Banks to scrutinise body corporates – Property 24

The proper financial management of sectional title body corporates in South Africa is likely to come under increasing scrutiny by mortgage lenders.

The new legislation prescribes the minimum reserve fund a body corporate must have to cover certain future expenses in terms of maintenance and the like, and provides for an Ombudsman for sectional title schemes.

This will make it difficult for home buyers to raise finance to buy into badly managed complexes, says Kim Pistor, conveyancing manager of Rabie Property Group.

“Some banks are already doing so with buyers finding it difficult to raise a mortgage if the financial affairs of the body corporate are not in order and other banks are likely to follow suit,” she says.

Pistor says it is therefore more important now than ever before that owners in sectional title developments ensure that the financial affairs of their body corporates are in order, so that they will be able to sell their units when and if they wish to do so and do not find themselves locked into a scheme.

She explains that the management of body corporates’ financial affairs is going to be more regulated under the new Sectional Title Schemes Management Act, which was signed in June 2011 and will come into operation on a date still to be gazetted.

“The new legislation prescribes the minimum reserve fund a body corporate must have to cover certain future expenses in terms of maintenance and the like, and provides for an Ombudsman for sectional title schemes.”

She notes that although Rabie Property Group’s project team was experienced and knowledgable in terms of the planning required to create a new sectional title property development, they regularly employed the services of experienced property managers to assist, particularly in terms of the drafting of levy budgets.

This is to ensure they provide a fair reflection of the levies that will be payable for the smooth and proper running of the body corporate to ensure the sustained value of the property purchased, she points out.

Pistor says it is therefore more important now than ever before that owners in sectional title developments ensure that the financial affairs of their body corporate are in order, so that they will be able to sell their units when and if they wish to do so and do not find themselves locked into a scheme.

Such managing agents are also requested to revise and draft changes to the management and conduct rules, which also promotes the efficient management of such developments, according to Pistor.

Pistor says in the case of the group’s recent Crystal Towers development – a mixed use development situated at Century City comprising offices, retail units, a hotel and residential apartments – the careful structuring of the body corporate’s finances and the constitution of the body corporate commenced a year before the development was launched.

“The result was a sound long-term investment for any home buyer.”

She says the appointment of strong trustees after the body corporate has been established, combined with good communication with the developer, also meaningfully contributes to the success of a development. 

All too often, trustees are only too happy to allow the managing agent simply to run the body corporate’s affairs on their behalf. 

Body corporates that allow their affairs to be run in this manner do so at their own peril as the ultimate responsibility for the affairs of the body corporate rests with the trustees in accordance with the provisions of the Sectional Titles Act, explains Pistor.   

“For this reason, good trustees will heed the advice of their managing agents, but will also utilise their own sound judgement in making decisions and taking action in the best interest of the body corporate which they represent.”

An owner of a unit in a development has the critical responsibility of ensuring that his/her levies are paid up to date.  

A responsible owner should participate in the affairs of the body corporate, attend meetings and monitor the financial affairs of the body corporate as annually presented at the body corporate’s annual general meeting, she adds.

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