Sectional Title Living

Neither trustees not chairperson may act autonomously

The chairperson of the trustees of a sectional title scheme does not enjoy special powers!!

In my blogpost "a democracy with preserving imperatives" I indicated that trustees are nominated and elected at a properly constituted meeting of the members of the body corporate (the owners). The trustees then elect a chairperson, who has the additional responsibility to chair the meetings of the trustees, as well as the meetings of the body corporate.

Neither a trustee, nor the chairperson may operate autonomously/unilaterally. As Annette Stones points out, prescribed management rule 22 states that "all matters at any meeting of the trustees shall be determined by a majority of the votes of the trustees present and voting". No trustee, including the chairperson, is thus empowered to decide any matter, including the appointment of an additional or alternate trustee, independently.

The trustees must further adhere to the Management & Conduct Rules of the Scheme (and must enforce these Rules) and are accountable to one-another. Decisions are taken at properly constituted meetings by majority vote and documents signed by two trustees (neither one need to be the chairperson) or one trustee and the managing agent. The chairperson must adhere to these principles and not rule autocratically.

However, the trustees may by agreement assign portfolios to specific individuals and together with the responsibility the necessary authority.

Furthermore, the chairperson does have the casting vote (extra vote in a deadlock situation) at the meetings of trustees. Ideally the chairperson fulfils a leadership role (or has been elected as result of having such qualities/skills) -- not as manager/ruler, but as leader inspiring the team of trustees, respecting each as person and their views, sharing insights/visions, guiding, encouraging, prompting, influencing and setting an example.

Revised 5 September 2010

Ownership apathy—a sectional title mental disorder

Or is sectional title ownership fraud by the bystander syndrome? The purpose of this post is to indicate that there is really no grounds for apathy of sectional title owners, but rather a demonstration of real interest is most needed.

"Apathy is a mental state in which the sufferer lacks the desire, will or energy to engage in any activity, whether intellectual or physical. It is variously called indifference, boredom, lassitude, languor, listlessness, laziness, lethargy or inertia. It may be a symptom of mental disorder. It is first alienation of the self from the world and then self-alienation. Finally it is withdrawal from all participation in the care of others and care of oneself. Collectively, apathy may be expressed in social, economic, political or ideological paralysis, with all the available energy for change locked up in the institutions, systems and structures of society."

What is it about sectional title ownership that owners are often characterised by apathy? Could it be that people attracted to sectional title ownership have a pre-disposition towards alienation mental disorder?—I am not serious. However, Political Apathy Disorder (PAD) is proposed as a new DSM diagnostic category for the failure to develop a social conscience.

Apathy is a common reaction to stress where it manifests as "learned helplessness"; it really is a veiled form of anger. Apathy is often the end-result of prolonged deprivation—if earlier reaction of rebellion led to defeat and humiliation, until finally all response seemed to disappear—there is loss of hope with an impoverishment of thinking processes. In contrast, sectional title ownership offers the opposite to helplessness, defeat and loss of hope:

• Before buying into sectional title ownership you have the right to inspect the scheme's finances, management and conduct rules, etc.—This is important because you need to make sure if the environment agrees with you and if there are no financial surprises looming.
• As an owner you are a member of the collective ownership, the body corporate—your voting power directly related to your percentage of ownership.
• You have the right (rather obligation) to attend, speak, make proposals and vote at the general meetings of owners.
• You have the right to nominate persons (not necessary only owners—but the majority must be) to look after your interests by serving as trustees. You have the right to elect from those persons nominated who you believe would best serving your interests.
• You have the right to question trustees; to engage with trustees at their meetings and state your views.
• You have the right to lobby support and if 25% ownership (in value) request a general meeting the trustees are obliged to arrange one. Should they fail, the 25% may proceed to call the meeting.
• Meetings are subject to quorums, meaning that al small group may not just do as they please.
• The trustees need to decide on matters collectively and majority vote or through circulation—no one trustee may decide on her/his own.
• Certain aspects are subjected to special or unanimous resolution, to which stringent criteria of notice and percentage voting apply.
• Should you not be in the position to attend a general meeting, then you have the right to send a proxy instead.

Deprivation, helpless, defeat, reason for loss of hope—I think not. Ignorance, yes most probably.

The bystander syndrome: Kitty Genovese, an American woman who became famous for her murder, was stabbed to death in New York on 13 March 1964. Kitty was driving home around 3.15am. She parked about 30 metres from her front door. As she walked to her door, she was approached by Winston Moseley. Moseley overtook her and stabbed her twice in the back. Kitty screamed. Her screams were heard by several neighbours. But it was a cold night, many had their windows shut and few recognized it as a cry for help. One of the neighbours did shout at Moseley, "Let that girl alone". Moseley ran away and Kitty made her way to her apartment. Kitty was seriously injured, in full sight of her neighbours, but no one helped her.

Some called to the police, but it was not given a high priority, as it was thought she was "only" beaten up. Witnesses observed Moseley get into his car and drive away. He then returned ten minutes later and found Kitty barely conscious at the back of the building. Out of sight, he attached her again, stabbing her several more times. She tried to defend herself, as was shown by knife wounds on her hands. He sexually assaulted her as she lay dying. He also stole money from her and left her to die. The attacks spanned over half an hour. Eventually, a witness did call the police. The police and ambulance arrived, but she died on the way to the hospital.

The media then reported that 38 people had witnessed or heard her attack. The New York Times printed an article - "Thirty Eight who Saw Murder Didn't Call the Police." This led to a media frenzy and much psychological research. What had possessed these witnesses to do NOTHING whilst Kitty was being stabbed and murdered? This psychological phenomenon became known as bystander apathy, the bystander effect or 'Genovese syndrome'. It is basically a phenomenon where someone is less likely to intervene in an emergency situation when other people are present and able to help, than they would if they were alone.

Revised 15 June 2010 with regard to 25% ownership in value: based on the participation quotas.

Insufficient funds for leaking roof—rights and realities

The facts or circumstances may differ, but many sectional title schemes are faced with realities such as:

• Owners voted for minimum levy increases for several years
• Cash reserves dwindled as result of usage
• Maintenance had been kept to essentials
• At least 10% of owners are in arrears with levy payments; and the arrears and legal fees to collect such have accumulated to a substantial amount
• The lift equipment is 30 years old, maintained in accordance with the law, but wear-and-tear nevertheless—the lift get stuck from time-to-time; is often out of level; and looks aesthetically neglected
• The company that waterproofed the roof for the past twenty years had been liquidated—the warrantee is therefore of no value
• When the previous trustees increased the levies by 10% in accordance to the new Management Rule 31(4A), gazetted 28 November 2008—Department of Land Affairs, No. R. 1264; Government Gazetted, No. 31626—the owners petitioned against the increase
• During the rainy season the roof started leaking at a few places

Options to consider:

1. The owner/s affected by the roof-leakage/s may submit a claim to insurance, but need to pay the excess—new Management Rule 29(4) applies—unless the owners collectively (the body corporate) by means of a special resolution decide that the body corporate will pay the excess (however, 75% of members are perhaps unlikely to assume proportional responsibility for payment of an excess relating to a single section).
2. The owner/s affected by the roof-leakage/s may enter into a dispute with fellow owners (the body corporate) about the excess payable, in which case the arbitration route might be followed (Management Rule 71).
3. The trustees have the right to raise a special levy to have the roof re-waterproofed and guaranteed, but effectively need to raise 110% of the amount required, because the 10% owners in arrears are unlikely to make the special levy payment—the full amount required therefore need to be contributed by 90% owners and the arrears of the 10% escalated.
4. It could be argued that the modernisation of the lift is a non-luxurious improvement; or that the refurbishment is necessary maintenance—if deemed a non-luxurious improvement the trustees need to give notice to the owners and convene a special general meeting where a special resolution need to be passed.

It is important to look into a scheme's situation before buying, because of common property responsibilities. It is further essential to get to know your rights (and obligations as member of the body corporate) as owner within a scheme. Attendance of annual and special general meetings of the scheme (body corporate) is important, because decisions may impact on you materially—a medium term look at maintenance and cash flow (finances) is crucial.

Annual check-up of the state of ‘health’ of a body corporate

So you own a living space within a collective property, you are probably paying dearly off on your bond and a monthly levy for your part-responsibility regarding common property. How can you not be interested in the general state of health of the sectional title scheme? As owner, you have the right to timely receive the relevant documentation about the annual general meeting and to attend. If for some reason you cannot attend in person, you may entrust your rights to a proxy to represent your interests.

When you decide to purchase property in a sectional title scheme you automatically become a member of the body corporate — this is the body comprising all owners of the scheme. Make a point to study the "owner's manual", namely the sectional title act, the regulations and in particular the management and conduct rules relevant to your scheme — the act and prescribed rules are available from the library of Sectional Title Online.

Some as you do go for an annual medical check-up, bold tests, dentistry check, mammogram and gynaecologist check; you should make a point to attend the scheme's annual general meeting — because your interests are at stake.

Each body corporate must hold an AGM within four months after the end of the scheme's financial year (PMR 51 — prescribed management rule).

You are entitled to 14 days notice to the AGM of any special general meeting of the body corporate and if a special resolution forms part of the agenda, 30 days notice (PMR 54).

When the date and time arrived the meeting cannot just commence, there must be a quorum present (PMR 57) in person or by proxy (PMR 67); if not the meeting must be adjourned to a week later (PMR 58).

It is prescribed who chairs the meeting (PMR 59) and how votes are made (PMR 60-66).

There is a compulsory agenda (PMR 56), which includes:

• Tabling of the scheme's audited financial statements for the concluded financial year — this is as important as you cholesterol results or that your mammogram check is clear — what does the scheme's finances look like (perhaps I should write a special post on the basics and what to look for).
• Usually also a report by the chairperson for the outgoing trustees about the accomplishments of the trustees that served since the previous AGM and automatically step down at the current AGM.
• Then the insurance schedule follows. Have a look on which replacement values it is based, when last has a valuation been done — your bold-sugar levels of a decade ago are useless — if your property, for some reason, for example a fire, need to be demolished and rebuilt is it adequately insured?
• The forth and possibly most important compulsory agenda item is the budget for the current financial year (remember you are already about three months into the existing financial year) — the estimated income and expenditure. The body corporate (owner's collectively) is obliged to maintain the scheme, to keep a reserve of funds adequate to pay for bigger expenses and to meet all running expenses during any one year. This budget must be realistic, because nobody other than all the owners — the body corporate — will contribute to the funds required.
• The approved budget determines the monthly levies, based on the participation quota (a formula derived from the size of each section as percentage of the floor space of all the sections together).
• There after the owners agree on the auditor (or in small schemes, the accounting officer) to be used for the current financial year — next AGM's audited financial statements.
• The owners next decide how many trustees they believe are needed to take care of the scheme, on behalf of all the owners. Where after the election of the agreed number of trustees takes place — the AGM notice must include provision for nomination of trustees; if sufficient were nominated, then those persons are automatically elected; if more were nominated then the number just agreed upon, then an election takes place; if insufficient were nominated then persons may be nominated at the meeting (provided they are present to agree to serve). The elected trustees meet soon after the AGM to elect the new chairperson.
• The prescribed agenda makes provision for any special business.
• The body corporate meeting then gives consideration to any restrictions they believe should apply to the new trustees and/or decide on any directives that the new trustees must attend to.
• Finally the domicile of the body corporate is decided upon — that is the address that will be used during the financial year for all official correspondence of the body corporate.

The integrity of a body corporate’s finances

The audited financial statement is not only a snapshot of the financial affairs of a scheme at financial year-end.

The financial-year-end of the body corporate of a sectional title scheme is determined by the original date of registration, namely the end of the calendar month prior to the registration date. The financial-year-end of the body corporate triggers the annual general meeting (AGM) process.

The trustees are responsible for proper accounting records (prescribed management rule—PMR 35) throughout the year, preparation of year-end financial statements (PMR 37) and auditing thereof (PMR 40). The independent auditors examine if all financial transactions are in accordance with Generally Accepted Accounting Procedures (GAAP) and determine if the financial statements are a true reflection of the financial affairs of the body corporate. The financial statements must be included with the notice of the AGM (PMR 54[4] & 39) for perusal by all members prior to the meeting.

The audited financial statements normally include (i) the auditor's report, (ii) report on the trustees during the financial year, (iii) the balance sheet as at year-end, (iv) the income statement for the concluded financial year, (v) statement of changes in equity, (vi) the cash flow statement of the body corporate, and (vii) any notes made by the auditor regarding the financial statements.

The balance sheet comprises two sides (debit & credit) often presented in tabular format, representing both the concluded financial year compared to the previous year. Often the (a) assets are listed first, followed by the (b) funds/equity and liabilities—the totals of (a) and (b) must balance.

The income (and expenditure) statement follows next. It also comprises two sides: income = debit and expenditure = credit. Normally the concluded financial year is also compared to the previous year. Please keep in mind that it is the right of any owner to inspect all the financial documentation prior to the AGM—if anything appear suspicions to you, you may exercise your right and thoroughly peruse all transactional documentation. The income usually consists of levies/revenue and other income, e.g. interest gained. The expenditure is grouped under descriptive headings, e.g. gardening, maintenance, stationary, etc. The total expenditure is deducted from the total income to reflect the surplus (or shortfall).

The changes in equity reflect the growth/reduction of surplus or reserves of the scheme.

The cash flow indicates exactly that, the flow of cash available.

The auditors make use of numbers inserted in the various statements in order to explain or elaborate (notes) on specific items, for example a breakdown of all the maintenance expenses, etc.

Chairperson likened to a captain of a sports team

The chairperson of the trustees of a sectional title scheme is not a 'boss' person, more like the captain of a sport team.

In team sports, a captain is a title given to a member of the team, similar as in the case of the committee of trustees, where an individual is elected as chairperson. Similar to a captain—a chairman is an honorary title— given to an individual because s/he serves as role model; motivates the other trustees (keep them upbeat); guide the ‘game strategy’ (e.g. maintenance); liaise with the managing agent (trustees could also give this responsibility to a specific trustee); deal with all issues arising with the team of trustees, as if a family.

Trustees are elected at the annual general meeting of the collective of owners—called the body corporate of the sectional title scheme—according to prescribed management rules (PMRs). At the first meeting of the newly elected trustees; they elect from among their number a chairperson.

Note, however, that all matters at any meeting of the trustees shall be determined by a majority of the votes of the trustees present and voting (PMR 22). There are prescribed procedures with regard to the calling of a meeting of the trustees, how notice should be given and the quorum necessary to meet. Owners are naïve in thinking that the chairman must take decisions. The trustees may through round robin take decisions, but then all must be in agreement (PMR 24).

Apart from chairing all meetings of the trustees the chairperson also has a casting as well as a deliberative vote (PMR 18). If for some reason the chairperson cannot be in attendance, then the trustees present would elect a chairperson for the particular meeting (PMR 21).

The chairperson further chairs all meetings of the collective of owners—the body corporate, unless the members decide otherwise (PMR 59[1]). Again, if for some reason the chairperson cannot or is not willing, then the members present at a properly constituted meeting would elect a chairperson from among their number (PMR 59[2]).