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Why your body corporate should undergo regular health checks

Managing a sectional title body corporate can be complex, requiring regular checks to keep the scheme updated on its legal obligations. While trustees and managing agents should work together on these tasks, trustees are ultimately responsible for the management of the scheme and having a checklist of tasks can ease the process.

This blog focuses on the most important items that must be checked regularly during the body corporate’s financial year of a body corporate.

Annual General Meeting (AGM)

Body corporate owners have a annual opportunity to be part of decisions taken by the body corporate at the annual general meeting (AGM). The body corporate is legally obliged to have their AGM within four months after the end of the financial year. It is important that the trustees, in preparation of the AGM, check that items and issues raised at the previous AGM have been attended to.

Various items are discussed at the AGM and owners must approve each item on the agenda. The acceptance of the audited financial statements is one of the most important items on the agenda. The trustees must ensure that financial statements from the previous year has been signed which indicates that scheme members have approved the statements.

After the AGM, trustees are responsible for checking that the approved budget (from the previous AGM) has been implemented and the correct levies collected. The levies must be reconciled with the approved budget to ensure the income is correctly reflected in the books of the scheme.

Another important legislative requirement is that the scheme must have a 10-year maintenance, repair and replacement plan. This plan should regularly be updated throughout the year as this assists trustees with their maintenance and financial planning.

As the minutes of each AGM are only approved and finalised at the following AGM, the trustees must check that all items from the previous AGM have been actioned and updated. Owners expect the trustees and managing agent to deal with their issues raised at the AGM as it’s often the only time they get an opportunity to voice their concerns.

Community Schemes Ombud Service (CSOS)

The new Sectional Title Schemes Management Act requires that schemes make various submissions to CSOS. All schemes must be registered with CSOS and each member is obliged to contribute towards its funding. Following each AGM, the body corporate’s information, including the names and details of the newly appointed trustees along with the financial statements, must be updated.

If the rules of the scheme were amended after 7 October 2016, it must be certified by CSOS before they can be implemented as without such certification, the amended or new rules will not be valid.

Insurance

The body corporate are legally obliged to to obtain updated replacement values for the scheme every three years by way of an insurance valuation. For the years in between, an annual adjustment is made. The insurance policy must be renewed annually to reflect the updated or adjusted replacement values.

Trustees should also ensure that the policy includes public liability, fidelity and trustee indemnity insurance as this is a legal requirement. The minimum required cover for public liability is R10 million and for fidelity insurance, an amount equal to the reserve funds of the scheme at year end is required.

Financial

The financial management is an all-important aspect of the trustees’ role. Together with their managing agent, the trustees are responsible for managing the scheme’s finances.

A basic but crucial monthly payment trustees should keep an eye on is the body corporate’s municipal account(s). This should be kept up to date to ensure uninterrupted supply of utility services such as water, electricity and refuse collection.

Statutory registrations and payments for items such as tax is also important. All bodies corporate must be registered for tax. While they may not need to pay any tax, they are still legally obligated to submit an annual tax return to SARS.

Trustees have to approve payments for regular day-to-day maintenance. They must ensure that it is paid from the administrative fund and not the reserve fund as this is where funds are accumulated for major maintenance items. Part of this checking process is to ensure that the schemes` savings for the 10-year maintenance plan remains on track and is being transferred to the reserve fund account.

Monthly savings from levies paid towards the maintenance plan must be transferred to a separate account that accrues interest. These funds can only be used for approved maintenance items listed in the maintenance, repair and replacement plan. If used for any other purpose, the trustees must sign a resolution to that effect and inform all owners of the reasons why.

Rules

If utilised and implemented effectively, the rules of a scheme will help to manage the scheme more effectively. The body corporate can tailor their conduct rules to suit their scheme, and this should be done by following the correct procedures required by legislation. Trustees should check the rules and continuously consider if any further amendments are needed.

To ensure that all owners and their tenants are aware of the scheme’s rules, the trustees or managing agent should regularly circulate the updated rules to all relevant persons.

Summary

To ensure compliance with sectional title legislation, trustees should use a checklist to ensure transparency and so the body corporate can keep them accountable for their responsibilities relating to the legislative requirements.

How healthy is your body corporate? Do the Stonewood Health Check HERE.