Limits to democracy in sectional title management

May 1st, 2012

By Tertius Maree

In terms of s 39(1) of the Sectional Titles Act 95 of 1986 (the Act), the functions and powers of a sectional title body corporate must be performed and exercised by the trustees, except where such functions and powers are specifically assigned to the members. Apart from this general assignment, there are several instances where functions and powers are specifically delegated to the trustees. However, the members are awarded overriding controls and, in terms of s 39(1), may issue directives to, or impose restrictions on, trustees that are binding on their actions. Such overriding powers held by the members in a general meeting are in line with the democratic principles that apply to sectional title management and reflect the underlying norm that the body corporate is the ultimate decision-making entity, which may, after all, ‘hire and fire’ trustees at its whim.

The power to issue directives or impose restrictions is not limited by any explicit provision in the Act or in the standard rules.

Does this mean that the members in a general meeting may override any decision or function of the trustees or instruct them to act in a particular manner in respect of each and every function or power assigned to them in the Act or the rules?

Clearly the powers of the members to instruct or restrict are limited. To use an absurd example, members cannot instruct trustees not to impose levies or not to prepare financial statements. Such attempts would be ultra vires the Act and the management rules and would be invalid for that reason. The first and most obvious limitation would therefore be that any directive or restriction issued by members may not have the effect of contravening or disregarding the provisions of the Act or the rules.

The ability to instruct or restrict the trustees can serve as a useful mechanism in several scenarios, the most obvious being in respect of instances where trustees are not doing their job; for example if maintenance work is being neglected or if the trustees allow levy accounts to fall into arrears without taking any action.

A somewhat more unusual, but in my view permissible and quite useful, example of a members’ directive would be to obtain finality regarding the question whether a particular improvement on the common property should be regarded as luxurious or non-luxurious. The answer to this question would determine whether a unanimous or special resolution is required to approve the improvement. The question may be resolved by putting the matter to the vote of the members at a general meeting. In my view, an ordinary majority will then suffice to settle the matter. Of course, this technique should not be used frivolously and should only be used in instances where the matter could reasonably be described as uncertain after consideration of other criteria.

In this manner, several uncertainties relating to matters that normally fall within the ambit of the powers and functions of the trustees may be resolved by referring the matter to the members in deference to democratic principles. The following additional examples may be mentioned:

  • Section 38(b): To purchase a unit in the scheme.
  • Section 38(c): To obtain or rent a movable asset.
  • Section 38(e): To borrow money and to provide security.

But prostration at the feet of democracy can easily be taken too far.

There are several reasons why trustees are appointed and why certain functions and powers are specifically assigned to them. The most obvious reason is the impracticality of referring each and every decision about the day-to-day running of affairs to all the members. But there is also another, if somewhat more obscure, reason, namely that it is important to assign certain functions and powers to the trustees, and only the trustees, excluding the members from the decision-making process. Typically this would be where the greater interests of the body corporate may be in conflict with the (short-term) wishes or needs of current owners, where conflicts of interest may arise between owners or where the interests of minorities need to be protected.

A common mistake is to allow the members to decide on the levies to be paid. Levies or special levies determined by a members’ resolution are invalid and unenforceable. In addition, owners may not ‘instruct’ the trustees to fix levies at a particular level or not to increase the levies. This does not mean that members have no say in the matter – their opportunity to do so is when the budget is debated and approved, with or without amendments, at the annual general meeting. But ultimately the determination of all levies requires a trustees’ resolution in order to be valid and enforceable, and owners cannot instruct the trustees on how to make that resolution.

More often than not, differences of opinion among members relate to financial issues. Take a four-level building with a lift. The maintenance of a lift is always a costly item, taking a large bite out of the annual budget of the body corporate. Most owners on the lower levels may feel that they do not really need a lift while the owners on the top floor require it and for some it may be essential. What are the trustees’ duties if the majority of owners instruct them not to spend money on the maintenance of the lift and the cost item is perhaps also voted out of the budget at the annual general meeting?

Such instruction may arguably be contrary to the provisions of s 37(1)(o) of the Act, but it would also undermine the long-term interests of owners because a non-functional lift would eventually undermine the market value of all the units in the building. Again, the instruction of the majority of members to the trustees would not be a valid one. Accordingly, it would be the duty of the trustees to ensure that the lift is maintained despite the wishes of the majority of owners. Even if the item is voted out of the budget, the trustees will have no option but to impose a special levy to cover the costs of maintenance. Should the majority of owners then resolve to dismiss the trustees in accordance with r 13(e) of the Management Rules (contained in Annexure 8 to the Act), the appointment of an administrator on application by an owner or owners would be justified.

The trustees’ responsibilities in respect of well-worn r 1 of the Conduct Rules (contained in Annexure 9 to the Act) relating to pets serve as a further example. Subsection (1) thereof reads:

‘An owner or occupier of a section shall not, without the consent in writing of the trustees, which approval may not unreasonably be withheld, keep any animal, reptile or bird in a section or on the common property.’

A common example illustrates the situation: One or two residents in a building have dogs but no other residents keep any pets. A new resident, an elderly widow, takes occupation and applies to the trustees to keep a small dog. Some owners have strong feelings against the keeping of pets. The trustees are confronted with their views and, instead of exercising their discretion as provided in conduct rule 1, decide to submit the issue to the members at a general meeting. The opposing group manages to garner the support of the majority and at the general meeting, after discussing the advantages and disadvantages of the matter, the members decide by ordinary majority resolution that they do not want any further pets in the building and instruct the trustees to exercise their discretion accordingly and to refuse the application.

Would such a directive be valid and binding on the trustees? Would the trustees’ refusal of the new resident’s application be defensible? Several arguments contend against its validity:

  • When trustees exercise their discretion as they are instructed to do by conduct rule 1, they may consider the desires and needs of other owners, but to allow the other owners, even the majority, to instruct them to act in a certain manner, makes nonsense of their duty to exercise their discretion, which, by definition, must be their own decision after having considered all relevant factors.
  • If decisions like these must always follow the wishes of the majority, minorities will not enjoy reasonable protection. It is for this very reason that rules exist and trustees are directed by the rules to exercise a reasonable discretion.
  • A directive such as in the example actually amounts to an attempt to amend conduct rule 1. Should the owners wish to enforce an absolute prohibition against pets (subject to the rights of existing owners with pets) they should do so by amending the conduct rule appropriately and in the prescribed manner and not attempt to manipulate the trustees to exercise their discretion in a particular manner.

The ability of the members to instruct and restrict the trustees is a useful and necessary mechanism. However, the boundaries of such powers should be well understood and trustees should refrain from abdicating their decision-making powers in favour of a ‘democratic’ decision by the members in cases where they have a responsibility to exercise an objective and independent discretion.

Tertius Maree BA LLM (Stell) is an attorney at Tertius Maree Associates in Stellenbosch.

This article was first published in De Rebus in 2012 (May) DR 30.

De Rebus