Ensuring due diligence when appointing a managing agent

In the early part of 2013 the Managing Director of Intersect Sectional Title Services, Mr Martin Bester, issued a press release headed "The importance of good financial planning in Sectional Title" and a very recent investigation by the Estate Agency Affairs Board [EAAB] into the misappropriation of body corporate funds has highlighted, once more, the need for trustees to, at the very least, ensure that the managing agent they appoint to administer the affairs of the body corporate or home owners association they represent, has ticked all the boxes in terms of the EAAB's fiscal, administrative and legal requirements. 

Every managing agent dealing with trust funds on behalf of its clients is an estate agent by definition - this is a fact. This means that the managing agency is subject to the same terms and conditions as an estate agency as laid-down by the EAAB and is therefore required to maintain a valid fidelity fund certificate at all times. Moreover the head of company [Principal] and each of the property managers [Agents] must have satisfied the EAAB's requirements ito the qualifications and professional designation exams so as to hold and maintain their individual fidelity fund certificates. 

Failure to ensure that the managing agent appointed to administer the affairs of the body corporate or home owners association is in receipt of same could jeopardise any future claims against the EAAB's fidelity fund, leaving the body corporate or home owners association with a loss. 

Should the trustees be found not to have performed reasonable due diligence at the time of the appointment of the managing agent a gross negligent act or omission [mala fide] could be argued and, if proven, could find the trustees held liable in their personal capacities for the loss or part thereof as the Sectional Titles Act or (usually) the Constitution or Memorandum of Association only indemnifies the trustees as long as they are acting in good faith and that no gross negligence can be proven. 

It is therefore imperative that due diligence is performed prior to the appointment of any managing agent and the very least to request are copies of the fidelity fund certificates of the company; of each of the agents as well as that of the principal. Moreover an explanation of how trust funds are dealt with, preferably in writing, would be strongly advised. Lastly, the trustees must, without exception, insist on (monthly) management accounts and keep an eye on the inflows and outflows of the scheme. 

Intersect Sectional Title Services has been administering sectional title schemes and home owners associations since 1971, and is 100% compliant with the EAAB and every manager in its employ is in possession of a valid, current, fidelity fund certificate. 

An internet search can be done on the EAAB's website for registered and compliant agents and agencies at http://www.eaab.org.za.