A GIUDE TO TRUSTEES

Congratulations, you've just been elected to the board of trustees of you sectional title community. That's great, you're about to embark on an important adventure, assume responsibilities and make decisions that will affect not only you, but everyone else in the community.
Every owner automatically becomes a member of the Body Corporate when he takes transfer of his home. The owners in turn elect a board of trustees who will administer the affairs of the Body Corporate.

WHO MAY BE A TRUSTEE AND HOW ARE TRUSTEES ELECTED

The number of trustees is determined form time to time by the members of the Body Corporate in a general meeting, but not be less than two.
A trustee or alternate trustee does not have to be an owner or the nominee of an owner provided that the majority of the trustees are owners, or spouses of owners, who are also occupies. The manager in that capacity, may not be a trustee.
Trustees are elected at the first annual general meeting and each subsequent annual general meeting and hold office until the next succeeding annual general meeting, but are eligible for re-election.
Nominations by owners for the election of trustees at any Annual General Meeting must be given in writing, accompanied by written consent of the person nominated and must be received at the domicillium of the Body Corporate not later than 48 hours before the meeting. However, trustees are also capable of being elected by way of Nominations with the consent of the nominee given at the meeting itself should be sufficient written Nominations be received. The trustees may fill any vacancy in their number.

ALTERNATE TRUSTEES

The Trustees may appoint another person, whether or not he be the owner of a unit, to act as an alternate trustee during the absence or inability of n elected trustee to act as a trustee. An alternate trustee has the same powers and the same duties of a trustee.
An alternate trustee will case to hold office if the trustee whom he replaces, ceases to be a trustee, or if the alternate's appointment is revoked by the trustees.

RENUMERATION

The trustee may not derive any personnel economic benefit which he is not entitled by reason of his office as trustee of the Body Corporate and shall notify every other trustee, at the earliest opportunity practicable in the circumstances, of the nature and extent of any direct or indirect material interest which he may have in any contract of the Body Corporate.
Unless otherwise determined by a special resolution of the owners, trustees who are owners shall not be entitled to any renumeration in respect of their services as such. But the Body Corporate may reimburse to the trustees all disbursements and expenses actually and reasonably incurred by them in carrying out their duties and exercicing their powers.
The Body Corporate may remunerate trustees who are not owners at such rate as many be agreed upon between the Body Corporate and such trustees, and such trustees shall further be entitled to have refunded to them any disbursement and expenses incurred by them.

VALIDITY OF ACTS OF TRUSTEE

Any act performed by the trustees will, notwithstanding that it is after the performance of the act discovered that there was some defect in the appointment or continuation in office of any trustee, will be as valid as if such trustee had been duly appointed or had duly continued in office.

INDEMNITY

Every trustee, Agent or other officer or servant of the Body Corporate shall be indemnified by the Body Corporate against all costs, losses expenses and claims they may incur or become liable to by reason of any act done by him in the discharge of his duties, unless such costs, losses, expenses or claims are caused by the male fide or grossly negligent act or ommision of such person.

DISQUALIFICATION OF TRUSTEES: REMOVAL FROM OFFICE

A trustee shall cease to hold as such -

if by notice in writing to the Body Corporate, he resigns his office;
if he is or becomes of unsound mind;
if he surrenders his estate as insolvent, or if his estate is sequestrated;
if he is convicted of an offense which involves dishonesty;
if by resolution of a general Meeting of the Body Corporate, he is removed from his office, provided that the intention to vote upon the removal form office has been specified in the notice convening the meeting;
if he is or becomes disqualified in terms of section 218 or 219 of the Companies Act, 1973 from being appointed or acting as a director of a company.

MEETING OF TRUSTEES

WHEN THEY SHOULD BE HELD, HOW OFTEN AND NOTICE OF MEETINGS

The trustees may give notice convening meetings, meet together for the despatch of business adjourn and otherwise regulate their meetings as they think fit.
A trustee may at any time convene a meeting of the trustees by giving to the other trustees not less than seven days written notice of the meeting proposed by him, the notice must be specify the reason for calling such a meeting, provided that in cases of urgency such shorter notice as is reasonable in the circumstances may be given.
Any mortgagee holding first mortgagee bonds over units shall, if he so requires of the trustee in writing, be entitled to receive reasonable notice of all meetings of the trustees.
The nominee of any such first mortgagee shall be entitled to attend and speak at all meetings of the trustees but shall not, in his capacity as such be entitled to vote threat.

QUORUM AT TRUSTEES MEETINGS

At a meeting of the trustees, 50% of the number of trustees but not less than two, shall form a quorum.
If the number of trustees fall below the number necessary to form a quorum, the remaining trustees who shall not be less than two, may continue to act, but only for the purpose of appointing or co-opting additional trustees to make up a quorum or for the purpose of convening a general Meeting of owners.
If at any meeting of trustees a quorum i s not present within thirty minutes of the appointed time of the meeting, the meeting must be adjourned to the next business day at the same time, and the trustees then present, who may not be less than two, will form a quorum.

CHAIRMAN

At the commencement of the first meeting of trustees after an Annual General Meeting the trustees must elect a Chairman form among their number, who shall hold office as such until the end of the next Annual General Meeting of the members of the Body Corporate, and who shall have a casting as well as a deliberate vote, except in the case where there are only two trustees.
The Body Corporate may at a General Meeting, in respect of which the requisite notice of special business has been given, remove the Chairman from his office as such.
If any elected Chairman vacates his office as Chairman or no longer continues in office, the trustees shall elect another Chairman who shall hold office as such for the remainder of the period of office of the first-mentioned Chairman, and shall have the same voting rights.
If any Chairman vacates the chair during the course of the meeting or is not present or is for any other reason unavailable to preside at any meeting, the trustees present at such meeting shall choose another Chairman for such meeting who shall have the same rights of voting as the Chairman, at the meeting.

VOTING A TRUSTEES MEETINGS

All matters at any meeting of the trustees shall be determined by a majority of the votes of the trustees present and voting.
A trustee shall be disqualified from voting in respect of any contract or proposed contract, or any litigation or proposed litigation, with the Body Corporate, by virtue of any interest he may have therein.
A resolution in writing signed by all the trustees for the time being present in the Republic and being not less than are sufficient to form a quorum, shall be as if it had been passed at a meeting of the trustees duly convened and held.

MINUTES

The trustees must keep minutes of their proceedings and cause these minutes to be kept in a minute book of the Body Corporate maintained for that purpose. Included in the minute book of the Body Corporate must be: records of every unanimous resolution, special resolution and any other resolution of the Body Corporate. The trustees must keep all minute books in perpetuity. On the written application of any owner or registered mortgagee of a unit, the trustee must make all minutes of their proceedings and the minutes of the Body Corporate available for inspection by such owner or mortgagee.

THE APPOINTMENT, POWERS AND DUTIES OF A MANAGING AGENT

The trustee may appoint in terms of a written contract a Managing Agent to control, manage and administer property an to exercise such powers and duties as may be entrusted to the Managing Agent, including the power to collect levies and the powers to appoint a supervisor or caretaker, AND ALL FUNCTIONS, POWERS AND DUTIES OF THE TRUSTEES AS LISTED BELOW, provided that a Managing Agent is appointed for a year at a time. Unless the Body Corporate notifies the Managing Agent to the contrary such appointment will be automatically renewed from year to year.
The trustees shall give reasonable prior notice to the Managing Agent of all meetings of the trustees and he may with the consent of the trustees be present threat.
The trustees shall from time to time furnish to the Managing Agent copies of the minutes of all meetings of the trustees and of the Body Corporate.

THE FUNCTIONS, POWERS AND DUTIES OF TRUSTEES

The trustees are subject to constraints from three quarters of the Act, the Rules and any restriction imposed or direction given at a general meeting.

THE ACT

The functions to be discharged by the trustees are:

To establish and maintain a levy fund and to require owners to make contributions to that fund. This includes the power to require an owner to make such additional contribution to the levy fund as "is estimated necessary" to defray costs of rates and taxes, insurance and maintenance in respect of any exclusive use area enjoyed by an owner.
To determine from time to time the amounts to be raised for the levy fund.
At every Annual Meeting the Body Corporate shall approve, with or without amendment, the estimate of income and expenditure.
Within fourteen days after each Annual general Meeting the trustees shall determine the amount payable by each owner and shall forthwith advise each owner in writing of the amount payable. Such amount shall thereupon become payable in installments, as determined by the trustees.
The trustees may form time to time when necessary, made special levies upon the owners or call upon them to make special contributions in respect of expenses. These levies and contributions may be made payable in one sum or by such installments and at such time or times as the trustees shall think fit.
The trustee must ensure the buildings and keep them insured to their replacement value against fire and such other risks as may be prescribed.
Before every Annual general Meeting, the trustees shall cause to be prepared schedules reflecting their estimate of:-
The replacement value of the buildings and all improvements to the common property and the replacement value of each unit.
Any owner may at any time increase the replacement value as specified in the insurance policy in respect of his unit provided that such owner shall be liable for payment of the additional insurance premium and shall forthwith furnish the Body Corporate with proof thereof from the insurer.
Maintain the common property and keep it in a state of good and serviceable repair. In this context "maintain" means to take such action as may be necessary to preserve the common property in good order, and "repair" means to restore as necessary the relevant property to good order, and "repair" means to restore as necessary the relevant property to good condition including to renovate or mend such property by replacing or refixing such parts that may require replacement or refixing. We will mention later the power to make improvements to the common property.
Notify the Registrar and the Local Authority concerned of the domicilium citandi et executandi of the Body Corporate, in order to ensure that the Body Corporate receives service of any notice that may be required to be served on it.
Maintain and repair (including renewal where reasonably necessary) pipes, wires, cables and ducts existing on the land and capable of being used in connection with the enjoyment of more than 1 section or of the common property and in general to control, manage, and administer the common property for the benefit of all owners.
Appoint agents and employees as it may deem fit. Purchase, mortgage, sell, give transfer of or hire or let units when essential for the proper fulfilment of its duties.
Purchase, hire or acquire movable property for use of owners for their enjoyment and protection of the common property and to borrow monies required by the Body Corporate in the performance of its functions or the exercise of its powers an to secure the repayment of such monies borrowed.
Enter into agreements with the local authority or any other person for the supply to the buildings of electric current, gas, water, fuel, sanitary and other services.
Enter into any agreement with any owner or occupier of a section for the provision of amenities or services by the Body Corporate to such section or to such owner or occupier.

THE RULES

It is somewhat difficult to make remarks concerning the extent of the limitations on the functions and powers of the trustees which may be contained in the rules, as the rules do differ from scheme to scheme.
As far as the powers of the trustees are concerned, the management rules tend to restate, if not elaborate on, the functions of the Body Corporate as set out in section 37 of the Act which has already been mentioned.

Of particular interest in regard to the duty to maintain the common property are the provisions in the prescribed management rules which relate to the effecting of improvements on common property. Here the rules make a distinction between "luxurious" and "non-luxurious" improvements. That which is "luxurious can be described as something that is desirable for comfort or enjoyment but is not indispensable. "Non-luxurious" is obviously the opposite. Luxurious improvements require the backing of a unanimous resolution. Should the trustees wish however to effect "non-luxurious" improvements they are obliged first to give written notice indicating their intention to proceed with the improvement within 30 days and in such notice to provide details of the costs, the manner of financing and the effect on the levies of the improvements and the need, desirability and effect of making improvement. At the request of any owner who receives such notice, the trustees are obliged to convene a special general meeting in order to discuss and deliberate on the proposals, at which meeting the owners can veto, amend and or approve by way of special resolution the proposed improvements.
The restriction against the making of loans on behalf of the Body Corporate to owners of units or to the trustees themselves (Rule 26 (2)); and the obligation to do all the things reasonably necessary for the enforcement of the Rules (Rule 28 (3)).
The trustees shall keep a complete record of all rules in force from time to time. The trustees shall on the application of an owner, occupant, prospective purchaser of a unit holder of any registered sectional mortgage bond, Managing Agent and the Auditor or the accounting officer, supply to any such person a copy of all the rules in force, and may require them to pay a reasonable charge thereof.
The trustees shall cause proper books an account and records to be kept so as fairly to explain the transactions and financial position of the Body Corporate, including:-
- a record of the assets and liabilities of the Body Corporate;
- a record of all sums of money received and expended by the Body Corporate and the matters in respect of which such receipt and expenditure occur;
- a register of owners and of a registered mortgagees of unit and of all other persons having real rights in such units (insofar as written notice shall have been given to the trustee by such owners, mortgagees or other persons) showing in each case their addresses; and
- individual ledger accounts in respect of each owner.
On the application of any owner, registered mortgagee or of the Managing Agents the trustees must make all or any of the books of account and records available for inspection by such owner, mortgagee or Managing Agent.
The trustees must ensure that all books of account and records available for inspection by such owner, mortgagee or Managing Agent.
The trustees must ensure that all books of account and records are retained for a period of six years after completion of the transactions, acts or operations to which they relate provided that minute books shall be retained for so long as the scheme remains registered.
Before every Annual General Meeting, the trustees must prepare an itemised estimate of the anticipated income and expenses of the Body Corporate during the ensuing financial year. This estimate must be presented at the Annual General Meeting for consideration. The estimate of expenses must include a reasonable provision for contingencies.
The trustees must organise and present before every Annual General Meeting, a financial statement in conformity with generally accepted accounting practice. This statement must fairly present the state of affairs of the Body Corporate and its finances and transactions as at the end of the financial year concerned.
The trustees must prepare and present before every Annual General Meeting a resport signed by the Chairman reviewing the affairs of the Body Corporate during the past year.
The trustees must ensure that copies of the schedule of replacement values, estimate of income and expenditure, audited annual financial statement and the Chairman's report are delivered to each owner, and to any mortgagee which has advised the Body Corporate of its interests, at least fourteen days before the date of the Annual General Meeting at which they will be considered.
"Delivery" shall be deemed to have been affected if the documents referred to are sent by prepaid post addressed to the owner at his domiccillium and to any mortgagee as aforesaid at the addressed of such mortgagee as reflected in the records of the Body Corporate.
Any funds not immediately required for disbursement may be invested in a savings or similar account with any building society or any other registered deposit receiving institution approved by the trustees from time to time.
The trustees must ensure that all moneys received by the Body Corporate are deposited to the credit of an account or accounts with a registered commercial bank or building society in the name at a general meeting of the Body Corporate, such monies shall only be withdrawn for the purpose of payment of the expenses of the Body Corporate or investment.
The trustees may authorise the Managing Agent to administer and operate these accounts provided that where the Managing Agent is an estate agent as defined in the Estate Agents Action 1976 (Act 112 or 1976), the trustee may authorise such Managing Agent to deposit moneys in a trust account, which moneys shall only be withdrawn for the purpose contemplated in above.
Interest on moneys invested shall be used by the Body Corporate for any lawful purpose.

DIRECTIONS GIVEN IN GENERAL MEETING

It is important to bear in mind that a Body Corporate being a juristic (or, put another way, a non natural person) requires organs and agents to act on its behalf. These organs are the trustees and the members in a general meeting. Both require some parameters of order of conduct within which to function. The members in a general meeting can be likened to the legislative arm of a government and the trustees of its executive arm.
At any stage the owners in a general meeting (being the legislature) can direct the trustees to undertake a course of action or to abort or alter any course the trustees may be embarked on and to this extent it is worth noting that the trustees may have embarked on and to this extent it is worth noting that the trustees are the servants and not the masters of the Body Corporate.
As to the nature of the limitation which owners can place on the functions or powers of the trustees it is difficult, if not impossible, to provide common examples. It will suffice to say that, whilst the Body Corporate in a general meeting, can impose restrictions or limitations on the functions or powers of the trustees, such restrictions or limitations cannot be contrary to the provisions of the Act or the rules themselves.
It should be noted that certain functions of the Body Corporate are reserved to the owners of units or to a general meeting only. For example the amendment, repeal or substitution of any rules can be only be affected by appropriate unanimous or special resolution. Dealings with the common property can only be undertaken with unanimous resolution and, of course the election and removal of trustees from office is reserved exclusively to the Body Corporate in general meeting.

AUDIT

At the first General meeting and thereafter at every ensuring General Meeting, the Body Corporate must appoint and auditor to hold office from the conclusion of that meeting until the conclusion of the next Annual General Meeting provided that where a scheme comprises less than 10 units, an accounting office may be appointed for that purpose.

NO REFUNDS OR DISTRIBUTION OF PROFITS OF ASSETS

The owners are not entitled to a refund of contributions lawfully levied upon them and duly paid by them.
No portion of the profits or gains of the Body Corporate may be distributed to any owner of any other person expect upon destruction of the building, or where such profit or gain is of a capital nature.

CONCLUSION

The trustees' lot is an arduous, time consuming and for the most part a thankless one. It requires a great deal of patience and not a little diplomacy, forbearance and legal knowledge.
Criticism on a daily basis is almost inevitable from the remaining owners of units in the scheme bearing in mind that they do have a vested and direct interest in the running of the scheme and the preservation of their investment.
Nevertheless the trustees fulfil a vital, and indispensable function. We would go so far as to say that a proper, skilled and careful discharge of their functions and duties by the body of trustees can make all the diffrence between a successful scheme (which not only benefits the owners on a day to day basis but also contributes towards an escalation in the value of the individual units) and a poor or non-successful scheme, (where through discontent amongst members, internal squabbling and the like, the general standard of the scheme deteriorates at worst and at best the reputation of the scheme becomes known in the market place and property values slump as a result).
We would just like to conclude by saying that the degree of care and skill and commitment that is required form trustees militates most strongly in favour of the retention by the trustees of professional management. This day to day administration of the scheme can be left in professional hands and the trustees themselves can concentrate on their more important function of conceptualising and supervising the manner in which a scheme is and should be controlled, managed and administered in the best possible way for benefits of its members.

THE TAXATION OF BODY CORPORATES

WHAT INCOME IS TAXED?

Many unit owners are puzzled by the inclusion of a taxation charge in the financial statements of a Body Corporate. The obvious assumption is that the auditor has formed a clandestine alliance with the Receiver of Revenue. However, this is not quite the base. In order to understand how the charge for taxation arises, it is necessary to review the types of income earned by a body corporate.

A) LEVY INCOME

In terms of Section 10 (1) (e) of the new income Tax Act, the income of an association, which is derived solely from transactions with its members, and which is to be utilised solely for the benefit of its members, is specifically exempt from taxation.
Consequently a body corporate is not liable for taxation as a result of deriving income either from levies or special levies.

B) INTEREST INCOME

A specific exclusion from the Section 10 (1) (e) exemption is investment income, which includes interest received.

HOW IS THE CORPORATES INTEREST INCOME TAXED?

Interest income of a body corporate is taxed in accordance with generally accepted departmental practice. This means that as with individuals and companies, the body corporate may claim as a deduction those expenses incurred in the production of such income.
This would relate mainly to expenses of financial nature, where a link to the interest income could be argued. Further, such expenditure is deductible only in the proportion that interest income bears to total income. The Following example illustrates:

ABC - BODY CORPORATE
INCOME STATEMENT

	R
INCOME	81 000

Levies received Interest received	80 000 1 000

EXPENDITURE	45 009
Administration fees Interest received Audit fee Bank charges Interest paid Municipal charges Repairs and maintenance Secretarial fee	5 000 800 147 250 30 000 8 452 360



EXCESS OF INCOME OVER EXPENDITURE TAXATION (See Computation	35 991 368


EXCESS OF INCOME OVER EXPENDITURE AFTER TAXATION	35 623

ABC - BODY CORPORATE
TAXATION COMPUTATION

	R
Interest received Less: Direct expenditure allowance	1 000 81



Taxable income	919



Tax @ 40%	368





DIRECT EXPENDITURE ALLOWANCE

Direct Expenses Administration fees Audit fee Bank charges Interest paid Secretarial fee	5 000 800 147 250 360


	6 557

Allowance	=	Interest Income		x Direct Expenses

		Total Income
	=	1 000	x	6 557

		81 000		1
	=	R81

The situation arises where a body corporate expenses its income. In this case existing Departmental Practice permits the deducation of the deficit, prior to the inclusion of interest income, against the interest income. Assuming that, in the previous example, levy income had been R40 000 instead of R80 000, a tax calculation would have been as follows:

	R
Interest received Less: Direct expenditure allowance - Note 1	1 000 160 840



Less: Deficit exclusive of interest received	5009



Taxable income Note 2	NIL

Direct Expenditure Allowance

1 000	x	6 557

41 000		1
=R160

Note 1 The direct expenditure allowance has increased as the proportion of the interest income to total income has decreased.
Note 2 The deduction of the deficit is limited to taxable income prior to the deficit.

BODY CORPORATES - HOW YOUR ATTORNEY CAN ASSIST YOU

There has recently been criticism levelled in the press with regard to the alleged inefficacy and exorbitant fees of Attorneys. In response, the reaction from the profession is that there are indeed Attorneys who are well qualified and who do their work efficiently, competently and at reasonable rates, notwithstanding this unfounded criticism.

Managing agents, Body Corporates and Attorneys working in conjunction with each other can take effective action against defaulters in order to protect the interests of the Body Corporate.
It must be borne in mind that the Body Corporate is capable of suing and being sued in its corporate name in respect of:

any contract made by it;
any damage to the common property;
any matter in connection with the land or building for which the Body Corporate is liable or for which the owners are jointly liable;
any matter arising out of the exercise of any of its powers or performance or non-performance of any of its duties under the Sectional Titles Act or any Management Rules;
and
monies owing to the Body Corporate.

The Body Corporate of a Scheme is responsible for the enforcement of the Rules of the Scheme and it is their duty to protect the interests of the members of the Body Corporate by doing so. Should any Body Corporate fail in its responsibililties it may very well be liable to the members for its failure to perform its duties.
Your Attorney can assist you in enforcing rules, collecting levies and other monies, due in addition, generally protecting the interest of the Body Corporate.

ARBITRATION

Any dispute between the body corporate and an owner or between owners will be resolved via arbitration.
If such a dispute arises the aggrieved party must notify the other party in writing and copies must be sent to the trustees and managing agents. If the dispute is not resolved within 14 days of the notice then either of the parties may demand that the dispute or complaint be enforced to arbitration.
The arbiter will be appointed by either an agreement between the two parties if failing such, the deeds office.

REFERENCES

1. Sectional Titles Act No. 95 of 1986
2. Estate Agents Act No. 112 of 1976

©Full copyright exists on this document. Under no circumstances may it or any part thereof be copied or reproduced without the written consent of the copyright holders. Compeg Services, Johannesburg. P.O. Box 943, Johannesburg 2000.

Website developed by Ice Images