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The Appointment of an Administrator in Sectional Title Schemes

An administrator in a sectional title scheme is appointed in accordance with the provisions of Section 46 of the Sectional Titles Act, Act 95 of 1986 (herein after referred to as the Act).

The relevant provisions of Section 46 are quoted for ease of reference:

“46. Appointment of Administrators
(1) A body corporate, a local authority, a judgment creditor of the body corporate for an amount of not less than R500, or any owner or any person having a registered real right in or over a unit, may apply to the Court for the appointment of an administrator.
(2)(a) The Court may in its discretion appoint an administrator for an indefinite or a fixed period on such terms and conditions as to remuneration as it deems fit.
(3) The administrator shall, to the exclusion of the body corporate, have the powers and duties of the body corporate or such of those powers and duties as the Court may direct.
(5) The Court may, with regard to any application under this section, make such order for the payment of costs as it deems fit.”

appointment administrator

It is evident that the Section 46 contains no provisions indicating in which circumstances a Court may or should exercise its discretion to appoint an Administrator.

This aspect was considered in the matter of Dempa Investments CC v Body Corporate of Los Angeles [2008] JOL 21735 (W). In this matter the Court held that there is nothing in Section 46 that prevents a Court from appointing an Administrator where there were existing trustees.

The Court came to the conclusion that following principles are to be applied:

• The court has a discretion to appoint an administrator, which must be exercised judicially having regard to the circumstances of the particular case before it.
• Special circumstances or good cause must be shown.
• It is not possible to define what would constitute special circumstances or good cause, but as a minimum there should be:
o some neglect, wilfulness or dishonesty on the part of the trustees, or an event beyond their control; and
o a likelihood that the owners of units will suffer substantial prejudice if an administrator is not appointed.
• Acts or omissions which would qualify would include mal-administration, breaches of statutory duties, dishonesty, inefficiency and managerial atrophy or deadlock. The list is not exhaustive.
• The problem must be such that an administrator could be expected to add value where the trustees could not. For instance, mere inexperience on the part of the trustees may not be sufficient, for they could appoint an experienced managing agent. So too it may be insufficient that the body corporate is experiencing serious financial difficulties, for the trustees and managing agent may be as capable as an administrator to deal with the problem. If, however, inexperience is coupled with wilfulness, or the financial difficulties have been caused by mal-administration, dishonesty or the like, an administrator could be expected to achieve results which the trustees would not.
• A balance should be struck between, on the one hand, being slow to interfere in the management of the scheme by the body corporate’s chosen representatives and, on the other hand, not hesitating to come to the assistance of owners of units who may suffer substantial prejudice by the actions or omissions of trustees.
• The applicant bears the onus to persuade the court that this is a suitable case for the exercise of the discretion.” On the facts of the matter, there was overwhelming proof that the trustees were not managing the scheme in a proper manner. Accordingly the Court exercised its discretion and ordered the appointment of an Administrator.

The Court not only has a discretion as to whether or not to appoint an administrator, but also with regard to the (1) period of his appointment, (2) his functions and (3) the remuneration which he is to receive.

(1) The appointment can be made for either an indefinite period or for a fixed period. If appointed for a fix period the Court may empower the administrator to apply for his or her reappointment.

(2) The Court may also confer all or only some of the powers and duties of the body corporate on the administrator. If all powers and duties are transferred, the functions of the body corporate, the Trustees and general meeting, are thereby suspended and assumed by the administrator. The Court can in its discretion transfer only some of the duties and powers of the body corporate to the administrator, for example financial administration only. In such event the remaining powers and duties remain with the body corporate.

(3) The remuneration and expenses of the administrator are classified as administrative expenses payable out of the administrative fund created in terms of Section 37(1)(a) of the Act.

In the matter of Grundler NO v Body Corporate Flamingo of Lot 2371 Flamingo Heights and Others (9408/2011) [2012] ZAKZPHC 53 the administrator was initially appointed for the scheme, Flamingo Heights, as applied for by the local municipality because of outstanding rates and taxes due. The appointment was for 36 months but the original order provided for early termination if the rehabilitation plan was implemented satisfactorily.
The administrator applied for an extension of his appointment, his reasoning being that the body corporate was still in arrears and that the scheme was not able to run with its own management.

The body corporate and some owners then accused the administrator of underperforming as an administrator and opposed the application. The Court found in favour of the body corporate and the owners even though inexperienced in the running of their scheme, rather than keeping or appointing an inefficient administrator.

Article by EY Stuart Attorneys, Pretoria

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