INTRODUCTION

Recently I did a deep dive into all the tasks that trustees need to undertake in order to manage all the legislative and logistical responsibilities of running a successful sectional title scheme. There are a multitude of financial, legal, administrative and physical tasks that need to be planned out and executed by the trustees (possibly with the assistance of a managing agent).

In this series of compliance articles, I will set out checklists for the most important financial, insurance, contractual, administrative and physical statutory responsibilities.

This article will deal with the most important financial responsibilities that need to be undertaken to ensure that your scheme is compliant with the legislative requirements.

THE LEGISLATION CREATING THE RESPONSIBILITIES

The Sectional Titles Act 95 of 1986 (the “ST Act”) came into operation on 1 June 1988, and contains the provisions relating to legal and physical creation (registration and land survey matters) of sectional title schemes and matters incidental thereto.

The Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”) came into operation on 7 October 2016. This piece of legislation contains the provisions relating to management and governance of the sectional title schemes, and has Regulations and Annexures (containing the prescribed management and conduct rules) dealing that are also applicable to all schemes.

The Community Schemes Ombud Service Act 9 of 2011 (the “CSOS Act”) also came into operation on 7 October 2016. This piece of legislation has created a statutory alternate dispute resolution mechanism and forum for the regulation of all community schemes. It is supposed to be more accessible, cheaper and faster than approaching the courts. The CSOS can conciliate and give adjudication orders in respect of financial issues, behavioral issues, governance issues, meetings, management services, physical issues and other general issues. The orders have the same effect and can be enforced as if it were and Order of the Court. Furthermore, the CSOS are tasked with taking custody of, keeping and providing public access to scheme documentation. The CSOS must also regulate, monitor and control the quality of all sectional titles schemes governance documentation such as the scheme’s rules. Previously sectional title scheme rules were held at the Deeds Registries Office.

THE CHECKLIST OF FINANCIAL RESPONSIBILITIES

Efficient financial management is one, if not the most, important functions of the body corporate. Trustees should ensure that they are financially compliant by going through the following financial legislative responsibilities:

1. Establish when the scheme’s financial year is.
2. Determine and collect contributions from the owners (in proportion to the participation quotas of their respective sections) reasonably necessary and sufficient to cover the estimated annual operating costs and future maintenance and repair of common property.
3. Pass a trustee resolution raising the levies such that they can become due.
4. Give each member written notice (not later than fourteen (14) days after the approval of the budgets) of their liability to pay the contributions and charges due and payable.
5. Send out a final notice that levies are due.
6. Send levy statements to the members.
7. Collect special levies where necessary.
8. Collect exclusive use contributions where necessary.
9. Collect developer’s contributions where necessary.
10. Pass a written trustee resolution to increase the contributions due by the members by a maximum of 10 per cent (10%) at the end of a financial year to take account of the anticipated increased liabilities of the body corporate.
11. Give the members notice of such increased contributions.
12. Stay on top of arrear levy collection procedures.
13. Send signed (by two trustees or the managing agent) levy clearance certificates to owners who have sold their units and who have paid all moies due top the body corporate.
14. Establish and maintain an administrative fund used to fund the operating expenses of the body corporate.
15. Money may only be paid out of the administrative fund in accordance with trustee resolutions and the approved budget for the administrative fund.
16. Establish and maintain a reserve fund used for the implementation of the maintenance, repair and replacement plan of the body corporate.
17. Establish the minimum amount of the annual contribution to the reserve fund.
18. Establish what money must be paid into the reserve fund.
19. Establish what money may be paid out of the reserve fund.
20. Prepare a written maintenance, repair and replacement plan for the common property.
21. Report the extent to which the approved maintenance, repair and replacement plan has been implemented at each AGM.
22. Preparation of the annual budget comprising itemised estimates of anticipated income and expenses for the administrative fund
23. Prepare the annual budget comprising itemised estimates of anticipated income and expenses for the administrative and reserve fund.
24. Obtain approval of the budgets at the AGM.
25. Open and operate an account with any registered bank or any other financial institution.
26. Ensure that all money received by the body corporate is deposited to the credit of an interest-bearing bank account.
27. Prepare annual financial statements for presentation at the general meeting.
28. Account for all contributions and any other charges debited to members’ account in the annual financial statements.
29. Present audited financial statements to the general meeting for consideration within four (4) months after the end of the financial year.
30. Keep proper separate books of account and bank accounts for the administrative and reserve funds.
31. Preparea report adopted by the trustees reviewing the affairs of the body corporate during the financial year for presentation at the AGM.
32. Respond to various requests by members to make documents available for inspection.
33. Ensure that all the body corporate’s books of account and financial records are retained for a period of six (6) years after completion of the transactions, acts or operations to which they relate.
34. Appoint an independent auditor.
35. Ensure that the audit is carried out by an independent auditor who has not participated in the preparation of the annual financial statements.
36. Present audited financial statements to a general meeting for consideration within four months after the end of the financial year.
37. File with the CSOS a copy of its audited annual financial statements.

CONCLUSION

As I have shown in this article there are an overwhelming number of financial statutory responsibilities that trustees must undertake. Stratafin offers a free Sectional Titles compliance checklist. Click here to access it: https://insights.stratafin.co.za/compliance-checklist

Furthermore, Confiance Administrative Solutions addresses the ever-growing demand in the market for transparent and professional sectional title management and administration solutions. Confiance Administrative Solutions can assist in buildings where the trustees do not have the time to manage the property correctly, or are struggling with sectional title administration, internal finances and municipal accounts.

WRITTEN BY DR CARRYN DURHAM