Management of a Body Corporate - Part 1: Financial Management
Article by Zerlinda van der Merwe - Paddocks
This is the first article in a series of three articles, which will deal with the management of a sectional title scheme. We will first look at the financial management of a body corporate, followed by administrative and then physical management.
The functions and powers of the body corporate, as set out in sections 3, 4 and 5 of the Sectional Titles Schemes Management Act 8 of 2011 ("the STSMA"), are performed and exercised, in terms of section 7 of the STSMA, by the trustees of the body corporate, subject to any restriction imposed, or direction given by the members of the body corporate. However, some of these powers can only be exercised along with a resolution of the members.
Managing the financial year end
As from 7 October 2016, with the introduction of the STSMA, all newly established bodies corporate have a financial year which runs from the first day of October each year to the last day of September of the following year. Existing bodies corporate continue with the year end of February. The members, by ordinary resolution, may change the financial year end of the body corporate.
Managing special levies
The trustees, by written trustee resolution, may levy members with a special contribution if additional income is needed to meet a necessary expense that cannot reasonably be delayed until provision is made in the budget for the forthcoming financial year.
Such a special contribution is a contribution other than contributions which arise from the approved budget of the body corporate for the current financial year.
If there is a change of ownership of a unit following the trustee resolution, the purchaser of the unit will be liable pro rata for any such special contribution, or part thereof.
Managing an interim levy increase
The trustees, also by written trustee resolution, may increase the contributions payable by members by a maximum of 10% during the interim period between the financial year end, and the annual general meeting where the budget will be approved by the members. This increase will remain effective until the trustees notify the members of their increased contributions following budget approval.
The trustees may resolve to charge interest on any overdue amount payable by a member to the body corporate. However, the interest rate must not exceed the maximum rate of interest payable per annum under the National Credit Act, compounded monthly in arrears.
Managing reserve funds
The trustees must establish and maintain a reserve fund with such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of the common property, but not less than such amounts as prescribed by the Minister in the Regulations to the STSMA.
The trustees must then determine the amounts to be raised for the above purpose, and prepare the budget for the reserve fund, comprising itemised estimates of the anticipated income and expenses during the financial year for presentation and approval at the annual general meeting.
The trustees must further prepare the written maintenance, repair and replacement plan for the common property, for approval by the members in a general meeting, and must further report on the extent to which the approved plan has been implemented to each annual general meeting.
The moneys kept in the reserve fund must be invested in a secure investment with any financial institution, and only certain amounts may be paid into the reserve fund, while any amounts paid out of the reserve fund must be in accordance with a trustee resolution or the maintenance, repair and replacement plan.
The trustees may enter into written contracts in respect of the powers and duties of the body corporate, provided that it is signed on the authority of a trustee resolution signed by two trustees or one trustee and the managing agent. Any trustee with a direct or indirect interest in any such contract is recused.
Joining organisations or subscribing to services
The trustees may join organisations or subscribe to services to further the purpose of the body corporate. An example of such a service, which many trustees are members of, is our Paddocks Club. Contact us for further information in this regard.
The trustees may delegate one or more of their powers and duties to one or more of their number, to a member/s of the body corporate, agent or employee, as they deem fit, and may at any time, revoke that delegation. The trustees, in such delegation of their powers and duties, must specify in writing the power or duty concerned, a maximum amount of the body corporate's funds that may be spent for a particular purpose, and any applicable conditions.
Applications to the Community Schemes Ombud Service
The trustees may make an application, to the Community Schemes Ombud Service ("CSOS"), for dispute resolution. The trustees must further ensure that the scheme is registered, that the relevant records of the body corporate are filed, and updated, with the CSOS, and that the required levy is recovered from the members of the body corporate, and paid over to the CSOS when, and as, required.
The trustees must keep proper books of account, separately for the administrative and reserve funds of the body corporate, and must make these books of account and records available for inspection and copying upon the written request of any owner. The books of account and financial records must be retained for a period of six years.
Managing the audit
The trustees must arrange for the preparation, and audit, of the annual financial statements of the body corporate, for presentation and consideration at the annual general meeting, within four months of the end of the financial year.
Article reference: Paddocks Press: Volume 13, Issue 10
Posted In: Paddocks Press Newsletter | 31 October 2018
This article is published under the Creative Commons Attribution license.