How important is it for Trustees of a Sectional Title Complex in South Africa to stay within the Budget as agreed upon in the Annual General Meeting?
Trustees in South Africa’s Sectional Title Schemes play a crucial role in managing the financial and operational aspects of their complex. One of the duties of trustees is to stay on budget as agreed upon in the Annual General Meeting (AGM). Sadly this is not as easy as it seems. We looked at why this is one of the most important responsibilities of a trustee and what could go wrong.
Adhering to the budget agreed upon during the Annual General Meeting (AGM) is vital for trustees for several reasons:
Financial Accountability
Transparency and Trust: Sticking to the budget as agreed upon at the AGM fosters transparency and builds trust among owners. When trustees adhere to the budget, it demonstrates accountability and responsible management of communal funds, which is essential for maintaining good relationships within the community.
Preventing Financial Mismanagement: Budgets are established based on the collective needs and priorities of the owners. Deviating from this budget can lead to financial mismanagement, resulting in unexpected costs and potential disputes among owners regarding the allocation of funds.
Legal Obligations
Compliance with Legislation: The Sectional Titles Schemes Management Act (STSMA) outlines specific financial management rules that trustees must follow. These include maintaining proper financial records and ensuring that expenditures align with the approved budget. Failure to comply can expose trustees to legal challenges and personal liability for any financial mismanagement.
Decision-Making Authority: Decisions made outside the agreed budget can be contested by owners, leading to potential legal actions against trustees. The STSMA requires that significant financial decisions be made through proper channels, ensuring that all owners have a say in how funds are utilized.
Community Harmony
Equitable Treatment of Owners: Adhering to the budget ensures that all owners are treated fairly and that resources are allocated according to the agreed-upon priorities. This helps prevent conflicts and dissatisfaction among owners, who may feel marginalized if budget deviations favor certain individuals or projects over others.
Long-Term Planning: A well-structured budget allows for long-term financial planning, including setting aside funds for maintenance and unexpected repairs. This foresight is essential for the sustainability of the sectional title scheme and helps avoid special levies or financial crises in the future.
When things go wrong
There are one of two things that can go wrong in the reliability and diligence of trustees with regard to the financial management of a sectional title complex.
- Ignorance: It is very possible that trustees who have been elected are not aware of their fiduciary responsibility when it comes to sticking to the budget as agreed upon at the AGM.
- Own Agenda: We often find that trustees who are planning to sell their property within the foreseeable future will push for certain capital expenses to be made. And they can be very convincing in the process. If you are not aware of the letter of the Sectional Title Law, you can be manipulated into agreeing to expenses that are not in the best interest of the complex.
In summary, it is crucial for trustees in South Africa’s Sectional Title Schemes to adhere to the budget established at the AGM to ensure financial accountability, comply with legal obligations, and maintain harmony within the community. This practice not only protects the interests of the owners but also enhances the overall management and sustainability of their Sectional Title Complex.
If you are unsure of whether or not your group of Trustees is keeping to their responsibilities, we suggest you give the Sectional Title Experts at Camalb a call today.
