Sectional Title trustees cannot award themselves contracts

Any owner in a Sectional Title scheme who is in good standing can become a trustee, and they can even nominate and vote for themselves should they wish.

“However, once they are a trustee they should note that they cannot work for or provide services to their own schemes, unless they follow very strict conditions set out in the Prescribed Management Rules (PMR) of the Sectional Title Schemes Management Act (STSMA),” says Andrew Schaefer, MD of SA’s leading property management company Trafalgar.

He notes that there is nothing in the STSMA that prevents any owner from nominating themselves as a trustee – and that in most schemes their willingness to volunteer their time and effort to take on this responsibility would be welcome. “Indeed, there are all too many schemes these days where no-one wants to be a trustee and where it is necessary for an executive managing agent to be appointed.

“What is more, an owner who has nominated themselves as a trustee, can also vote for themselves at the scheme’s AGM, provided that they have not been legally disqualified from voting on ordinary resolutions.”

The grounds for disqualification are:

  • Refusing to pay the body corporate any amount due by that owner after a court or an adjudicator has given a judgment or order for them to do so; and
  • Remaining in breach of any of the conduct rules of the scheme after a court or adjudicator has given a judgment or order for them to stop breaking the rule.

Schaefer adds that any trustee can also be removed from office if they are legally declared to be of unsound mind or insolvent, or if they are convicted of theft, fraud, forgery, perjury or any other charge involving dishonesty, or if they become disqualified to hold office as a director of a company in terms of the Companies Act.

“And speaking of the requirement for trustees to be scrupulously honest, this is even more the case if they are considering doing any work for or providing a service to their scheme in their private capacity.

“The STSMA does not expressly forbid this, but Section 8 of the Act provides that trustees must, first and foremost, guard against any erosion of their fiduciary relationship to the body corporate – and do their best to avoid any material conflict between their interests and those of the body corporate.”

In practical terms, he says, what this means is that if a trustee wants to be a service provider to their scheme and still remain a trustee, they need to get the written permission of all owners to do so.

“Then, to further protect the scheme, PMR 6 states that any trustee who has any direct or indirect personal interest in any matter to be considered by the trustees must not be present or play any part in the meeting where they decide on that matter.”

In addition, says Schaefer, PMR 14 states that a trustee may not vote on any contract or any dispute with the body corporate in which they have any direct or indirect personal interest.

“So, although they can vote for themselves to become a trustee, they cannot vote to award themselves a contract to do work for the scheme, and must recuse themselves whenever that contract comes under discussion for any reason.”

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