30/09/2016
New Sectional Titles Act could cost owners more
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While the rules for the new Sectional Titles Act have not yet been announced, it seems that running a body corporate is going to be more complicated, and therefore probably more costly.
Whatever the case concerning the new Sectional Titles Act, Spencer says it will certainly make it unattractive to run your own sectional title scheme. The rules are likely to be announced towards the end of the year, with implementation early in 2017.
Whatever the case, Mike Spencer from Platinum Global says it will certainly make it unattractive to run your own sectional title scheme. The rules are likely to be announced towards the end of the year, with implementation early in 2017.
“Apart from having to send regular copies and reports to the new Ombuds office on the financial health of your body corporate, you are now going to plan for future maintenance to a far more detailed degree than before,” says Spencer.
Every body corporate will have to have a 10-year maintenance plan and a separate long-term maintenance reserve fund based on the expected costs over that period.
“’Thumb suck’ will no longer be appropriate, and quotations for this work will have to be obtained from contractors, and these contractors will not be prepared to spend time and effort on providing quotes or estimates without being paid for this service,” says Spencer.
“There will now be two reserve funds - one being inside the current budget for short-term maintenance, and the other long-term fund which needs to be held separately.”
He says the ombudsman will require an annual report to showing that the body corporate has complied with these requirement, with copies of the reports and budgets.
“The reserve budget will have to be collected, although some time will initially be allowed, say 18 months, to have the funds together, and a new report has to be compiled each year,” he says.
“This is going to be an onerous task, and one that will have to be approved at the AGM so that all owners are involved.”
This could mean that schemes that have not made good provisions already will have a hard time not to increase their levies substantially. Well-run schemes that have sensible, good reserves will have to reallocate their funds to short- and long-term reserves, and will be much less effected.
Spencer says one change that is understandable, but in reality impractical, will be that one person may only hold his vote, and two proxies for an owner or chairman, or two proxies for a non-owner.
Spencer says the schemes that are going to find it the hardest to comply will be the very small schemes of 20 units and less, and especially duet schemes which currently are run as individual units by their owners.
“They could experience real problems as they have no budgets, meetings, reserves or plans to overcome these problems,” he says.
“If there is any indication that the building will need repainting or waterproofing and so forth, both owners will have to become trustees and make a contribution. Saving for a reserve for a duet is really going to be a big expense.”
Although it has not yet been finalised, Spencer says it seems that a body corporate is going to need to have a separate accountant doing its annual books before they are audited by a CA.
“This change can be a costly item, especially where a body corporate or managing agent does not look after their day to day accounting properly - it will certainly add a significant expense to running a body corporate if this is imposed, and could well make it even more difficult to hold the AGM within the required four months allowed,” he says.
The reason for having this has been that many body corporates do not keep their income and expenses up to date in a proper way, and are bad about getting their annual financials in position.
Most of the proper managing agents do their accounting work on a month-by-month basis, and should be exempt from the need to have a separate accountant doing the annual financials - they are already audited by the body corporate auditors.
“It is an unfortunate reality that all this additional work is likely to put pressure on managing agents, and will force them to look at increasing their fees. Trustees would do well to ensure that their managing agents are registered with the Estate Agency Affair Board (EAAB), otherwise they will be at considerable risk if their managing agents handle any funds on their behalf,” says Spencer.
“It is unlikely that the EAAB will cover losses for these unregistered agents, which can run into hundreds of thousands rands for even small body corporates.”
The new Act is far stronger on the responsibility of trustees, which could put trustees that allow the body corporates money to be in non-trust accounts to be sued for losses when money goes missing, says Spencer.
A similar situation arises from meter reading and fee collecting companies that are not keeping the body corporate’s money in trust accounts. The new Act is far stronger on the responsibility of trustees, which could put trustees that allow the body corporates money to be in non-trust accounts to be sued for losses when money goes missing.
Spencer says one change that is understandable, but in reality impractical, will be that only one person may hold his vote, and two proxies for an owner or chairman, or two proxies for a non-owner.
“All body corporates find it exceedingly difficult to get quorums to meetings. The background to this change is where chairmen, especially, hijack a building by accumulating proxies in order to control the meeting,” he says.
“My opinion is that an owner should be allowed to give his proxy to whomever he or she likes. If the owners is not happy with the way that the building is being run, they can give a proxy to somebody else.”
What is going to happen is that many AGMs simply won’t be able to take place because of the lack of a quorum, and will be held over until the same time and place the following week when whomever attends will form the quorum.
“This could result in only the chairman attending in many buildings, which will in effect give him total power - this will go against what the change was trying to achieve,” says Spencer.
He says this will also add to the costs of running the body corporate, as managing agents will rightly charge for the additional meeting. It is quite likely that these meetings will be held as quickly as possible to comply with the formalities, and achiever very little.
“In my opinion this is a negative move that will cause more problems than it is solves. If owners in general are not happy with the way that their building is being run, all they need to do is to attend the meeting in person or send their own proxy to act on their behalf,” says Spencer.
“This change will actually penalise those people who bother to attend in person or by proxy by making them attend two meetings. Not a good move at all.”
