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The pitfalls of section 39(1) of the Act

A reader of our Property News Feed requested us to advise to what extent the provisions of Section 39(1) may be applied in order to implement directives to trustees as standing orders or to direct the trustees to disallow certain conduct by members, which they were not able to introduce by way of rule amendment.

It is difficult to deal with this topic in a short article, as directives and restrictions which may be imposed, have to be considered on their own merit and can be open to much debate.

Section 39(1) stipulates:
39. Functions and powers of Bodies Corporate to be performed or exercised by trustees:
(1) The functions and powers of the Body Corporate shall, subject to the provisions of this Act, the Rules and any restriction imposed or direction given at a General Meeting of the owners of Sections, be performed and exercised by the trustees of the Body Corporate holding office in terms of the Rules.
The powers and functions of a Body Corporate are therefore exercised by the trustees, but their authority so to act is subject to:
• The provisions of the Act;
• The Rules;
• Any restriction or direction given at a General Meeting of the owners.

pitfalls section 391

Owners in a General Meeting may not impose restrictions or directions which would contravene the provision of the Act or of the Rules. It is the statutory duty of trustees to establish an administrative levy fund and to raise levies upon members for the fulfilment of the financial requirements of the Body Corporate. The owners may therefore not direct that levies are not to be raised or not to be increased where circumstances require the levies to be increased. Likewise, the owners in a general meeting cannot direct that the trustees must not enforce the Rules, or that they may not take action against a levy defaulter.

In the Body Corporate of Fish Eagle v Group Twelve Investments, 2003 (5) SA 414 (W), the South Gauteng High Court (formerly known as the High Court of Witwatersrand), the court confirmed the statutory duty of trustees to enforce the provisions of the Act and Rules, where it was decided that a member of the Body Corporate is not entitled to withhold the payment of his levies on the grounds that he disputes the necessity or financial wisdom of the decision to impose such levies. The Court further held that a resolution of the members in General Meeting to the effect that the Body Corporate should not continue litigation against a member regarding arrear levies and electricity charges, and to refer the dispute to the General Meeting for discussion and settlement, was ultra vires (Beyond one’s legal power or authority).

Trustees may be directed to consider alternative service providers for the Body Corporate, such as managing agents, attorneys, auditors and to obtain quotations for their services.

It is often found that trustees are restricted from incurring expenditure exceeding a certain amount without the approval of the members in General Meeting.

A typical directive would read: “The trustees may not exceed expenditure in excess of R10 000-00 on any item not approved in the budget” or “Trustees may not incur any expenses in excess of R10 000-00 in respect of maintenance obligations without the consent of the members in General Meeting.”
Such provisions, in my view, place a restriction on the trustees to exercise their statutory duty when it comes to the duty to maintain the common property. The trustees in any event has the right, without approval of the members in General Meeting, to impose special levies upon the members for expenditure not budgeted and/or unforeseen.

Guidelines or directives to the trustees concerning the manner in which they should exercise their discretion when considering an application by an owner for keeping of a pet would in my view constitute an ultra vires directive. The trustees are the elected representatives of the Body Corporate and they should consider such applications on their own merit and of their own discretion, and if the members intend to oppose such an application then such guidelines should be taken up in the Conduct Rules.
This also brings us to the question concerning the life span of directives and restrictions issued in terms of members’ resolutions.

It is obvious that if a mandate or directive is issued to trustees, such as to consider the appointment of a new managing agent, that the directive or mandate will be executed once a new managing agent is appointed or the trustees have reported to the members. A directive to the trustees to raise interest on arrear levies at 20% per annum can be regarded as a standing instruction until revoked by the members in General Meeting.

As trustees come and go, they tend not to peruse previous General Meeting Minutes of the Body Corporate and it is therefore advisable to include directives or restrictions of a recurring nature in the Rules of the Body Corporate, alternatively to include these items as standard items for consideration on the Agenda of each Annual General Meeting.

Members in General Meeting cannot resolve that certain portions of common property or items of common property must be maintained by an owner. These resolutions will only be valid if duly adopted by unanimous or special resolution in terms of the provisions of the Act and Rules, and if included in the Management Rules or Conduct Rules. The members can therefore not resolve in General Meeting that an owner, entitled to the exclusive use of a garden area (not a formal exclusive use area created in terms of the Provisions of the Act or the Rules) must maintain that portion of common property. The trustees would also not be in a position to enforce such resolution. Some further examples of what directives or restrictions may be allowed or disallowed are as follows:
• A resolution to the extent that the reserve fund should equal three times the monthly income of the Body Corporate – allowed;
• A directive to obtain at least three quotations concerning major maintenance work to be executed – allowed;
• A directive to appoint a contractor to execute maintenance work, although his quotation is the most expensive – allowed;
• A resolution directing the trustees what improvements to allow or disallow to exclusive use areas – not allowed. This should be dealt with in the Management or Conduct Rules;
• A directive concerning the placement and installation of solar heating panels, geysers and air-conditioning units – not allowed.

The public documents of a Body Corporate are the Sectional Plans, Management and Conduct Rules, are filed with the Registrar of Deeds. A prospective purchaser cannot be expected to peruse all the minutes of members’ meetings of a Body Corporate and it is therefore advisable to include matters of a standing or recurring nature, or directives or restrictions concerning the use of parts of common property in the relevant Rules.

Professor C.G. Van der Merwe (Ref. Sectional Titles, Share Blocks & Time Sharing – Volume 1, 14-24(1), Issue 10) indicated that the General Meeting of a Body Corporate, analogous to the General Meeting of a Company would appear to have the following inherent or residual powers:

If the trustees refuse (to act against one of their co-trustees) or are unable (insufficient trustees available to form a quorum) to exercise powers conferred on them, the General Meeting may exercise these powers;

• If the trustees exceed their powers in performing an act, the General Meeting may ratify it, provided that such act is within the capacity of the Body Corporate itself.

Article by Werner Loock – EY Stuart Attorneys

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