Sectional Titles

Management failures

The application for liquidation of a well known managing agency Sectional Title Administrators CC ('STA') based in Cape Town, is only one in what has been a series of managing agent industry failures throughout South Africa.

In this case the provisional liquidator has indicated to creditors that his initial investigations showed no evidence of theft, but approximately R6,8 million rand has been misappropriated. The managing agency apparently operated separate bank accounts for each of its clients' operating funds but transferred all excess funds to one account in the name of the managing agency. Almost unbelievably, no interest accrued on the one 'savings' account, but as funds were returned to the operating accounts additional amounts were transferred on account of interest. In this way, he thinks, a total of R6,8 million rand was gradually misappropriated.

The details of exactly what went wrong will be different in each case of a managing agency liquidation where funds are missing or misappropriated. But the common thread is that the well-understood best practices of managing agency have not been observed, clients have been put at risk and massive amounts of money have been mishandled.

The most fundamental protection required by managed schemes is insurance against theft. The government requires that any person involved in the collection or receiving of sectional title or share block levies be registered as an 'estate agent' with the Estate Agency Affairs Board ('EAAB'). Such registration and the issue of a 'fidelity fund certificate' ensures that any theft of trust money by that person is covered by the Fidelity Fund operated by the EAAB. So schemes should first make sure that their managing agents and staff who handle levies are registered estate agents and have a valid fidelity fund certificate. Second they should make sure that any of their money which remains under the control of their managing agent is in an account which complies with the EAAB's requirements, so that these monies qualify as trust funds.

Surprisingly, there are still managing agents who, like the members of STA, consider that registration is not necessary. And, even worse, there are still schemes whose trustees, like those of STA's almost 75 clients, did not consider it necessary to check that their managing agent had this statutory insurance cover. Perhaps they did not know that registration with the EAAB was a requirement for levy collection activities.

The 'best practices' of managing agency have been distilled by Prof. Henk Delport who acted for the National Association of Managing Agents in drafting a Code of Conduct that was accepted by the EAAB some years ago but has not yet been implemented. This code is taught to managing agents in the University of Cape Town's Sectional Title Scheme Management certificate course and requires regular financial reports. Prof. Graham Paddock, who convenes the UCT course for managing agents says: "The Sectional Title Administrators CC disaster has underscored the necessity for all managing agents to know and understand their legal obligations in regard to the management of schemes, including the detail of the NAMA Code of Conduct".

Trustees of sectional title schemes can check if their managing agents have successfully completed the 6-month UCT Sectional Title Scheme Management Certificate course by calling Robyn on 021 674 7818.
Further information on the next UCT Sectional Title Scheme Management Certificate course, which begins on the 17th of June 2008, can be found by contacting Christina at [email protected] or 021 674 8718. Scholarships are also available to previously disadvantaged students.

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