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Smaller sectional schemes often problematic

There is often a perception that the smaller a sectional title scheme, the easier it will be to run and manage, but in many cases the smaller the scheme, the more problematic it can be, says Michael Bauer of the property management company IHFM.

Particularly troublesome, says Bauer, are sectional title schemes with only two units in them, the reason being that the body corporate often doesn't exist, the owners don't ever hold meetings, least of all the AGM, and don't stick to the statutory requirements of a sectional title scheme. Often in smaller schemes, there aren't enough people willing to be trustees, if any at all.

If there at any point is any conflict between the two owners, communication breaks down further and in cases of disputes between the two, it can end in one owner taking another to court and dragging it out indefinitely, said Bauer.

In small sectional title schemes the management provisions set out in the Sectional Titles Act and Prescribed Management Rules are often not adhered to and the owners often "make it up as they go along", said Bauer.

While these schemes may not be in financial distress, if one of the owners decided to sell their unit, they would run into some difficulty, firstly, because the bank at which the prospective buyer is applying for a mortgage bond would want copies of the current financial statements of the body corporate to ensure that the scheme is solvent. Secondly, as there is no resolution passed for levies (because no AGM was held or any other formal general meeting), there is no proof or idea of what the income for the year is meant to be, and this would also be questioned by a buyer or the bank providing finance.

Over and above levy collection, there are municipal accounts to be taken care of, insurance for the scheme, maintenance of the building, etc., and if there is no designated minimum of two trustees required to run the scheme, there might be cases where items are simply overlooked, said Bauer.

In many cases such as these, if the bank who has provided finance for the existing owners found out that the scheme was not being run properly, they would apply for an administrator to be put in place to take over the running of the scheme, and this should be avoided at all costs, he said.

"Owners of sectional title scheme units must realise how quickly their scheme can run into financial difficulty or where problems can creep in and must take responsibility and interest in the management of their scheme, no matter how big or small. This is, after all, a huge investment and one would not want to see the unit values deteriorating due to bad management," said Bauer.


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