I own a few flats in a self-managed block of flats. The finances are in perfect condition and have been handled by the same lady for the last 20 years. We get clean audits every year and have an emergency/reserve fund of R 1 000 000 which is unheard of for the area and those types of properties.
Last year, I was elected to be the chairman of the board of trustees of this sectional title scheme – and the journey has been interesting, to say the least.
What is the role of the trustees in sectional title properties?
As you might know, the trustees are elected at the annual general meeting (AGM) to represent the owners of the sectional title scheme. The trustees will be given directives and restrictions on what they need to do.
Legally, trustees aren’t paid for their work. Trustees, therefore, need to deflect the authority of the owners to get things done and make sure that everything from finances to maintenance runs well.
It is therefore important that trustees are chosen on grounds of selfless service and willingness to sacrifice their time for the best interest of the scheme. If this is paired with an understanding on how to deflect authority to get things done, we have a winning combination.
What does a managing agent do?
Managing a block of flats is a lot of work. You need to stay up to date with the latest legal changes, make sure that the finances and maintenance are up to date and handle complaints – just to name a few. As the trustees are not always hands-on and involved in the day to day operations, a managing agent can assist the trustees and the body corporate to handle these issues.
Managing agents assist the body corporate with functions such as:
- Financial matters – Levy payments, asigning fines, doing payments, etc.
- Legal matters – managing owners with arrear levies, CCMA cases and CSOS representations.
- Administrative matters – managing employees, supplying/printing of levy statements, clearance figures, etc.
- Maintenance matters – getting quotes, confirming that maintenance was done satisfactorily, sending out contractors for issues that arise.
As you can see, this can get very specialised and can be frustrating for people that don’t understand the ins and outs of managing sectional title property.
What is the real cost of having a managing agent?
As mentioned, the managing agent takes orders from the trustees to make things happen. But managing agents cost a lot of money. Not only for the body corporate (which in turn gets the money from the levies), but also charges a fee for supplying closing figures, sending letters/fines to owners and sending SMSs of arrear levies. For example:
- SMSs of arrear levies are charged anywhere between R 7 and R 30 per SMS
- Closing figures for property transfer is charged at R 1300+
- Letters for fines are charged at R 300-1000 – and then the fine is levied on top of this.
This means that the indirect cost of having a managing agent is a lot more than the R 5 000 – R 20 000 per month management fee.
Mismanagement by managing agents
A sectional title scheme close to one of my properties had a water leak. The managing agent received an invoice for more than R 500 000 for two months in a row – and paid the invoices! When the owners finally set up a meeting with the managing agent, he walked out on them.
This is not a special case. I’ve personally seen gross mismanagement and overpriced quotes from managing agents!
But this shouldn’t stop you from appointing the right managing agent. It does serve as a warning for anyone who thinks a managing agent is a quick fix for all problems. Make sure you know the directives/limitations set out to the managing agent and the trustees!
What’s the difference between self-management and using a managing agent?
Many blocks try to keep the costs low and have a more hands-on approach to their investments. They decide to self manage the block, rather than having a managing agent. A self-managed block hires its own bookkeeper to handle all levies and finances and could also hire specialists such as a handyman to manage things on the ground.
The trustees tend to be more involved in the block and understand what’s happening. This approach not only keeps the expenses low but if done well, could be much better managed than a block with a managing agent.
How does self-management work?
Whether or not a block is self-managed, the trustees normally receive a portfolio such as finances, maintenance or communication. The trustees normally have goals that were assigned to them at the AGM. As a self-managed block, each trustee will need to manage the portfolio they have been given. For example:
- The financial portfolio need to report on arrear levies, handovers and budgets and manage the bookkeeper
- The communications portfolio needs to send emails, communicate important notices to owners and trustees.
- The maintenance portfolio needs to manage the caretaker, make sure the 10 year maintenance plan is being adhered to and lightbulbs are being replaced.
In a self-managed block, the trustees tend to be very involved – they know the owners personally, get down and dirty themselves with maintenance and issues such as plumbing and electrical faults and rubble removal issues. In essence, the trustees are manually doing the work and delegating their authority regarding matters in which they don’t have expertise.
Conflict of interest for self managed blocks
I previously owned a flat in a self-managed block where the bookkeeper was stealing money. It took the body corporate 5 years to untangle the complex web of laundering. In the end, she paid back R 5 000 – as she had no money left. This left a bad aftertaste in the mouths of the owners, only to have the managing agent mismanage the money a few years later.
It is for this reason that trustees need to be very involved in the block.
However, what happens when the trustees get companies to quote for them and give them kickbacks? This is a real issue, and I am aware of at least 3 people in the Pretoria region that do this. Sadly, these trustees don’t declare their interest, and it is almost impossible to trace the kickbacks back to them. It is therefore advisable that self-managed blocks’ trustees need to have a certain level of trust earned between them – and monitor finances, maintenance, quotes and other aspects meticulously.
Can a block be legally self-managed?
With the property practitioner’s act that came into effect on 1 February 2022, this seems to be questionable. The act states that anyone that makes money from managing, selling or buying property should be registered as a property practitioner and have a fidelity fund certificate in place. As the new law was forced through very quickly, we are still waiting for clarification if this includes self-managed sectional title schemes.
Should a sectional title block be self-managed?
Though it might be financially in the best interest of a block to be self-managed, with a lack of management and skill, the block will suffer greatly. Many blocks do not have good levels of trust or proper processes in place to monitor the trustees, contractors and tasks that need to be performed.
For this reason, I recommend having a managing agent in the early stages of a sectional title scheme. The agent can give valuable insights into the legal aspects, get the right structures in place and assist trustees with grunt work such as getting quotes.
I have seen, however, that self-managed blocks can be well managed with low levies and money left over at the end of the financial year.
Conclusion
Self-managed sectional title schemes carry a risk of corruption unless good monitoring is in place. Whether you’re in a self-managed or agent managed scheme, the trustees need to be on top of things and know what goes on in the finances, maintenance and administration.
Don’t trust a managing agent because they have paperwork in place – ask questions, be critical about finances and contractors’ quotes.
Happy investing!
Sources consulted
- Property24 – Should sectional title schemes be self-managed?
