A Practical Guide for Managing Agents

Is Your Sectional Title Scheme Financially Compliant?

As managing agents, we play a critical role in guiding trustees to ensure the body corporate is not only operationally sound but also fully compliant with the law. In this blog, we unpack the essential areas of financial and regulatory compliance under the Sectional Titles Schemes Management Act (STSMA), offering practical insight for day-to-day management.

1. Financial Compliance: Beyond the Bank Balance

Many believe financial compliance simply means having enough money in the bank or avoiding a deficit. However, true compliance goes deeper:

• Audited Financial Statements: These are the key indicators. Auditors now check for compliance with specific management rules, not just the figures.
• Bank Accounts Compliance: Section 54 requires a separate administrative fund and reserve fund. Are your monthly reserve fund allocations actually being transferred?
• 10-Year Maintenance Plan: Integral to budgeting and financial audits. A non-existent or neglected plan is a red flag.
• Insurance Valuations: Required every three years.
• Fidelity Insurance: This protects against fraud and mismanagement and must be calculated correctly based on regulations.

2. Levy Collection: Rules, Resolutions, and Risk

Levy collection has become a precise and regulated task:

• Notification: Owners must be informed of new levies within 14 days post-AGM, backed by a trustee resolution.
• Billing Frequency: Levies aren’t always monthly—some schemes bill annually.
• Interest Charges: Interest must comply with the National Credit Act and must be defined in the resolution. Compound interest must be explicitly approved.
• Legal Action: Handing over arrears requires a 14-day notice and a clear resolution authorising legal steps.
• Debt Collection Compliance: If you’re sending letters or charging for SMSes, you must be registered with the Council for Debt Collectors and follow the prescribed fee structure.

3. Budgeting and Reserve Fund Planning

• Balanced Budgets: Income (levies) must equal expenses (admin + reserve fund).
• Administrative vs Reserve Fund:
  • Admin Fund: Daily operational costs.
  • Reserve Fund: Long-term capital expenses tied to the 10-year plan.
• Minimum Contributions: Even the minimum reserve fund amount must align with future maintenance demands.

4. Annual and Special General Meetings (AGMs and SGMs)

Proper Planning Prevents Pitfalls

• Timing: AGMs must be held within four months of financial year-end.
• Notice Periods:
  • AGM: 14 days (excluding meeting day and send day).
  • SGMs (Special or Unanimous Resolutions): D-day notice, usually 16 days total.

Quorum and Voting

• AGM Quorum: 33.33% of owners (based on participation quota).
• SGM Voting:
  • Special Resolution: 75% of quorum (by number and PQ).
  • Unanimous: 80% of all owners present and all must agree.

Voting Procedures

• Keep it practical. Use pre-filled voting cards with PQs to speed up counting.
• Document voting results clearly in minutes.
• Notify owners post-meeting with a summary of outcomes.

5. Maintenance Planning: Making the 10-Year Plan Work

A 10-year maintenance plan is more than a legal requirement—it’s a strategic financial tool:

• Realistic Planning: Focus especially on the first five years.
• Review Annually: Adjust for unforeseen changes or developments.
• Include All Infrastructure: Heat pumps, centralised water systems, sewerage pumps—if it’s shared, it must be included.
• Professional Input: Use engineers or valuers for complex systems.

6. Roles and Responsibilities: Trustees vs Managing Agents

Clarity is essential. Trustees bear the legal responsibility, but managing agents must guide:

• Trustees: Policy-makers, decision-takers.
• Agents: Advisors, implementers, compliance guides.
• Communication: If the board asks you to hide something—don’t. Transparency is non-negotiable.

7. Insurance: Do You Know What You’re Covered For?

• Building Insurance: Should reflect current replacement value.
• Owner Improvements: Owners must declare significant upgrades (e.g., marble kitchens).
• Premium Adjustments: Recover excess premiums if bonds or improvements push up insured value.
• Exclusions: Read the fine print. Post-disaster exclusions (flooding, retaining walls) are increasingly common.
• Claims Handling: Have a clear in-house process and a dedicated person if possible.
• Fidelity Cover: Ensure this is in place and calculated properly (admin fund + bank balance x 25%).

8. Governance Documents: Conduct and Management Rules

• Registration: Must be filed with CSOS and aligned with their directives.
• Custom Rules: May be needed for issues like parking, pets, or short-term letting—but follow CSOS guidance.
• Fines & Enforcement: Must follow due process—interview, notify, document.
• Accessibility: Owners must have prompt access to these rules.

9. Record Keeping: Your Compliance Backbone

• Six-Year Rule: All key records must be stored for six years.
• Cloud-Based Storage: Embrace digital. If your office burns down, can you still operate?
• Transparency: Owners shouldn’t wait 10 days for meeting minutes or levy info.

10. CSOS Registration and Disputes

• Annual Returns: Must be submitted with financials and AGM minutes.
• Statements: Track your CSOS account and ensure accurate billing.
• Dispute Protocols: You must prove:
  1. What the issue is.
  2. That you’ve tried to resolve it.
  3. What outcome you seek.

Even managing agents can lodge CSOS claims.

11. Communication: The Glue That Holds It Together

• More Than Emails: Pick up the phone. Don’t just rely on WhatsApp groups or text chains.
• Train Through Talk: Regular contact becomes informal training for trustees.
• Relationship Building: One face-to-face AGM a year can do wonders for trust and understanding.

Final Thought: Your Reputation Walks with Every Hand-Over

Whether you lose a scheme or hand it over voluntarily, your documentation and processes reflect your professionalism. From budgeting to meeting minutes—leave a legacy of order, compliance, and clarity.

Disclaimer:

The information provided in this article is intended for general informational purposes only. While we strive to keep all updates accurate and up-to-date, the Property Practitioners Regulatory Authority (PPRA) regulations are subject to change, and may do so without prior notice. Principal Property Services  is not responsible for any inaccuracies that may occur, nor for any decisions made based on this information. We encourage readers to consult CSOS, the PPRA and NAMA directly or visit their official website for the most current information regarding educational regulations and compliance requirements.