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Thousands of poor sectional title schemes are in distress because they are accused of ‘mismanagement’ as contemplated in s 16(2)(a)(i) of the Sectional Titles Schemes Management Act 8 of 2011 (STSMA). Their troubles are compounded when court-imposed administrators come in to ‘address’ the ‘mismanagement’. This contribution seeks to show the following:
- The cost and complexity of sectional title residential accommodation is inappropriate for the poor due to their poverty and limited literacy.
- The meaning given to the term ‘mismanagement’ must be restricted to failures that occur through ineptness, incompetence, or dishonesty. To ask an administrator to address the causes of mismanagement – poverty and limited literacy – is absurd.
- Section 16 is invalid and inconsistent with the Constitution unless it is amended as follows:
– The courts must not appoint an administrator where, after inquiry, it is found that the mismanagement is due to poverty.
– The ability of administrators to exercise their powers ‘to the exclusion of the body corporate’ (BC) (s 16(3)) is deeply offensive and injurious to the poor.
– The written reports prepared by the administrator every three months (s 16(4)(b)(ii)) must be scrutinised by a responsible agency.
Sectional title accommodation is inappropriate for the poor
Since 1997, the state has been converting its subsidised rental accommodation into sectional title schemes – thereby shedding its responsibility to the poor under the guise of conferring ownership. In other words, handing ownership to erstwhile tenants – who are poor and labouring under limited literacy. Ownership, unbeknown to these new owners, comes with hidden costs and burdens. These actions of the government may be politically attractive, but they are storing trouble for the poor as follows:
- Section 26 of the Constitution provides that everyone has the right to have access to adequate housing; and that the state must take reasonable legislative and other measures to achieve the progressive realisation of this right. The Constitution was specifically enacted to confer rights on the poor. Their basic needs are beyond their means, hence their reliance on the state for subsidised accommodation. The rich do not rely on the Constitution: to them housing is a mere commodity or investment opportunity.
- In Grundler v Body Corporate of Elwyn Court and Others (KZD) (unreported case no 11006/2014, 27-6-2016) (Masipa AJ) (as she then was) held at para 17 as follows: ‘These developments [ie, sectional title schemes] are, therefore, appropriate for individuals with regular incomes or sufficient capital to meet their obligations to the body corporate. They are not for the poor, unemployed and recipients of social grants.’ In para 36 the judge continued: ‘It is notable that government created an untenable situation for indigent citizens by landing them into sectional title schemes under the guise of the provision of low-cost housing.’ While in para 37 she concluded that: ‘It is apparent that when these schemes were formed, due consideration was not given to the consequences to them.’
- The problems are caused by twin burdens: that of paying unsubsidised levies; and administering the BC in accordance with the STSMA and the rules (published in GN R1231 GG40335/7-10-2016). When levies are not paid, or the BC is not administered properly, the spectre of ‘mismanagement’ looms and opens the door to the appointment of an administrator.
- The STSMA requires that the unit owner must have the financial wherewithal to contribute towards the upkeep of the scheme; and that trustees have the requisite financial literacy, knowledge and skills to administer the BC. The state is aware that the poor do not possess these attributes – yet it insists on herding them into these schemes.
- That there is mismanagement in the running of the affairs of poor BCs should not come as a surprise – their residents have been forced into schemes that are regulated by laws they simply do not understand. It is submitted that knowingly making laws applicable to a sector that struggles to comply with them due to circumstances beyond their control, results in harm to society, besides bringing the law into disrepute.
What is ‘mismanagement’?
Section 16(2)(a)(i) reads: ‘If a magistrate’s court on hearing the application referred to in subsection (1) finds – (i) evidence of serious financial and administrative mismanagement of the body corporate; … the magistrate’s court may appoint an administrator … .’
The most common reason for the appointment of an administrator is the failure of a BC to pay a utility related debt to a municipality. The labelling of this failure as ‘mismanagement’ triggers an application to court for the appointment of an administrator, who is armed with ‘powers and duties … to address the body corporate’s management problems as soon as reasonably possible’ (s 16(3)).
That a BC can be mismanaged through ineptness, incompetence, or dishonesty cannot be disputed. But to apply the label of ‘mismanagement’ to the state of affairs one finds in poor BCs is absurd and reckless because it seeks to treat a symptom (eg, non-payment of levies) rather than the disease (poverty and limited literacy). It is a gross misdiagnosis of the problem for the following reasons:
- Poverty and low literacy are both endemic in South Africa. They create turmoil and distress in the lives of the destitute.
- The concept of management implies control; while mismanagement is a failure or loss of control. The poor do not have control over many aspects of their lives – through no fault of their own. To say that the disorder one witnesses in poor BCs is ‘mismanagement’ is a fundamental failure to understand the condition of the poor. It is offensive.
- It follows that when the impecunious are placed in sectional title schemes, the administrative and financial affairs of the BC will of necessity spiral into disarray – it is a foreseeable and natural extension of the turmoil that is an intrinsic part of their lives. Since it is a predictable outcome, why are the poor punished by the imposition of useless and costly administrators? Vahed J (with Kruger J concurring) in Body Corporate of Eleka Road No 111 and Others v Qwabe and Others (Case no AR461/2017, AR462/2017, AR463/2017, 7-12-2018) (Vahed J (Kruger J concurring)) at para 19 effectively held that appointing administrators to poor BCs enables administrators to make money with no corresponding benefit to BCs. The judges approved the finding of the magistrate as follows: ‘The attempt to persuade the court that the body corporate will benefit creates concern that the administrator is acting solely for its benefit and not for the benefit of the body corporate.’
- There is evidence that the intervention of an administrator causes the distress of poor BCs to deepen and widen. Van Zyl J in Grundler NO v Body Corporate of Lot 2371 Flamingo Heights and Others (KZP) (unreported case no 9408/2011, 22-8-2012) (Van Zyl J) at para 17 stated that the ‘the financial position of the first respondent [ie, the body corporate] has arguably deteriorated during the applicant’s [ie, the administrator’s] initial term of administration and if extended, may deteriorate further.’
Failure of judicial oversight in the application of s 16(2)(a)(i)
It is respectfully submitted that the courts have failed to interpret s 16(2)(a)(i) correctly for the following reasons:
- Evidence shows that administrators apply repeatedly to court to have their terms extended. This is in itself evidence that they have failed to serve the intended purpose in their lengthy first term. Administration of a BC is clearly a very lucrative exercise, and the costs are borne by the poor residents. That most courts routinely grant the extension without requiring a progress report is an astonishing failure of judicial oversight. Courts should, in my submission, refuse to grant extensions in circumstances where there is no evidence that there is ‘a reasonable probability that, if it is placed under administration, the body corporate will be able to meet its obligations and be managed in accordance with … this Act’ (s 16(2)(a)(ii)).
- In this regard the High Court per D Pillay J found in Grundler v Body Corporate of Elwyn Court (KZD) (unreported case no 11006/2014, 31-7-2015) as follows: ‘This crisis has arisen because of a number of factors including the inability of the occupants to pay the levies. The administrator who has been appointed for some four years has not been able to accomplish the objectives of regularising the administration of the building. The continued administration of the building by the applicant administrator remains a drain on the resources of the body corporate.’
Abuse of power by administrators
Administration of poor BCs has become a huge cottage industry – one that provides zero benefit to poor BCs. It is a method for the extraction of fees for ‘services rendered’; to frighten poor owners into submission with intimidating lawyer’s letters; and finally, to evict those who simply cannot pay. The vacated units are then sold to speculators for a song. This scenario was not contemplated when s 26 of the Constitution was enacted. This abuse occurs when courts unthinkingly confer unfettered powers on administrators. Two powers, in particular, are used to oppress the owners: the power to obtain loans in the name of the BC; and to administer the scheme without regard to the hopes and wishes of the owners and residents.
The unilateral exercise of power by the administrator to silence and oppress the poor
Section 16(3) provides that an ‘administrator has, to the exclusion of the body corporate, such powers and duties of the body corporate as the magistrate’s court directs …’ (my italics). I agree that one cannot have two centres of power administering a BC. But evidence shows that administrators are using the exclusionary power in s 16(3) to silence and oppress the poor, and it must, therefore, be amended for the following reasons:
- Self-governance is the golden thread that runs through the sectional title laws. In an ideally run BC, the owners (as members) will decide what is best suited to their interests. The appointment of an administrator, must therefore, be taken to be a serious intrusion into, and diminution of the concept of self-government.
- Evidence suggests that administrators are imposing levies that are unaffordable. When they are not paid, the debt recovery process is triggered leading ultimately to eviction. It is submitted that a fair levy can only be determined after consulting with owners. When power is exercised without consulting those affected, it becomes, in my submission, an instrument of oppression. It is submitted that engaging with those affected meaningfully, respectfully, honestly and objectively will always make for a better and more informed outcome.
The imposition of debt on the poor without their knowledge or consent
The court conferred power to obtain loans in the name of the BC is enthusiastically embraced by administrators. These loans are ostensibly obtained to pay the BC’s debts, but evidence shows that it increases debt. Administrators thereby saddle the BC for a debt that –
- it had no part in incurring;
- knows nothing about;
- has not been consulted about;
- has not consented to;
- is unaffordable;
- it does not need; and
- which affords no tangible assistance.
I submit that this is a startling departure from established legal principles: our jurisprudence knows of no principle whereby one may impose financial burdens on a third party without its knowledge and consent unless the authority of the court is obtained in any specific case.
These debts become the legacy of poor BCs after the administrator eventually leaves – when he or she knows there is nothing further that can be squeezed out.
Scrutiny of administrator reports
Section 16(4)(a)(ii) requires the administrator to prepare written reports every three months on the progress of the administration. But the subsection is silent on the fate of these reports. Who must these be submitted to for scrutiny? To that extent it is submitted that the section must be amended to make provision for an agency such as the Community Schemes Ombud Service to perform oversight over the performance of functions by administrators.
Ranjit Purshotam BProc LLB (Unisa) is a legal practitioner at JP Purshotam Attorney in Durban.
This article was first published in De Rebus in 2025 (Jan/Feb) DR 43.