Referring to reports of another managing agent in Gauteng going under and approximately 60 sectional title schemes that were managed by this agency losing funds that were sitting with them, Michael Bauer, general manager of managing agents IHFM, has issued a warning to trustees, to check up regularly on their managing agent and not to hand over full responsibility of their sectional title schemes.
In one particular case, a sectional title scheme that was managed by the agency has lost approximately R6 million in funds that were with that managing agent. The sectional title scheme now has to hurriedly raise a special levy to front funds necessary to pay their bills and keep their scheme solvent.
In cases such as these, while there will be insurance to protect the scheme, there will undoubtedly not be a full recovery of the funds lost, and even though the managing agent should have had a Fidelity Fund Certificate to be able to practice, it might take considerable time to process a claim from this fund, said Bauer.
Managing agents are meant to be audited annually and only on receiving a clear audit will they be able to renew their Fidelity Fund Certificates through the Estate Agency Affairs Board and it sometimes happens that there are agencies, through no fault of their own, do not get their certificates renewed on time and have to go through the whole process again. In this period though, with no Fidelity Fund coverage, if something goes wrong, the sectional title scheme will not be able to lodge a claim to recoup funds.
What can happen in some cases is that companies can change from year to year, so the competent management team that was hired initially by the sectional title scheme might change drastically and so could the management skills. This is where the trustees’ checking up on their managing agents is of vital importance, because if they check the bank statements or financials of the scheme regularly, they might pick up discrepancies before it is too late, said Bauer.
“Trustees of sectional title schemes have a fiduciary responsibility towards the other owners and, likewise, owners should check that the financial situation of their scheme is being looked after properly,” he said.
While there are private insurance policies that could also be taken out to protect against loss of monies, these also often have pitfalls in the amounts that can be claimed, so they aren’t always 100% effective.
“You can imagine if 50 schemes that were managed by a managing agency that goes under, and all of these schemes lodge claims of R6 million or thereabouts against the insurance company, there is a very slim chance they will all be paid out the full amounts,” said Bauer.
“In all instances where money is lost, for whatever reason, trustees might make mistakes and so all financial decisions and records should be counterchecked by other trustees or owners in the scheme. At the same time, while you don’t want a “nit-picking” mentality, it is better to be safe than later sorry,” advises Bauer.