The Sectional Title Schemes Management Act, Act no.8 of 2011 (STSMA) has introduced a number of new requirements into sectional title management, with serious financial impact on most sectional title schemes. These can be summarised as follows:
- A 10-year maintenance plan and the funding of this plan.
- A minimum reserve that must be 25 percent of the previous year’s ordinary levy annual income.
Although some schemes budget for maintenance, this 10-year plan is now a legal requirement and its funding must appear in the annual budget as a separate expenditure line item. There will be the normal operational maintenance budget and then the 10-year plan maintenance budget. The way in which this plan must be drawn up is detailed in its requirements in the STSMA.
This includes Rule 22, which requires that a bodies corporate (BC) must draw up a 10-year maintenance plan of expected maintenance and repair, the present condition or state of repair of those items, the time when those items will need maintenance, and the estimated cost of the repair as well as the expected lifespan and any other information.
This plan will have to include major capital items such as wiring, lighting, electrical systems, plumbing, drainage, storm-water systems, lifts, roofing, painting, waterproofing and roadways, among others.
To fund this maintenance, the BC must open a separate maintenance bank account with the 25 percent minimum reserve mentioned above. If the BC does not have all of the previous year’s levy income (which very few do), they have to put into the budget, in the 10-year line item of expenditure, the full amount that is expected to be spent in the year according to the plan. In most instances, this item is raised as a special levy payable over 12 months and not subject to an increase like the ordinary levy. This clearly identifies the 10- year plan income, which is then paid monthly into the maintenance reserve bank account. The payment for maintenance items on the plan is then drawn from this fund.
Other amendments that are also worth noting:
Rule 8 no longer refers to indemnity for a trustee unless the action is mala fide or grossly negligent. It states that the trustee must be indemnified as a result of any official act that is ‘not in breach of the trustee’s fiduciary obligations’. For the trustee’s fiduciary obligation, we need to refer to Section 8 of the Act, which deals with the fiduciary capacity. Here, the law says that trustees must ‘act honestly and in good faith, and in addition, the CSOS Regulation 14(e) requires the trustees to “exercise due diligence in relation to any business”.
Quorum At An AGM
A quorum must now be calculated on value of votes (Q) which, in schemes over four units, must be 33.3 percent. This is proving quite difficult in larger schemes, which often have smaller units with small PQs. Previously only 20 owners were required for a quorum in a scheme of more than 50 units and we have found one PQ that required a commitment from over 40 of the owners to either attend or appoint a proxy.
This is made more difficult with the requirement that:
No one may hold the vote of more than two members. This means that if “A” owns four sections and “B” owns two sections, one person may hold the proxy for “A” and “B” and would exercise six proxy votes for two members.
Attendance By Electronic Means
This is proving very popular, especially in trustee meetings. The meeting must be able to confirm that it is the trustee to whom they are speaking, and everyone present must be able to hear the trustee and they must be able to hear the entire meeting. To date, trustee meetings using Skype and on speaker phone through a conference phone arrangement have been successfully held.
The arbitration clause, which was included in the previous STA for dispute resolution, has disappeared and an Ombud has been appointed and is governed by the Community Schemes Ombud Service Act. Owners with a dispute may now approach the Ombud, for a very reasonable cost, and on completion of a prescribed form. These are just some of the amendments contained in the STSMA, and trustees are urged to attend various training sessions in order to learn more about this new legislation which is having a huge impact on all sectional title owners.