Advice and Opinion

Schemes placed under administration

A sectional title scheme is placed under administration when it runs into financial difficulty, after a certain period of time should be in a better financial position than it was when it was deemed to be in a situation needing an administrator, but in some cases, the administrator does not do the job he is supposed to and the owners find themselves in a situation where the sectional title scheme is worse off than it was before it was put under administration, said Michael Bauer, general manager of the property management company, IHFM.

The Sectional Titles Act (Section 46) makes provision for an administrator to be appointed by the courts and also allows for aspects such as payments and the running of the scheme, but the problem with the system is that there is no accountability on the part of the administrator to actually turn the building around, said Bauer.

The administrator does not have to report back to anyone apart from the courts with a financial report for the year and in the end, if he does not do his job properly, the owners are left with a major problem because they will become responsible for the debt.

The other problem with the system of having an administrator appointed is that he would earn a set fee every month over and above the managing agent’s fees, and there is no incentive for him to work any harder towards fixing the problem because he earns his money every month regardless, said Bauer. A better way of dealing with situations such as these is that the administrator should be paid on performance or a percentage scale instead of a set fee every month, he suggests.

Because sectional title schemes do not have assets as businesses do and cannot sell off assets to gain money, the only way to sort out the financial problems within the scheme is to reduce expenditure or increase levies.

In a particularly bad case Bauer came across recently, the building was under administration for six years, and after this period of time, it has been found that the body corporate’s debt has grown to an amount over R3 million despite it being under administration. The records show that certain owners in that scheme are up to date with their levy payments but there are certain documents missing and answers as to how the amount got to that has not come to light, said Bauer. What makes this situation worse is that the creditor now wants the full payment and wants the court to order that the homes of the non-payers be sold in execution to cover the debt.

The lesson to be learnt here is that, when an administrator is appointed, the owners must not just accept that he is doing everything in his power to sort out the financial health of the scheme. They must ask about progress made and for a report-back on where funds are going that are being paid.

Secondly, owners need to be involved in the running of their scheme from the first day they move in, so that they know that the financials are in order and that everything is being run as efficiently as it should be, he said.

It is vitally important that owners who do pay their levies keep all their statements of account so that if a situation like this arises the owner has proof that he is up to date and will not be at risk of his unit being sold in execution to recoup money that is owed by the body corporate

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