Warning for trustees in complexes and homeowners associations in South Africa

 ·19 Aug 2023

Trustees at community schemes such as sectional title complexes, homeowners’ associations, retirement housing schemes, share block companies and housing cooperatives are often unaware that they can be held liable and even sued in their personal capacity for failures in governing a community scheme.

This is according to speakers at the first Community Schemes Ombud Service (CSOS) Indaba for stakeholders in Johannesburg this month.

The Indaba outlined good governance of community schemes, and the roles and responsibilities of stakeholders.

Speakers highlighted provisions of the Sectional Title Schemes Management Act and the Community Schemes Ombud Services Act where trustees could be held liable, including where there is gross negligence, a fraud conviction, or a breach of their fiduciary duties of care, diligence, impartiality, and acting in the best interests of beneficiaries.

Among the trustees’ responsibilities are registering the scheme and its rules with CSOS, which around half the roughly 70,000 community schemes in South Africa have not done.

Thembelihle Mbatha, the Acting Chief Ombud and Chief Financial Officer of CSOS, said CSOS was stepping up efforts to enforce registration, with the support of the NPA.

Mervin Dorasamy, Regional Ombud KwaZulu Natal, Free State and Mpumalanga, noted that the non-submission of rules to CSOS prevents the value of a regulator’s quality assurance of that scheme governance documents.

“When rules and scheme governance documentation is not submitted to CSOS, it creates a state of confusion, uncertainty and a lack of transparency. A state of inadequate governance may trigger CSOS enforcement.

“In recent months, we launched our compliance and enforcement strategy, and we are looking into community schemes that are failing to comply with the law. When community schemes are not complying with the law, it is individuals behind that community scheme who are failing to do their duties.”

Also speaking at the Indaba, Advocate Menzi Simelane, External Adjudicator, said: “I always ask myself when we get an adjudication – who wants to be a trustee? From my experience and observations, it’s a thankless task. Nobody’s ever going to thank, and yet everything you do, you do for them.”

“Many trustees have not even begun to comprehend the legal implications of being a trustee. In other words – the personal liability for your work as a trustee is great. Many have not gone to explore that.

“Sometimes when I have to make findings in terms of an adjudication, I find myself having to tweak an order in such a way that my explanation for getting to the order does not result in somebody following further on that order by taking legal action against a trustee, because it can easily happen.

“The implications of your conduct as a trustee are immense to you personally, and many don’t think seriously about that,” Simelane said.

New rules coming

Trustees and managing agents may soon be liable for more than just rules and admin, with minister of Human Settlements, Mmamoloko Kubayi, alluding to future changes that could see BEE and transformation requirements become mandatory for such schemes.

Speaking at the indaba, the minister said that community schemes need to be subject to mandatory “economic transformation”, given the scale and economic impact of the sector.

“27% of the total value of residential property in South Africa is from organised communities, which means that community schemes are a significant economic sector,” she said.

Because of the scale of the community schemes economy, services that these schemes solicit – such as security and gardening – make the sector a huge contributor to job creation, she said, especially as many of the services are sourced from small and medium enterprises.

“We, therefore, need to put measures in place to ensure that a procurement approach that gives opportunities to emerging SMMEs, especially those from previously disadvantaged communities, becomes mandatory.”

Read: Complexes, estates and gated communities are government’s next target for BEE in South Africa

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