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. 

Intersect enjoys continued growth in the Century City precinct

Intersect Sectional Title Services has been appointed to manage a further commercial development within the Century City situated in The Estuaries, Century City. 

Ibis House, a premium-grade office building, has been developed by Horizon Capital, a commercial property investment, asset management and development company, based in Cape Town. 

A 4 Star Green Star rating with the Green Building Council of South Africa (GBCSA) has been targeted in order to significantly reduce operating costs with excellent transport links located in close proximity to The Estuaries that enable employees to use a 'park and ride' system. Other green building initiatives focus on energy and water efficiency, as well as improving the working environment for occupants. 

Ibis House is positioned to become the first certified green office space for small to medium tenants in South Africa and Intersect is proud to be managing the complex from a sectional title perspective. 

Home Owners Associations and VAT

As of the beginning of April 2014 residential home owners associations are being treated the same as sectional title bodies corporate, in the eyes of SARS, with regards to VAT. 

This is according to Martin Bester, Managing Director of Intersect Sectional Title Services, who explains that section 12 (f) (iv) of the VAT Act was recently added which exempts home owners associations from having to register for VAT, regardless of the associations' gross income received from the levies paid its members. 
"Home owners associations (also known as property owners associations) can however voluntarily register as a VAT vendor, specifically if the association is commercial; retail or industrial in nature and where owners can claim input VAT, if they themselves are VAT vendors." 

"This also means that home owners associations which are currently registered for VAT may elect to continue as before, if it is felt that there is a benefit to them. Otherwise it would make sense to de-register as a VAT vendor, but remember that there will be a recoupment of any capital input VAT claimed and this would have to be paid over to SARS before the final deregistration takes place. 

The schemes' auditors would be best placed to offer such advice," says Bester. 
 

Intersect appointed to manage a 2nd 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, arguably the best sectional title address in the country, as of November 2013. 

The scheme, Kylemore, is made up of more than 80 luxurious apartments set over three buildings and is now Intersect’s 2nd appointment within the Marina. 

“We are very pleased to have been appointed to a further scheme within the V&A Marina as this not only confirms the level of service we provide our clients leading to such referrals, but furthermore the Marina is the typical address that Intersect strives to administer.” 

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. 

When is an independent contractor considered to be an "employee"?

A common practise in sectional title schemes or home owners’ associations is the employment of independent contractors to, for instance, maintain the property or act as estate or building managers, however Intersect Sectional Title Services’ Managing Director, Martin Bester, advises that one must be careful in this regard. 

“Regardless of the contract in place, if any, if an employee/employer relationship can be proven, then the scheme, as the employer, is liable and obliged to register the employee for PAYE, and to deduct contributions accordingly for unemployment insurance, taxation and skills development levy (if applicable)” advises Bester. 

“The differentiation between an employee and an independent contractor is not clearly defined, however, we have learnt that in order to ascertain whether an employee / employer relationship exits, certain tests are conducted” he continued.  “In many circumstances where an individual is employed to carry out regular duties such as those of an estate or building manager the tests prove that an employee/employer relationship does exist” 

The following characteristics are, inter alia, indicative of the employment relationship: 

 An employee is subject to the ongoing control and supervision by the employee.  
 An employee’s remuneration is not dependant on what she or he produces. 
 An employee places his or her productive capacity at the sole disposal of the employee. 
 An employee is usually entitled to certain benefits such as bonuses or thirteenth cheques; sick and leave pay, medical aid and pension benefit. 
 An employee usually works out of the employer's office. 

The above items are merely indicators of the employment relationship.  

Therefore, if you are employing a person in such a capacity then you are advised to ensure that you comply with the regulations.  A labour specialist will be able to assist you in this regard. 

Furthermore, the above also fulfils the employer’s obligations with regard to the Compensation for Occupational Injuries and Diseases Act [COID], which too places the onus of ensuring that the employee is registered and an annual return submitted and paid for on the employer. 

Intersect enjoys continued growth

Intersect Sectional Title Services has increased its footprint in the Southern Suburbs and Hout Bay areas by having been awarded three new contracts.  

According to Martin Bester, the Managing Director of Intersect Sectional Title Services, Intersect has enjoyed continued growth over the 2013 year due to Intersect’s excellent track record and ongoing referrals from its existing clientele. 

Recent schemes include Emeraldene in Wynberg, The Boardwalk in Hout Bay and Deauville in Newlands. 
Each of these are residential in nature, but Intersect also administers commercial, industrial and retail as well as mixed-use developments, and has recently also been awarded the management contract for a light industrial development in Paarden Eiland. 

“We are pleased with the continued growth of Intersect, whilst remaining committed to excellent service delivery“, says Bester, “to this end we have employed qualified and experienced staff to handle every aspect of our clients’ needs.”  “All of our managers have been certified by the Estate Agency Affairs Board, are in possession of valid fidelity fund certificates and have either completed or been exempted from, as a result of their individual qualifications, the prescribed national qualifications and professional designate exams set down for the industry.” 
 

Sectional Title Q & A

Levies: 

Can trustees raise a special levy? 

The answer is yes.  Prescribed Management Rule 31(4B) deals with this as such: 

“The trustees may from time to time, when necessary, make special levies upon the owners or call upon them to make special contributions in respect of all such expenses as are mentioned in rule 31(1) above (which are not included in any estimates made in terms of rule 31(2) above), and such levies and contributions may be made payable in one sum or by such instalments and at such time or times as the trustees shall think fit.” 

Having said that the Trustees should be wary of raising special levies for items already included in the approved budget for the year, as mentioned in PMR 31 (4B), and or for proposed luxurious improvements as this requires a unanimous resolution of the members. 
 
Trustee Meetings: 

How many meetings should trustees hold per annum? 

There is no prescribed answer to this as the Act states that the trustees shall meet as they deem fit.   Some Management rules have been amended though to determine minimum number of meetings, but this is rare.   

Generally, trustees meet once a quarter and such meetings should be concurrent with the financial year of the scheme, however trustees can opt to meet as often or as infrequently as they wish, depending on the demands of the scheme. 
 
AGM’s: 

Can a person hold more than one proxy? 

There is ongoing confusion about this and this confusion is caused by the Sectional Title Schemes Management Act, which I refer to earlier, which is not yet in force.   
Currently a person may hold as many proxies as he or she has been given. 
However, once the above Act comes into force the number of proxies held by any one person will be limited to 2. 
 
Can one vote if in arrears with levies or in breach of the conduct rules? 
 
The answer is no, except in the case where a special or unanimous resolution is required.  The breach should also have been communicated to the owner, in writing, and the owner must be in persistent breach thereof.    

Having said that, the bondholder of the unit in question, if in attendance, may vote on behalf of the owner as a proxy even if in arrears and or breach. 
 
What is the quorum requirement for an ordinary general meeting? 

In a Home Owners Association the quorum is determined by the Constitution.  In Sectional Title, however, it is determined as follows: 

 the number of owners holding at least 50 per cent of the votes, present in person or by proxy or by representative recognised by law and entitled to vote, in schemes where there are ten units or less; 
 the number of owners holding at least 35 per cent of the votes, present in person or by proxy or by representative recognised by law and entitled to vote in the case of schemes with less than 50 but more than 10 units; and
 the number of owners holding at least 20 per cent of the votes present in person or by proxy or by representative recognised by law and entitled to vote, in the case of schemes with 50 or more units. 

It is important to note that that a general meeting called for the passing of a unanimous resolution requires 80% of the members, in value and number, to be present. 
 
New Acts: 

Will our existing Management and Conduct Rules fall away when the Sectional Title Schemes Management Act is operational? 

No, they will continue in force until such time as the prescribed rules are replaced by the Minister, which the new Act entitles him to do. 

Recent amendments to the Sectional Titles Act

On 14 March 2013 amendments to the Sectional Titles Act of 1986 were gazetted and thereby became operational one month later. 

Of particular relevance to owners and occupiers in sectional title schemes are the amendments to Annexure 8 (the Prescribed Management Rules or PMR) of the Act.  The following is a summary of these amendments and the everyday application thereof. 

PMR 7, which deals with the manner in which the trustees of a body corporate are to be elected, was amended so as to exclude nominees who are, at the time, in persistent breach of the Conduct Rules (notwithstanding a written warning to refrain from same); and further to exclude any nominee who is indebted to the body corporate. 

The amendment to PMR 7 applies predominantly to nominees who are also owners or even occupiers within the body corporate as only they could be indebted to the body corporate or in breach of its rules, however, the Act  (viz PMR 5) does not require that a trustee need be either. 

The next amendment sees the insertion of PMR 13 (g).  PMR 13 (a-f) deals with the disqualification of trustees.  PMR 13 (g) now provides further for any trustee indebted to the body corporate for a period in excess of 60 days to be disqualified should he/she fail to settle same within a period of 7 days of being notified to do so. 

Lastly PMR 31 (4A) was replaced by PMR 31 (4B).  PMR 31 (4A) allowed the trustees to, at their discretion, increase the levies charged by up to 10% at the beginning of the financial year.  This generally would form part of the proposed budget and be ratified by determination at the AGM.   

I am not particularly keen on the deletion of PMR 31 (4A), as this allowed the trustees to effectively ensure that the levies for the financial year were in line with the expenses and budget for the applicable year (provided the levy increase required was < 10%), whereas the AGM is typically 3 to 4 months after the beginning of the financial year.  This simply means that should a body corporate require a levy increase within a financial year, the 1st quarter of the financial year is missed and the resultant increase could be greater or it could result in backdated increases which are a particular problem in commercial or VAT registered schemes. 

PMR 31 (4B) on the other hand basically provides for the trustees to make special levies or contributions on the members for expenses or costs, over and above those already provided for in the approved budget, and for same to be payable in whichever manner the trustees deem fit.  So no major changes there then. 
 

Reducing energy consumption- It can be done!

Intersect Sectional Title Services proudly manages the Icon Building on the Foreshore in Cape Town. 

The Icon is a 19 storey building that used to be a high consumer of energy.  So much so that we were concerned and adamant that things had to change.  However, reducing the energy consumption in any building takes a concerted effort by the property owners, managers, tenants and staff, but is a most worthwhile exercise, both from a financial and environmental point of view. 

We started out by tracking the consumption of the building at various stages and over a period of time and compared this to the municipal invoices and meter reading statistics.  This then presented us with a benchmark and allowed us to calculate what we would like to achieve in energy reduction. 

Once we ascertained our goal, we set about identifying the energy intensive apparatus in the building and sought ways to reduce their consumption. 

This led to our replacing in excess of 600 T8 fluorescent light fittings with the smaller and more energy efficient T5 fittings, and converting some 1100 downlighters to LED alternatives. 

The further installation of CO2 sensors in the basement parking levels, thereby reducing the usage of the extraction fans from 24/7 to ‘as required’, resulted in a massive decrease in the energy consumption of the building. 

We were also able to take advantage of Eskom’s rebate policy to recover a great deal of the capital cost of the exercise as well. 

These measures, along with the awareness and assistance from the various role players in the building, have led to significant reductions in both energy consumption and cost.  Further savings are achieved by the installations of timers and sensors thereby utilising apparatus only when required.  These savings are perpetual and, in the face of ever increasing energy costs, are a welcome reprieve for the owners of this building, which we are proud to be associated with and pleased that we could assist in this exercise. 

Financial Management in a Sectional Title Scheme

Recent reports regarding aspects of the financial management of a sectional title schemes by managing agencies have resulted in trustees reviewing the agreements with their managing agents and insurers as well as their fiduciary roles as trustees, and this is by no means a bad thing. 
 
Martin Bester, Managing Director of Intersect Sectional Title Services, as sectional title specialist company based in the Western Cape, who sits on the residential and sectional title committee at SAPOA and is an alternate member of the Sectional Titles Regulations board, offers the following advice: 
 
When considering the appointment of a managing agency, a basic checklist should be ticked off, should the agency not comply with any aspects thereof then the trustees should seriously consider the merits of their appointment, if at all. 
 
Ensuring that the managing agency is in possession of a valid fidelity fund certificate, issued by the Estate Agency Affairs Board (EAAB) is critical.  All managing agents are estate agents by definition and by virtue of the nature of their work, therefore every managing agent must be registered members of the EAAB and, as long as they operate one or more trust accounts, they must contribute to the EAAB’s fidelity fund (based on the interest earned on the trust account balances).  The EAAB’s fidelity fund is there to protect the body corporate against theft and or fraud resulting in a monetary loss of funds held in trust by a managing agency - provided the managing agency is registered with the EAAB and complies with the EAAB’s requirements. 
 
Over and above a valid fidelity fund certificate the managing agency should also be in possession of professional indemnity (PI) cover.  The PI cover protects the managing agency against errors, omissions or wrongful acts that results in a financial loss.  Should the body corporate suffer a loss as a result of the managing agency’s error, omission or wrongful act then the body corporate may have recourse to the managing agency and it would therefore be advisable for the trustees to ascertain and ensure that such cover is in place and that the managing agency is capable of dealing with such claims, bearing in mind that the managing agency has more than one client - any of whom could lodge such a claim. 
 
  
Further cover that would be suggested is for the managing agency to be in possession of its own fidelity guarantee.  This cover is put in place to protect the managing agency against theft or fraud by any of its employees resulting in a financial loss for the managing agency.  The reason a trustee would be advised to insist on this is so that he may be assured that the company has the resources to continue operating and providing the essential services that it does in the event of such a loss. 
 
Whilst on the topic of fidelity guarantees, the body corporate too should have fidelity cover in its own policy to cover the loss of any monies whilst outside of the managing agency’s control, examples of this would be petty cash, cash recoveries and/or monies held by trustees or employees of the body corporate, for whatever reason. 
 
So we now know that if the managing agency is registered with the EAAB and meets the EAAB’s requirement and is in possession of a valid fidelity fund certificate, that the body corporate’s funds, held in trust by the managing agency, is protected by the EAAB’s fidelity fund. 
 
We also know that the managing agency should have their own insurances to cover losses resulting from theft, fraud, errors, omissions and wrongful acts. 
 
Lastly we know that the body corporate too should have its own fidelity cover, albeit perhaps for a minimal amount. 
 
What the trustees should also be cognizant of and ensure is present in the body corporate’s insurance policy is trustees’ indemnity or liability cover.  This is put in place to cover the trustees should the body corporate become legally liable for costs as a result of their [the trustees] wrongful acts, so long as such acts are in good faith and subject to the various exceptions of the insurance policy. 
 
So what else should trustees do or insist upon in order to reduce financial risks, well the trustees should insist on monthly management accounts in order that the cash movement, variance to budget and assets and liabilities can be scrutinized.  Trustees should also approve all payments made by the managing agency on behalf of the body corporate, and this could be done in a number of ways. 
 
 The auditor too plays a role in this process.  The accounts of a body corporate are audited annually by the appointed auditor, providing the scheme is made up of 10 units or more (should the scheme be made up of less than 10 units then an accounting officer may be appointed to prepare the annual financial statements).  The preparation of the accounts for the audit is generally done by the managing agency and the auditor’s responsibility is, inter alia, to test the payments made by the managing agency against the invoices and statements of the creditors and the approvals of the trustees. 

 Therefore the appointment of a managing agency, an insurance broker and of an auditor are all important duties of the body corporate, and homework done in this process will result in a reduction in risk and overall better corporate governance of the body corporate.

Intersect's ongoing growth continues

Intersect Sectional Title Services has enjoyed further growth having recently been appointed to administer schemes in Rondebosch, Tokai, Century City and in the prestigious Waterfront Marina. 

According to Martin Bester, the Managing Director of Intersect Sectional Title Services, Intersect has enjoyed significant growth over the 2012 year, a period in which many businesses are struggling, and this is owed to Intersect’s ongoing excellent track record and referrals from existing clientele, culminating in four new appointments towards the end of the year. 

Recent schemes include the newly build upmarket apartment block, The Rondebosch on Belmont Road, just a stone’s throw away from Intersect’s offices, which consists of 166 apartments. 

Another new development to which Intersect has been appointed is the Park Lane Office development in Century Way, Century City, which is made up of 3 AAA grade sectional title office blocks. 

Intersect has also been appointed to manage the High Grove Home Owners Association in Tokai, made up of high end townhouses and near the new Blue Route Shopping Mall. 

Lastly, in December, Intersect was appointed to manage Helenslee, a prestigious apartment block set in the V&A Marina.