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Trustees liable for maladministration of scheme

Written for YourProperty

Another reader dissatisfied with the administration of his sectional title scheme has asked the Property Poser experts for guidance.

The frustrated reader says that the trustees do not appear to believe that they are answerable to the unit owners in the scheme.

He explains, for example, that they raise funds for a specific purpose by way of additional contributions from the owners and then spend those funds on something completely different.

The reader says that some of the funds are apparently "lost" during the process of the unapproved expenditure and that no acceptable explanations are given for these actions.

He adds that the trustees' administration has resulted in a number of complaints and that owners are taking issue with them on a weekly basis.

The reader is aware of the fiduciary responsibilities of a trustee and has fairly assessed that the actions of the trustees in question are, almost certainly, in breach of this duty.

He would like to know what remedies are available to owners with regard to the errant trustees and asks whether they should merely be "banned" from acting as trustees for the scheme again.

According to Schalk van der Merwe from Rawson Properties in Somerset West, Cape Town, the fiduciary duties of a trustee include acting honestly and in good faith.

"Trustees should act within their scope of authority and avoid any material conflicts between their own interests and those of the body corporate."

From the brief overview given by our reader, it seems clear that one or more trustees are acting outside their mandate and potentially for their own benefit if the funds are being misappropriated, says Van der Merwe.

"The Sectional Titles Act provides that 'a trustee of a body corporate whose mala fide or grossly negligent act or omission has breached any duty arising from his fiduciary relationship, shall be liable to the body corporate for any loss suffered as a result thereof by the body corporate; or any economic benefit derived by the trustee by reason thereof'."

Van der Merwe says it is required that the actions of the trustees be shown to be exercised in bad faith or grossly negligent before the trustees are liable to make good the loss.

As opposed to criminal liability for the trustees' actions, the steps taken would be civil and based on delict, says Grant Hill of Miller Bosman Le Roux Attorneys in Somerset West.

"The provisions cited are not applicable where the trustees' actions are not regarded as grossly negligent."

In such instances, the trustees will generally be indemnified and held harmless for such actions, says Hill.

"As trustees are often not remunerated for their efforts in the administration of a scheme, they are often understandably hesitant to act as such for fear of a misstep."

Hill says the indemnity should allay such a fear to some degree.

"Liability will only ensue should the trustee intend to act in bad faith or be grossly incompetent, which would constitute fairly extreme behaviour."

Should the removal of the relevant trustees be appropriate, Hill says a simple majority vote at a special general meeting of the body corporate could achieve the desired result.

"Regardless of whether any steps are instituted to claim for the losses incurred, this would probably be a wise step to implement to prevent any further such suspicious misappropriations of body corporate monies."

To ask a property related question, visit www.yourproperty.co.za.

Issued by:

Coetzee Gouws
082 575 7991
041 368 4992
This email address is being protected from spambots. You need JavaScript enabled to view it.
www.fullstop.co.za

On behalf of:

Rawson Properties Helderberg & Miller Bosman Le Roux Attorneys


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