One of the more frequently complained about aspects of sectional title management is the unauthorised spending of body corporate funds by the trustees or the scheme’s managing agent. Now that South Africans are forced to face the grave economic impact of COVID-19 and the national lockdown, the need to tighten the belt on our own spending, and to pay careful attention to how others spend our hard-earned money, has become paramount.
Let’s take a closer look at the funds into which your levies are paid and the circumstances in which the trustees may spend these funds.
The administrative fund:
This fund must be used by the body corporate to cover the following costs:
- Common property repairs, maintenance, management and administration.
- Rates, taxes and other municipality charges for the supply of electricity, gas, water, fuel, sanitary and/or other services to the building or land.
- Insurance premiums relating to the building or land.
- Fulfilling any of the body corporate’s other obligations and/or duties.
Money may only be paid out of this fund if:
- Such cost is provided for in the budget which has been approved by the majority of the body corporate’s members at the last AGM and
- Such payment is authorised by a trustee resolution.
The reserve fund:
This fund must be used by the body corporate to cover the costs of future maintenance and repairs of common property.
Money may only be paid out of this fund if:
- Such cost is provided for in the body corporate’s maintenance, repair and replacement plan, which has been approved by the majority of its members and such payment is authorised by a trustee resolution; or
- The trustees have passed a resolution that the payment is necessary to have urgent maintenance, repairs or replacement done.
This “urgent maintenance, repairs or replacement” could include:
- Those necessary to comply with a court or adjudication order;
- Those requiring immediate action (and therefore expenditure) to ensure safety or prevent significant loss or damage to persons or property;
- Those that could not reasonably have been foreseen in preparing the maintenance, repair and replacement plan; and/or
- Those required to enable the body corporate to obtain adequate insurance.
The amount(s) that the body corporate may spend on such “urgent maintenance, repairs or replacement” is limited to:
- The amount necessary to achieve the purpose for which it is being spent; and
- any limitation imposed by the body corporate on expenditure.
When the trustees spend money on such “urgent maintenance, repairs or replacement”, they must comply with any restrictions imposed or directions given by members and must report to the members on any such expenditure as soon as possible after it is made.
If you are a trustee or managing agent, making payments on behalf of a body corporate, make sure you have ticked the relevant boxes set out above, to ensure that payments are made legally. In times like these, you are likely to be monitored even more closely by penny-pinching body corporate members.
Article reference: Paddocks Press: Volume 15, Issue 10.
Specialist Community Scheme Attorney (BA (Law) LLB), Ané de Klerk, is a senior associate at The Advisory, a boutique law firm specialising exclusively in community scheme law:. Get in touch with her at www.theadvisory.co.za.
This article is published under the Creative Commons Attribution license.
