The power of the body corporate

2013-05-15 10:00

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Sectional title is often the more affordable way to buy a home, but it comes with its own challenges and you need to be a proactive resident to ensure your body corporate is run properly

A City Press reader was recently informed by her body corporate that she had to pay a massive R10?000 special levy towards improvements at the complex, which included building a new entrance to the building.

“I am a pensioner and I cannot afford this,” says Nancy, who adds that she is concerned that the construction company hired to do the improvements is owned by the body corporate chairperson.

Nancy’s complaint is a common one for many sectional-title owners, especially in the current economic times where owners, who are already paying their levies each month, suddenly find they have to pay an additional amount that they have not budgeted for.

What many new homeowners do not realise is that when they buy into a sectional-title scheme such as a flat, townhouse or cluster development, they are obliged to live by a set of

rules and voting decisions by the majority of owners or members. Moreover, they are obliged to comply with decisions taken by the trustees of the body corporate, who represent all owners.

According to David Warmback of law firm Shepstone & Wylie, the trustees are entitled to raise special levies if the need arises.

“Improvements to the common property, which appears to be what Nancy’s body corporate intends embarking on, is governed by management rule 33 of the standard statutory management rules applicable to bodies corporate,” explains Warmback.

It is critical to know where the additional amount you are paying is going to whenever paying levies each month

Complete power for emergencies

The trustees alone have the power to raise special levies for emergencies. These often include necessary expenses not budgeted for such as a broken lift or a burst water pipe.

Ideally, the body corporate should have accumulated a reserve for such expenses, but if not, a special levy can be applied and trustees are under no obligation to consult owners in this regard.

A poorly run body corporate that has not budgeted for emergencies can end up costing residents a significant amount of money in special levies that they have not budgeted for.

It is, therefore, important to either become involved in your body corporate or to at least attend all annual general meetings where the yearly budget is discussed.

You need to realise, however, that the majority rules at these meetings and that majority only needs to be 51% of the owners.

Voting for a budget

Warmback says that at the annual general meeting, a budget for the following year would be proposed and presented to members, reflecting the anticipated income and expenses of the body corporate.

The estimate of expenses must include a reasonable provision for contingencies and maintenance of the common property.

If it was felt that this opportunity should be used to replenish the body corporate reserves for emergencies and future maintenance and repairs, which the trustees are obliged to budget for in terms of the Sectional Titles Act and the rules, then this can be put to vote.

If 51% of the owners agree, the new budget will be approved.

If the trustees follow the correct procedures and 51% of residents vote for the higher levy, there is little you can do, even if you cannot afford to pay both the levy and your municipal rates.

Voting for improvements

Warmback says any improvements to the common property does require the input of owners. For a luxurious improvement to be made to the common property, a unanimous resolution must be passed.

“The trustees may only proceed with such improvement if they are authorised by unanimous resolution of the body corporate,” says Warmback.

A unanimous resolution involves at least 80% of homeowners present or represented by proxy at a meeting. If there is even just one negative vote, the trustees may not proceed.

In other words, Nancy could claim the specific proposal for the new entrance by the trustees is luxurious in nature, attend the meeting and vote against the improvement, which would prevent the body corporate from moving forward.

The problem, however, is how one decides what is a luxurious improvement and what is not.

Warmback says even if it is argued that the new entrance is a necessary improvement, then before the trustees may proceed with this, they must give notice to the owners indicating their intention to do the work and provide details of the cost, the way it will be financed, usually through a special levy, and the need, desirability and effect thereof.

“Any owner can request the trustees to convene a special general meeting to discuss and deliberate on the proposals, at which meeting the owners may approve, with or without amendments, such proposals by way of special resolution,” says Warmback.

In this case, Nancy would be within her rights to insist the trustees call a meeting to discuss the issue of whether the entrance is required, the form of the proposed improvement and how it is to be financed. The trustees may only proceed with the proposal if there is support by way of a special resolution of owners – a 75% majority.

Nancy may also raise the issue of whether there is a conflict of interest with the chairperson’s company.

Warmback says a trustee stands in a fiduciary relationship to the body corporate and may not get any personal benefit by reason of his or her office as a trustee.

Where a trustee fails to declare an interest in a contract with a third person, that contract can be declared voidable at the instance of the

body corporate.

The trustee can also be held liable for any loss suffered by the body corporate.

Your powers are still limited

It is possible to apply restrictions to the body corporate, especially when it comes to spending money.

Warmback says the owners are entitled at an annual general meeting to agree on certain restrictions that are applicable to the trustees. For example, that they cannot spend more than an agreed amount without the authorisation of members.

The bad news is that even if the trustees did not follow due process, the special levy would show on your levy account and, if you do not pay up all levies outstanding, you would not be able to transfer your unit following a sale, as a levy clearance certificate is required from the trustees confirming that your levies are up to date.

If Nancy believes that the body corporate has proceeded without due process, then Nancy’s recourse should be to resolve the matter by way of the dispute-resolution arbitration process provided for in the statutory management rules.

Warmback says in this case it is preferable for Nancy to ensure that as many owners as possible support her proposal for an arbitration and to share the costs of such a process.

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