Introduction
The body corporate is the governing body of sectional title schemes. The body corporate then elects a group of trustees to act as their executive body at every annual general meeting of the members. The trustees’ powers and functions are subject to the provisions of the Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”); the rules applicable to the scheme; and any direction given or restriction imposed by the body corporate. The trustees stand in a fiduciary relationship with each and every member of the body corporate.
Many schemes, because of their size or circumstance, require the assistance of a managing agent to execute some or all of the administrative functions of the scheme. Many schemes are made up of hundreds of units and various pieces of common property and exclusive use areas. There are even sectional title schemes that are located within larger home owners’ associations. The administrative management of these schemes required layered and integrated execution of the administrative and financial functions of the body corporate. It is for this reason that these schemes may opt to utilize the services of skilled and experienced managing agents that have the IT and infrastructure required to efficiently manage these schemes.
The appointment procedure of a managing agent
PMR 28(5) sets out the procedure for the appointment of a managing agent. The trustees may, by resolution, resolve to appoint the managing agent.
The body corporate must
(a) if required by a registered mortgagee of twenty five percent (25%) in number of the primary sections,
(b) or an ordinary resolution of the members
appoint a managing agent to perform specified financial, secretarial, administrative or other management services.
These financial, secretarial, administrative or other management services must be executed under the supervision of the trustees.
The body corporate appoint a company to act as the managing agent for that scheme, but practically it is the portfolio agent, who is an employee of the managing agency company, that is ultimately responsible for executing the financial, secretarial, administrative or other managerial services to the body corporate.
The management agreement
PMR 28(6) requires that a management agreement for any managing agent must comply with the requirements as may be set out in the regulations.
In terms of PMR 28(5) the management contract must set out the specified financial, secretarial, administrative or other management services that the managing agent will be responsible for. This is to avoid a situation where the trustees are under the incorrect impression that the managing agent will execute a specific task, for example the preparation of the financial statements, and fail to do it themselves as a result. Basically, the clear and unambiguous collation of delegation of duties in the management agreement will avoid the untenable situation where tasks are being done twice, or not being done at all.
The fundamental terms that must be set out in the management agreement include:
1. the parties involved in the agreement (the body corporate and the managing agency to provide the services);
2. the content and extent of the specified financial, secretarial, administrative or other management services that the managing agent will be responsible for;
3. the date of commencement of service, the duration of the agreement and the terms for the cancellation of the agreement; and
4. the fee schedule for the managing agency services with any specified additional fees for add-on services.
It is important to note that in terms of PMR 10 the managing agreement is only valid and binding on the body corporate if it is signed on the authority of a trustee resolution by two trustees.
Period of the management agreement
PMR 28(7) states that a management agreement may not endure for a period longer than three years.
This provision further states that the management agreement may be cancelled, without liability or penalty, despite any provision of the management agreement or other agreement to the contrary by:
(a) the body corporate on two months’ notice if the cancellation is first approved by a special resolution passed at a general meeting; or
(b) the managing agent on two months’ notice.
PMR 28(8) sets out that the body corporate or the trustees may, by ordinary resolution, cancel the management agreement in accordance with its terms or refuse to renew the management agreement when it expires.
Conclusion
While most of the financial, secretarial, administrative or other management services can be delegated to the managing agent, it is important to note that the trustees remain in a supervisory role over the managing agent.
This is because the trustees remain in a fiduciary relationship with the members of the body corporate, while the managing agent is in a contractual relationship with the body corporate. Furthermore, PMR 28(5) specifically states that financial, secretarial, administrative or other management services must be executed under the supervision of the trustees.
