Written for Property Poser

The Property Poser panel has received an interesting query from a reader regarding a commission paid to the managing agent of his complex.

The reader lives in an estate that comprises both free-standing and sectional title units, resulting in the appointment of both a homeowners’ association (HOA) and body corporate.

Financial and administrative duties, as well as related management aspects, have been contracted to a managing agent. It appears that this agent has been collecting commission from a financial services provider to the managing bodies without disclosing it.

The reader questions whether this is legal or ethical and whether there is any right of recourse against the agent or financial services provider.

The appointment of a managing agent is contractual, says Susan Chapman from Rawson Properties Port Elizabeth Platinum.

“As a first step, the HOA and body corporate should examine the contract establishing the relationship and its provisions.”

According to Chapman, the rules under the Sectional Titles Act are quite clear as to the provisions that must appear in such a contract and place the burden of ensuring that such provisions exist on the trustees.

“The provisions generally relate to terminating the appointment of the managing agent in instances of liquidation, fraud or dishonesty, or by way of special resolution of the body corporate.”

Although the fraud or dishonesty aspect may appear applicable in the current circumstance, Chapman says it is arguably not as the agent’s conduct does not constitute a criminal offence.

“The most likely remedy lies in the contract. This may well provide that the agent should not enter into any dealings that may be perceived as conflicting with the terms of his or her appointment.”

Similarly, the contract may also provide that any such potential dealings should be disclosed, whether for approval or otherwise by the HOA or body corporate, before entering into them, says Chapman.

It may be so that the HOA and body corporate would have elected to continue to do business with the financial services provider in question despite the commission, says Stiaan Jonker of Smith Tabata Attorneys in PE.

“Assuming that the conduct complained of does constitute a breach of contract, the contract may provide for specific remedies. Alternatively, the usual remedy in such an instance would be that of cancellation, presumably with the option of claiming damages.”

Jonker says it is far more likely that the claim for recourse would lie against the managing agent rather than the financial services provider, as that party could quite easily maintain its innocence in the matter.

“Furthermore, the managing agent is in a fiduciary relationship with the body corporate and HOA. While the conduct may not be in breach under the contract, it could be considered a material breach of the fiduciary relationship, giving rise to the same remedies.”

Quantifying the damages may be difficult in this instance, unless one simply takes it as the additional one per cent paid in commission to the agent, says Jonker.

“But this is an aspect to be discussed and considered in more detail by the parties and their attorney.”

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