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A Midcity Review
I own a unit in a sectional title scheme managed by MidCity. We’ve had one annual general meeting (AGM) in the last five years. Even after requests, I did not get proof of communications between them and the trustees about requesting the meeting. I believe it was also not communicated that the prescribed management rules (PMR) are being broken.
Although we had enough signatures, MidCity and the trustees ignored our request for a Special General Meeting.
It was ignored.
The trustees decided to set another date for the AGM. MidCity sent the wrong financial statements with the AGM pack.
We eventually had an AGM. The demands from the SGM’s agenda were ignored.
I know that ultimately, the trustees are responsible – but having an incompetent managing agent didn’t help at all.
We forced the person chairing the meeting to add this to the meeting agenda.
All owners agreed to vote out MidCity.
This was a fairly smooth process, but in some cases, managing agents can be difficult to get rid of.
Let’s unpack how to fire your managing agent.
Reasons to fire a managing agent
The main reasons for firing a managing agent include:
- Gross financial mismanagement
- Gross operational mismanagement
- Not following reasonable orders from the trustees
- Not being a registered property practitioner.
The above does give ground for legal action and/or reporting the property practitioner to the PPRA.
Most sectional title schemes have rules (like a constitution) that explain how the block is governed. These rules include getting 3 quotes for anything over R 5 000. Some managing agents appoint their own contractors without the trustee’s approval. Others take the liberty of adding costs illegally (like unauthorised site visits). Other reasons include:
- Breach of contract, e.g. unwilling to meet reasonable trustees requests.
- Failure to meet obligations
- Actions that are against the restrictions, obligations and guidance of the owners at an AGM – and the Trustees’ orders
- Communication issues
So, how can you end this without a mess?
Can I report the managing agent to the PPRA or CSOS?
Yes, you can! Managing agents are regulated property practitioners regulatory authority (PPRA). Section 63 of the Property Practitioners Act deals with “undesirable business practices”, like mismanagement of funds. The PPRA doesn’t have a lot of power in the property industry. And reporting a property practitioner to the PPRA would probably make no difference (sadly).
It’s still worth having it as proof of complaining.
The issue can also be escalated to CSOS. The CSOS code of conduct does allow for this. This is also a slow route and can take a long time.
Who can terminate the contract with the managing agent?
Terminating the contract can be done by the trustees.
Owners can terminate the contract through a special resolution. You need to make this decision at an SGM or AGM. The trustees can also call an SGM. But if the trustees won’t respond, you need 33.333% of the owners to agree to an SGM. This would be done by a document signed by the owners.
Firing the managing agent is a special resolution.
An SGM with special resolutions can only be called if:
- 33.333 % of the owners need to sign the agenda.
- 30 days notice must be given for the meeting.
- A clear agenda with the items to be discussed is needed.
Before calling the meeting, the owners or trustees need to look into the management contract.
The Contract between the managing agent and The body corporate
Details about the terms, conditions, damage claims, and notice period are in the contract. This contract is between the managing agent and the body corporate. The terms of termination and the handover process are specified in the document.
Some contracts auto-renew for a certain amount of time.
How to get rid of The managing agent
The termination notice serves as communication to stop using the managing agent’s service. If the termination is accepted by the managing agent, a replacement and handover need to be discussed. If the termination notice is not accepted, it becomes more complicated.
For example: We had a case where the agent was not registered with the PPRA. The trustees took control of the bank account and stopped paying the managing agent. They communicated this to the managing agent. She dropped off all the paperwork and invoices for the last 20 years and disappeared. The handover was a rough ride!
Disputes of termination of contract
There are also cases where the managing agent can dispute the cancellation of a contract. This was the case between BRUSHWOOD and WHITFIELDS PROPERTY MANAGEMENT (PTY) LTD. The trustees ordered the managing agent to pay the amount of R 50,000 to an attorney. They refused to do so. Rule 10(2) of the Prescribed Management Rules (PMR) specifies the mandate. It states that the trustees act on behalf of the body corporate. It was found that the termination was legal.
Managing agents can claim damages against the body corporate, depending on the contract they signed with the body corporate.
How to Appoint a New Managing Agent
Once the managing agent’s contract is terminated, the body corporate must appoint a new managing agent. It is recommended to get three quotes. The trustees can choose a new managing agent.
Tips on appointing a new managing agent
The property industry is highly competitive and sometimes unethical. You can ask the managing agent to pitch their business to the trustees. Some schemes are happy to make the decision strictly on quotes.
Money shouldn’t be the only deal maker.
Neither should the sales pitch. Because salespeople lie.
I prefer to meet the person who will manage the account.
The trustees can vote on the appointment after reviewing all the information. They must carefully evaluate the pitch, costs, fees, more fees, and extra expenses.
After the new managing agent is appointed, all parties involved must be notified.
The financial side is often mostly affected. Most managing agents have a central trust bank account, rather than an account for each scheme. Standing orders and payments that happen on the first of the month need to be considered. Levies payable also need to be paid into the right account with the new reference.
Conclusion
The trustees are ultimately responsible for the body corporate obeying the law. The owners give the trustees the legal right to make decisions on behalf of them. But with some decisions, like firing a managing agent, a special resolution would be needed. Calling an SGM or forcing the matter at an AGM can be daunting – but I’ve assisted in doing this.
Once the managing agent has been fired, you’re good to go.
A good managing agent can make the transition smooth.
Happy investing!
