and their managing agent will see to it that the developer shoulders all of his responsibilities as regards snagging repairs. They will at some stage, usually within 12 weeks of the completion, insist on a formal handover of the building, at which all snags will be noted and listed and the developer will have to commit himself to a fixed date by when they will be repaired.”
Repeating what the Rawson Property Group Chairman, Bill Rawson, has said on several occasions, Henry stressed that it is essential for all body corporate members to attend the development’s annual general meetings and any special meetings called. At the AGMs, he said, as many as possible of the trustees elected to represent the members should actually live on the premises. When too many absent trustees are on the committee, problems tend to go unnoticed and are not attended to.
The trustees, he added, must also keep a close check on the managing agent. All expenditure must be authorised by the trustees and regular discussions regarding maintenance and repairs need to take place. Great care should also be taken in the original selection of the managing agent.
“It has been estimated,” said Henry, “that almost 25% of South Africa’s sectional title projects are in financial difficulty. It is also true, however, that this has in almost all cases been due to ignorance and poor management, which have resulted in owners’ debt levels rising and all the usual problems that follow on from this situation.”
