Sectional Title and HOA Insurance matters

SECTIONAL TITLE:

Insurance is a legal requirement in terms of the Sectional Titles Schemes Management Act and its applicable regulations (“the Act’’). The trustees are required to ensure that insurance is in place.  Every owner in the scheme, by default, pays part of the cost (premium) of this insurance and the premium is included in the budget for the scheme, however, where the replacement value of a specific unit has been increased beyond that provided for by the trustees, usually at the request of the owner or bondholder, an additional premium will be payable and recovered from the owner concerned.

Generally, the policy covers the body corporate for the full replacement value of all or any of the sections and the common property in the scheme.

The purpose of sectional title insurance is to protect against loss due to a sudden and unforeseen event - not due to ordinary wear and tear or damages that occur over a period of time or due to poor design or construction.    Sectional title insurance does not cover the contents, personal belongings or movables - even if these are lost or damaged due to one of the ‘insured events’ covered by the policy.  Owners and/or tenants need to take out their own, individual, insurance policies to cover such items.

So what’s insured?

In general:

• The building(s)

• The common property

• Fixtures and fittings, including within sections

• Hot water installations

• Any other peril resolved by the members of the body corporate or the holders of mortgage bonds, provided the requisite rules are applied

Against which insured perils?

In general:

• fire, lightning, explosion and smoke;

• riot, civil commotion, strikes, lock-outs, labour disturbances or malicious

• persons acting on behalf of or in connection with any political organisation;

• storm, tempest, windstorm, hail and flood;

• earthquake and subsidence;

• water escape, including bursting or overflowing of water tanks, apparatus or pipes;

• impact by aircraft and vehicles; and

• housebreaking or any attempt thereat

• any other peril resolved by the members of the body corporate or the holders of mortgage bonds, provided the requisite rules are applied

Other cover, such as public liability, trustee liability, employer’s liability, machinery breakdown, loss of money, the cost of alternative accommodation or loss of rent for owners whose properties are uninhabitable for a certain period, demolition costs, inflation and escalation and VAT may also be included.

Who pays the excess?

Basically, if the claim is for loss or damage to common property then the body corporate pays the excess.  If, however, a claim is made for damage or loss to any part of any section, then the owner of that section is liable for an excess.

Excesses vary from policy to policy are negotiated with the broker/insurer at renewal.

Do I pay an excess even if a 3rd party is to blame for the loss or damage?

Yes.

The Act states the following regarding excesses:

Regulation 23(2)(b):

A member is responsible –

(b) for any excess amount that relates to damage to any part of the buildings that member is obliged to repair and maintain in terms of the Act or these rules.

Should an owner believe that the loss or damage was caused by a 3rd party, even if that 3rd party is the body corporate, and that the excess should be covered by same, this argument will not be resolved by Intersect and or the Trustees.  The excess remains applicable and payable by the owner, in terms of the above regulation, and remedy, if any, may then be sought, separately, and directly by the owner against the party(ies) concerned.

What if several units are damaged in one insured event?

As per regulation 23(2)(b), each owner will be liable for an excess.  However, the insurer may apply a single, or gross, excess, in which case the discretion of the trustees may be called upon.  As a rule of thumb, though not regulated, the ratio of each owner’s individual claim to the total claim for the event may determine the quantum of the excess to be applied, i.e. the total excess applied will be split amongst the affected owners in proportion to the value of each owner’s claim.

HOMEOWNERS ASSOCIATIONS:

Insurance is covered under the Constitution or Memorandum of Association, and any applicable regulations or rules thereto. The trustees are required to ensure that insurance is in place for the common property, only.

Every owner in the scheme, by default, pays part of the cost (premium) of this insurance and the premium is included in the budget for the scheme.

Generally, the policy covers the Homeowners Association for the full replacement value of the common property in the scheme.

Each owner is responsible for the insurance, both house-owners and house-holders insurances, for his or her erf, including any development thereon.

Property Practitioners Bill

Another new Act is about to enter the real estate industry, currently under draft as the Property Practioners Bill (the Bill).

The Bill was published on 31 March 2017 in Government Gazette 40733 (Notice Number 246) and a call for submissions and feedback, within 30 days thereof, was made.

In essence, the Bill, once passed, will replace the Estate Agency Affairs Act and replace the Estate Agency Affairs Board (EAAB), being the current regulatory body for the profession. The new body will be the Property Practitioners Regulatory Authority (the Authority), which will establish its own board and will be governed by and act through same.

A property practitioner includes managing agents, as defined in the Bill, as well as, inter alia, estate agents, rental agents and bond originators.

The Authority will perform much the same role as the EAAB, by regulating the conduct of the property practitioners and ensure that the Act is complied with.

But it’s not just a case of changing the Act and the regulatory board, a few other changes are envisaged through the new bill.

Transformation in the industry has been identified as a need and is an example of one such change from the old Act, also an Ombud service will be established to deal with complaints lodged in terms of the Act.

But what about the Estate Agency Fidelity Fund – a fund currently in place to protect consumers against pecuniary losses caused by registered estate agents?  This fund will continue to operate under the Authority and similar rules in terms of claims shall apply.

As with the old Act, every property practitioner must operate trust accounts (one or more), be registered with the Authority, obtain an annual fidelity fund certificate and comply with the educational requirements set out.

Several managing agents have, hitherto, not registered with the EAAB, given the relatively broad definitions in the current Act, however this is not correct.  Managing agents are estate agents by definition, and therefore must all register and comply with all aspects of the Act, i.e. must operate a trust account and must obtain annual fidelity fund certificates.  Any deviation from this may prejudice the consumers’ ultimate protection against pecuniary losses.

Intersect Sectional Title Services is registered with the EAAB, operates trust accounts in terms of the Act, holds a valid fidelity fund certificate and its Principal holds an individual fidelity fund certificate as well.  Moreover, Intersect holds insurance cover for professional indemnity, Directors and Officers liability and public liability, to comprehensively protect all its clients.

Two new funds to maintain!

The recently promulgated Sectional Titles Schemes Management Act [STSMA], provides for sectional title schemes to open, administer and maintain two separate funds, a reserve fund (refer to section 3(1)(b) of the STSMA) and an administrative fund (refer to section 3(1)(a) of the STSMA).

The administrative fund must be, reasonably, sufficient to cover the estimated annual operating costs of the body corporate.  This must be aligned with the operational budget approved by the members at an AGM, and cover the costs of the repair, maintenance, management and administration of the common property and payment of, inter alia, utilities, salaries, services and the insurance premium.

The reserve fund, on the other hand, must, in summary, be used for the implementation of the maintenance, repair and replacement plan [MRRP] of the body corporate. 

The MRRP too is approved by the members at an AGM, and forecasts the maintenance, repair and replacement of common property buildings, plant and equipment over a 10-year period.  Trustees would be well advised to seek the assistance of professionals when creating this plan at the outset, so as to, reasonably, pre-empt works requiring attention over this period and cost accordingly.

The MRRP, as well as its associated fund, is new to sectional title, and this year sees a change in the typical AGM agenda and order of business, to allow for the consideration and approval of this new plan and associated budgets.  Thereafter, same must be maintained and tracked on an annual basis.

At Intersect we have created separate ledgers in the management accounts of each of the body corporates we administer, as well as separate investment accounts at financial institutions, to administer, maintain and track these funds for our clients.

At the same time the STSMA, as well as the Community Schemes Ombud Services Act (promulgated in October 2016), provides for each body corporate to hold sufficient fidelity insurance to cover the amounts held in these funds from time to time.  This too Intersect has put in place for each of its clients.

Intersect Sectional Title Services is the communal schemes management specialist of the Spire Property Group, a national property management company providing comprehensive property services to residential, retail, commercial and industrial property owners.

Intersect operates out of Rondebosch in Cape Town and may contacted on 021 659 5965 or by visiting www.intersect.co.za.

Getting to grips with the two new Acts affecting Sectional Title and Other Communal Schemes

The two new Acts affecting communal schemes, such as sectional title, share-block and owners’ associations, were enforced on 7th October 2016.  These are The Sectional Titles Schemes Management Act, no. 8 of 2011 (STSMA), and The Community Schemes Ombud Service Act, no. 9 of 2011 (CSOSA).  

Many trustees and managing agents alike are still getting to grips with the recent changes brought about by the new acts, but a few immediate and fundamental duties have been placed on trustees in terms thereof, and these were to be implemented within prescribed time-frames. 

It is important to note that not all provisions of both acts affect all communal schemes, as home owners’ & property owners’ associations, for instance, are not subject to the STSMA, however all communal schemes are subject to the CSOSA. 

Below I highlight a few pertinent duties that were imposed and what we at Intersect have done to assist our clients with their compliance. 

Reserve and Administrative funds: 

The STSMA (and its regulations and prescribed management rules), provides for the operation of two separate funds, a maintenance reserve fund and an administrative fund.  In terms thereof Intersect has established both funds in its clients’ sets of accounts and opened separate trust investment bank accounts for each. 

In brief the maintenance reserve fund must be used for the implementation of the maintenance, repair and replacement plan (MRRP) of the body corporate (basically a plan of foreseen repairs, maintenance and replacement of plant and or equipment, over a 10-year cycle), whereas the administrative reserve is the reserve maintained to reasonably cover the estimated annual operating costs for the balance of repairs and maintenance, payment of services, insurance and administration - the latter has always been a requirement for body corporates. 

CSOS registration: 

Intersect obtained, completed and submitted all the requisite forms, rules and governance documentation to register each scheme with the Ombud, by the prescribed date. Fidelity insurance: Over and above the fidelity guarantee, already in place on all Intersect’s clients’ insurance policies, the CSOSA provided for additional fidelity insurance to be taken out by the trustees, thereby ensuring that fidelity cover is in place, equal, at least, to the total cash reserves held by the community scheme at any point in time. 

Intersect sourced the most comprehensive policy, with the most favourable terms and conditions, for all its clients and rolled same out to ensure compliance in the unlikely event of a fidelity related claim. 

Maintenance, Repair and Replacement Plan: 

Intersect assisted its clients by drafting templates for the 10-year MRRP to be presented at the 1st AGM after the 7th of October 2016.  On approval by the scheme’s members, the plan would become effective and the subsequent additional levy, if any, applied.  

All funds received pursuant of this provision will be directly transferred to the MRRP’s separate trust investment account.  

Intersect Sectional Title Services is the communal schemes management specialist of the Spire Property Group, a national property services company providing comprehensive property services to residential, retail, commercial and industrial property owners. 

Intersect operates out of Rondebosch in Cape Town and may be contacted on 021 659 5965 or by visiting www.intersect.co.za. 

The Sectional Title Schemes Management Act and The Community Schemes Ombud Service Act - Update

By now many owners in joint property ownership schemes such as sectional title and home owners’ associations are aware that certain regulations are due to change. 

Martin Bester, Managing Director of Intersect Sectional Title Services, says that since 2011 we have been notified that two new Acts will be promulgated - the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the Community Schemes Ombud Service Act 9 of 2011 (CSOSA).

These have now been signed into law by the President, and are effective from 7th October 2016.

So what will change and what will stay the same?

According to Bester, from a sectional title point of view the current statute (Sectional Titles Act, No.95 of 1986 (STA)) will remain, but will be primarily focussed on the establishment, registration, surveying and technical aspects of sectional title schemes.  Whereas the management aspects, hitherto included in the STA, have been removed and placed exclusively in the STSMA.

Bester states that in essence the STSMA seeks to deal with the management aspects only, and streamline certain processes, and while it retains the nature of these aspects from the STA it does contain a few notable changes, inter alia:

1.                   Maintenance reserves:

The body corporate will now be required to establish and maintain a reserve fund sufficient to cover the cost of future maintenance and repair of the common property.  Of course no one knows what these future costs will be, so the STSMA sets out the following formula based on total levy income per annum:

a)      Less than 25%:

If the amount of money in the reserve fund at the end of the previous financial year is less than 25% of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund;

b)      Greater than 25% but less than 100%:

if the amount of money in the reserve fund at the end of the previous financial year is more than 25% but less than 100% of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for;

c)       Greater than 100%:

if the amount of money in the reserve fund at the end of the previous financial year is equal to or greater than 100% of the total contributions to the administrative fund for that previous financial year, there is no minimum contribution to the reserve fund.

2.                   Proxies & Voting:

“Whereas before a person could hold numerous proxies, as of the date of implementation of the STSMA a person may not act as proxy for more than two members,” says Bester.

“Further, when voting by means of a show of hands, the STSMA now provides for each member to only be entitled to one vote, regardless of the number of sections he/she owns in the scheme.”

3.                   Rights of extension by the Developer:

“The STSMA now provides for the body corporate to extend the time limit of a developer’s right of extension, by means of passing a unanimous resolution, in the form of a notarial agreement.”

4.                   Extensions of a section by an owner:

“The STSMA seeks to tidy up the old provisions of the STA in this regard by ensuring that the duty rests on the owner to obtain the consent of the members (by way of a special resolution) before proceeding with the extension and to have same surveyed and registered,” advises Bester.

“It further provides that the members are not compelled to grant their consent (some ambiguous wording exists in the current statute in this regard).”

5.                   Subdivision and consolidation of sections:

“The STSMA now specifically provides for an application procedure should owners wish to subdivide or consolidate sections, whereas in the STA no such application procedure is provided for.”

6.                   Community Schemes Ombud Act 9 of 2011:

Bester goes on to explain that this new Act affects all joint property ownership schemes and seeks to provide a mechanism (an Ombud service), to tackle all disputes in sectional title, home owners’ associations and share block developments etc., in accordance with a prescribed procedure. 

“Moreover, from a sectional title point of view, the CSOSA provides for the examination, approval (or otherwise), and filing of rules and rule amendments, hitherto registered and kept at the Deeds Registry.”

“The managing agent and/or trustees will have to furnish the Chief Omdud with certain information (Community Schemes Governance Documentation) within a prescribed period of time. There will also be a levy, payable by every member of every scheme, of up to R40.00 per unit per month, whichwill have to be collected by the body corporate and paid over to the Chief Ombud, as prescribed.  So expect an additional levy within the next few months!” warns Bester.

General:

“Naturally there are many more changes and these will no doubt be tested and amended as required over time, however it is hoped that the new regulations will streamline the day to day management aspects of communal living schemes.  Also certain provisions have been set aside for up to 90 days to allow for logistical implementation,” concludes Bester.

Intersect supports special needs school

Following a plea, heard on a local talk radio station, for musical equipment needed by the Oasis Special School in Belhar, Cape Town, the Spire Property Group of companies responded and donated goods to the school.

Mr Martin Bester, Managing Director of Intersect Sectional Title Services and Intersect Property Sales and Rentals, both subsidiaries of the Spire Property Group, heard a plea on Cape Talk radio one morning requesting a keyboard or piano for a school which educates mentally and physically handicapped children in the Cape Flats.

“After tracking the school down I was introduced to Mrs Martin, who then explained that she was the voice on the radio and described the school and its needs to me. I knew then that we had to do something to assist.” says Bester, who then arranged with the CEO’s of Spire Property Management, Tower Property Fund and the Spire Property Group to collaborate and provide the school with much needed equipment.

“We ascertained that not only did the school require a piano but also other musical instruments such as drums, maracas and tambourines as the children love music but the school had run out of equipment - and funds are always in short supply and prioritised elsewhere” continued Bester, “so we provided same and, at the same time, enquired as to what other equipment was needed by the school. Ultimately, we provided the school with a new refrigerator and toaster for the kitchen, as well as ironing boards, irons, cooking utensils, baking equipment, clothing and various other items for the school’s domestic science room, which was in much need of new equipment.”

The Oasis Special School has offered specialised professional education to mentally handicapped learners since 1957, irrespective of their cultural background, with a view to providing sufficient opportunities and experiences for the learners so that they are able to develop to their full potential and to be successfully integrated into the community.

More details about the school may be obtained via its website at http://oasisspecialschool.yolasite.com/, and any assistance that can be provided to assist this worthy initiative would be hugely appreciated by the teachers, volunteers and, of course, the learners.

The Sectional Title Schemes Management Act & The Community Schemes Ombud Services Act

On 7 October, 2016 two new acts affecting Sectional Title and Community Schemes in South Africa, being the Sectional Titles Schemes Management Act and the Community Schemes Ombud Services Act, were implemented. 

On our website we discuss these acts and the material changes that owners can expect. 

Here are the applicable regulations: 
CSOS Regulations
STSMA Regulations
 

Fiduciary relationship of Trustees in Sectional Title Schemes

All sectional title schemes are managed, controlled and administered by a body corporate, the members of which are all owners within the scheme, and these functions and powers are performed and exercised on a day to day basis by the trustees. 

Trustees are elected and appointed at each annual general meeting by the members, and must operate within the limitations imposed in the Sectional Titles Act, subject to any restrictions imposed at a general meeting of the owners and in the management rules of the scheme. 

The management rules, which regulate the management and administration of a scheme and which sets out the powers and responsibilities of the trustees, may be added to, amended or repealed by unanimous resolution of the members but one critical element thereof is the fiduciary relationship with the body corporate that every trustee stands in, once appointed to hold office until the next annual general meeting. 

This relationship demands that every trustee acts honestly, in good faith and may not exceed the powers granted by the sectional titles act, the rules and/or the owners at a general meeting, and must exercise these powers in the interest and for the benefit of the body corporate as a whole. 

Moreover, a trustee must avoid any and all material conflicts between his or her own interests and those of the body corporate. In particular, a trustee may not derive any personal benefit from the body corporate or from any other person if such benefit is obtained in conflict with the interests of the body corporate. 

Should any possible or suspected conflict exist, the trustee is obliged to notify all other trustees of the nature and extent thereof.  An example of this is any direct or indirect material interest the trustee may have in any contract entered into by the body corporate.  Should the trustee not disclose such conflicts, then any affected contract entered into is voidable should the members so decide. 

If a trustee breaches his or her 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.  

The sectional titles act however does provide indemnity, for trustees, for acts or omissions that result in a loss for which the body corporate becomes lawfully liable, where gross negligence or bad faith is not proven.  Moreover, and on a similar basis, the insurance policy of the body corporate should hold cover for trustees’ indemnity as well. 
 

New Acts regarding Joint Property Ownership Schemes

By now many owners in joint property ownership schemes such as sectional title and home owners’ associations are aware that certain regulations are due to change.  Since 2011 we have been notified that 2 new Acts will be promulgated, the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the Community Schemes Ombud Service Act 9 of 2011 (CSOSA). 

These have now been signed into law by the State President, however, as at the date of writing this article, neither Act is yet in operation, though it is believed that these will be effected in the 1st or 2nd week of October 2016 - once published in the Government Gazette. 

So what will change and what will stay the same? 

 From a sectional title point of view the current statute (Sectional Titles Act, No.95 of 1986 (STA)) will remain but be primarily focused on the establishment, registration, surveying and technical aspects of sectional title schemes, whereas the management aspects, hitherto included in the STA, have been removed and placed exclusively in the STSMA. 

In essence, the STSMA seeks to deal with the management aspects only and streamline certain processes and while it retains the nature of these aspects from the STA it does contain a few notable changes, inter alia: 
 
1. Maintenance reserves: 

The body corporate will now be required to establish and maintain a reserve fund sufficient to cover the cost of future maintenance and repair of the common property.  Of course no one knows what these future costs will be, so the STSMA sets out the following formula based on total levy income per annum: 

a)   Less than 25%: 

If the amount of money in the reserve fund at the end of the previous financial year is less than 25% of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund; 

b)   Greater than 25% but less than 100%: 

If the amount of money in the reserve fund at the end of the previous financial year is more than 25% but less than 100% of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for; 

c)   Greater than 100%: 

If the amount of money in the reserve fund at the end of the previous financial year is equal to or greater than 100% of the total contributions to the administrative fund for that previous financial year, there is no minimum contribution to the reserve fund. 

 
 
2. Proxies & Voting: 

Whereas before a person could hold numerous proxies, as of the date of implementation of the STSMA a person may not act as proxy for more than 2 (two) members. 
Further, when voting by means of a show of hands, the STSMA provides now for each member to only be entitled to 1 (one) vote, regardless of the number of sections he/she owns in the scheme. 
 
3. Rights of extension by the Developer: 

The STSMA provides now for the body corporate to extend the time limit of a developer’s right of extension, by means of passing a unanimous resolution, in the form of a notarial agreement. 
 
4. Extensions of a section by an owner: 

The STSMA seeks to tidy up the old provisions of the STA in this regard by ensuring that the duty rests on the owner to obtain the consent of the members (by way of a special resolution) before proceeding with the extension and to have same surveyed and registered. 
It further provides that the members are not compelled to grant their consent (some ambiguous wording exists in the current statute in this regard). 
 
5. Subdivision and consolidation of sections: 

The STSMA now specifically provides for an application procedure should owners wish to subdivide or consolidate sections, whereas in the STA no such application procedure is provided for. 
 
6. Community Schemes Ombud Act 9 of 2011: 

This new Act affects all joint property ownership schemes and seeks to provide a mechanism (an Ombud service), to tackle all disputes in sectional title, home owners’ associations and share block developments etc., in accordance with a prescribed procedure.  

Moreover, from a sectional title point of view, the CSOSA provides for the examination, approval (or otherwise), and filing of rules and rule amendments, hitherto registered and kept at the Deeds Registry. 
The managing agent and/or trustees will have to furnish the Chief Ombud with certain information (Community Schemes Governance Documentation) within a prescribed period of time. 
 

There will also be a levy, payable by every member of every scheme, of up to R40.00 per unit per month which will have to be collected by the body corporate and paid over to the Chief Ombud, as prescribed.  So expect an additional levy within the next few months! 
 
General: 

Naturally there are many more changes and these will no doubt be tested and amended as required over time, however it is hoped that the new regulations will streamline the day to day management aspects of communal living schemes.  Also certain provisions have been set aside for up to 90 days to allow for logistical implementation. 

Intersect establishes Sales and Rentals division

Intersect Sectional Title Services has been providing specialised property management services to its clientele for the past 45 years, focusing on sectional title and home owners’ association management across the Western Cape.  

It seemed only fitting then that we provide sales and rentals services as well and thus Intersect Property Sales and Rentals has been established.
 
Intersect Property Sales and Rentals provides sales and rentals solutions in the residential property sector in the Southern Suburbs, City Bowl, CBD, Atlantic Seaboard and surrounding suburbs.   

Operating out of the trendy Cape Quarter Lifestyle Centre - situated at Dixon Road, Green Point - and with 45 years of sectional title expertise at hand, Intersect Property Sales and Rentals is perfectly placed to provide sales and rentals advice to its clientele. 

Intersect Property Sales and Rentals is an estate agency registered with the Estate Agency Affairs Board and is in possession of a valid fidelity fund certificate. Over and above the fidelity fund covered by the EAAB, Intersect Property Sales and Rentals also holds cover for professional indemnity and public liability. 
 
Visit www.intersect-sales.co.za for more information. 

Budgeting for Reserves in Sectional Title

At every annual general meeting of a sectional title scheme the members are required to approve and adopt a budget, presented to them by the trustees of the scheme. Once the budget is adopted the levies may be resolved and applied and, within 14 days of the annual general meeting being held, must then be confirmed to all members by the trustees. 

In the past providing for reserves to meet future repairs and maintenance requirements in the budget process has been loosely applied in sectional title as no statutory implications existed, short of the trustees’ being required to budget to meet the ensuing year’s commitments and to allow for reasonable contingencies.
  
It can be said that two schools of thought exist currently in this regard (1) to keep the levies as low as possible and to raise a special levy if and when required, or (2) to provide for the future repairs and maintenance now, thereby building a healthy cash reserve, and reducing the needs for future special levies. 

There are valid arguments for both above cases, however, once the new Sectional Schemes Management Act (2011) ‘the Act’ is promulgated (widely believed to be imminent), then the trustees will be required by statute to provide for a reserve for future repairs and maintenance. 
 
Section 3(1)(b) of the Act provides for the mandatory establishment of a reserve fund to cater for future repairs and maintenance and specifies the following: 

a)       If the amount of money in the reserve fund at the end of the previous financial year is less than 25 per cent of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least 15 per cent of the total budgeted contribution to the administrative fund; 

b)      if the amount of money in the reserve fund at the end of the previous financial year is equal to or greater than 100 per cent of the total contributions to the administrative fund for that previous financial year, there is no minimum contribution to the reserve fund; and 

c)       if the amount of money in the reserve fund at the end of the previous financial year is more than 25 per cent but less than 100 per cent of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for. 

At Intersect we have always advocated the provision of reserves and tried to strike a balance between the two arguments above.  As a result, most of the schemes we administer have healthy cash reserves. 
Although the Act is not yet law it is advised that trustees take the above into account when preparing the 2016 and 2017 budgets. 
 

Trusteeship in the Sectional Title environment

At every annual general meeting of a sectional title scheme a board of trustees is elected. This process is done by means of nomination. Contrary to popular belief trustees do not need to be owners in the scheme, however the nominator must be an owner. The Sectional Titles Act (ACT) though does prescribe certain conditions wrt trustees, most notably that a person cannot be nominated to act as a trustee if indebted to the body corporate. 

The trustee's role is principally to perform and exercise the functions and powers of the body corporate, subject to the provisions of the Act and any restriction and or directive imposed at an applicable AGM. This role however is broad and includes a myriad of functions, not the least of which are finance and levies, repairs and maintenance, enforcing the rules of the scheme and ensuring that adequate insurance is in place. 

Although managing agents may be employed to assist the trustees, and that certain duties may be delegated to them, the trustees are still ultimately responsible for the control and management of the body corporate, so any person considering accepting a nomination to act as a trustee should make themselves au fait with the basic provisions of the Act and be aware of what is expected of them. 

Having said that the Act does acknowledge that trustees are not necessarily professionals in this regard and therefore the Act indemnifies (refer Prescribed Management Rule12) the trustees against costs, losses, expenses and claims that may arise as a result of a trustee's actions, provided such action is both taken in good faith and does not constitute gross negligence. 

There are also several circumstances which could lead to the removal from office of a trustee, and these are more fully explained in Prescribed Management Rule 13 (Annexure 8 of the Act). 

The trustees should meet on a regular basis, quarterly meetings are often applied, to discuss the management accounts - particularly debtors, creditors, cash flow and performance to the approved budget. Other day to day issues such as repairs and maintenance and the enforcement of rules can be dealt with between the trustees and the managing agent, mostly by email, and ratified and recorded at the trustees' meetings thereafter. 

Insurance and the Commercial Sectional Title Scheme

The Sectional Titles Act [STA] does not differentiate between commercial, industrial, retail (collectively referred to as commercial) and or residential schemes, but it is safe to say that the STA was devised with residential schemes in mind as we estimate that +/- 70% of the sectional title schemes in the country are residential in nature. 

At Intersect our portfolio resembles this figure as we too have a 70/30 split between residential and commercial. 

A great many of our schemes are insured by 1 of the three larger insurers in the country and, based on the size of the book that we hold with them, we are able to negotiate the best rates and best cover for our clients. 

At renewal, we discuss the claims history of our mutual clients with the insurance brokers as well as changes in the market place that could affect each client, and apply the best-case scenario for each. 

Strictly speaking the sectional title policy covers the building and all fixtures and fittings such as roofs, walls, ceilings, floors and floorcoverings (if fitted), built in cupboards, basins, baths, toilets, doors and windows etc., as was delivered by the developer or as shown expressly on a sectional plan. 

But what about fixtures and fittings installed after that date or not reflected on a sectional plan (collectively known as non-standard improvements)? Of particular concern was the differentiation in commercial sections post a tenant installation, such as dry walling etc. 

After discussions with the aforementioned insurers we have negotiated that all policies under our management will be updated to include non-standard improvements, provided same is covered by the current sum insured for each section, and we would advise this to all commercial sectional title schemes. 

Having said that we also advise our commercial clients to review their internal fittings and fixtures (especially those with dry walling, plumbing etc. ) and estimate the replacement value of same and compare this to the most recent values as per the insurance policies. 

How many proxies may an individual hold?

How many proxies may be held by any one person at a meeting of sectional title owners?  

The answer is, at present, as many proxies as that person receives – unless the registered management rules state anything to the contrary (which is very rare). 

Confusion has developed recently as a result of the draft new legislation, being the Sectional Titles Schemes Management Act.  The draft new act states that a member may be represented in person or by proxy at a meeting, provided that a person must not act as a proxy for more than two members. 

However, the draft Act is not yet in force, and only recently (October 2015) been opened for public comment. 

Another important factor to remember about proxies is that if a person is representing a legal entity, i.e. a company, close corporation or trust, then the person will require a resolution to that effect, over and above the prescribed form of proxy issued by the convener of the meeting. 

So, until the new Act is promulgated, the status quo remains, i.e. a person may hold unlimited proxies, thereafter it may be limited to 2. 
 
 

Recent amendments to the Sectional Titles Regulations

Recent amendments to the Sectional Titles Regulations, published in the Government Gazette #38923 dated 30 June 2015, include inter alia the insertion of the management rule 4Aa, which reads as follows: 

"(4Aa) After the expiry of a financial year and until they become liable for contributions in respect of the ensuing financial year, owners are liable for contributions in the same amounts and payable in the same installments as were due and payable by them during the expired financial year: Provided that the trustees may, if they consider it necessary and by written notice to the owners, increase the contributions due by the owners by a maximum of 10 per cent excluding capital expenditure to take account of the anticipated increased liabilities of the body corporate. Such increase shall be ratified or changed after the Annual General Meeting by the trustees once the body corporate has approved or amended the schedule of income and expenditure." 
 
This sees the welcome return of the power of the trustees to increase levies by up to 10% on the previous year’s levies, prior to AGM, so as to mitigate the cash flow implications of increases that are effected at the beginning of the financial year (mostly March) but hitherto only accounted for in the levies after the AGM, some four months later. 

Other amendments in the above regulations include that the title deed of any real right registered over land is to now be included within the sectional titles register.  All documents and correspondence, placed in a sectional title file, must now be endorsed with a deeds registry date endorsement upon filing. 

Another amendment in the above regulations sees management rule 7 (Annexure 8 of the Sectional Titles Act) which deals with the nomination of trustees, being amended to restrict any person from being nominated to act as a trustee if he/she is in current breach of rule 64 (i.e. is in arrears with levy contributions and or is in persistent breach of the rules) and, moreover, even restricts any member from nominating a trustee if he/she himself/herself is in breach of rule 64. 

The Community Schemes Ombud Service officially established

The Community Schemes Ombud Service (CSOS) has officially been established, in line with the Community Schemes Ombud Services Act (assented to in June 2011).  

CSOS aims to provide a dispute resolution mechanism for community schemes and to provide training for conciliators and adjudicators; regulate, monitor and control the quality of all sectional titles scheme governance documentation; and take custody of, preserve and provide public access to sectional title scheme governance documentation. 

This Advisory Council will be tasked with making recommendations to and advising the Minister in terms of the provisions of the act and keep the implementation of the Act and the regulations under regular review.  

The Chief Ombud has been appointed and Mr Themba Mthethwa will be assuming this role going forward. 

Due to the fact that the Sectional Title Schemes Management Act (also assented to in 2011) has still not been implemented, at this stage we believe that the CSOS will have to concentrate its energies on disputes in other forms of community living such as home owners associations. 

Intersect expands its footprint in the CBD and Waterfront Marina

Intersect Sectional Title Services has been recently appointed to manage several new contracts, two of which are based in the Cape Town CBD and the Victoria and Alfred Marina. 

The first is a brand new large, multi-use, building called the Mirage, which is situated in the Chiappini/Strand and Hudson Street precinct and incorporates a retail; residential and hotel components. 

Intersect was instrumental in establishing the body corporate for the Mirage and will continue to assist the newly appointed trustees with their day to day duties in the future. 

The 2nd scheme, Ellesmere, consists of luxurious apartments and is situated within the V&A Marina. 

The V&A Marina is made up of 17 individual sectional title schemes and is situated at the entrance to the world famous Cape Town Waterfront precinct and Intersect proudly manages several schemes therein. 
 

Update on the Community Schemes Ombud Services Act

The recent appointment of Mr Themba Mthethwa as the Chief Ombud for the Community Scheme Ombud Service Act (CSOSA) is, hopefully, a sign that the act will finally be implemented soon. 

CSOSA, along with the Sectional Title Schemes Management Act (STSMA), was assented to in June 2011 already but is yet to be implemented. 

CSOSA aims to provide for the establishment of the community schemes Ombud service and a dispute resolution mechanism for community schemes. The Service must develop and provide a dispute resolution service; provide training for conciliators, adjudicators; regulate, monitor and control the quality of all sectional titles scheme governance documentation; and take custody of, preserve and provide public access to sectional title scheme governance documentation. 

The STSMA, on the other hand, will seek to assist bodies corporate to manage and regulate sectional titles schemes, including the application of the rules and to establish a sectional titles schemes management advisory council. 

This Advisory Council will be tasked with making recommendations to and advising the Minister in terms of the provisions of the act and keep the implementation of the Act and the regulations under regular review. 

The Council will consist of no more than seven but no less than five members, of whom one must be the chief Ombud as referred to above; one must be a senior official of the department designated by the Director-General; and the remainder must be persons appointed by the Minister who must have skills, knowledge and experience in the management of a range of types of schemes.

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. 
 

Intersect appointed to manage a further property within the V&A Marina

Intersect Sectional Title Services has been appointed to manage a further sectional title scheme within the Victoria and Alfred Marina as of July 2014. 

The scheme, Bannockburn, is made up of 27 luxurious apartments set in, arguably, the most prestigious sectional title complex in the country - The V&A Marina - made up of 17 individual sectional title schemes, each with its own established body corporate.
 
This appointment further cements Intersect's place as a market leader in the property management industry.