Sectional title schemes under administration better off in owners' hands

The worst thing that can happen to a sectional title scheme is for it to be placed under administration, says Michael Bauer, general manager of IHFM sectional title management company.

This happens where a creditor applies to the courts for the scheme to be placed under administration as the scheme is insolvent, badly managed or is not fully functional. The courts decide who the administrator will be and the administrator effectively takes the place of the trustees.

He says the problem is that the administrator could then appoint a managing agent and receive the administration fee every month, but is not bound to report back to the courts or the owners on the progress of the recovery of the sectional title scheme's financial health.

"In the past, too, unscrupulous managing agents have had schemes placed under administration purposely, to reap the benefits of management fees paid to them every month for no service. The worst case scenario is that the scheme stays under administration indefinitely," says Bauer.
"There have been other cases where schemes don't have enough trustees and then are forced to have an administrator appointed to manage the scheme."

He says Section 46 of the Sectional Title Act makes provision for the appointment of administrators and if you read through the provision, it is clear that when a scheme is placed in this position, it is difficult to get this reversed.

A recent court case (Grundler NO v Body Corporate Flamingo of Lot 2371 Flamingo Heights and Others) shows that in some cases the courts have found in favour of the owners, even though inexperienced in the running of their scheme, rather than keeping or appointing an inefficient administrator.

In this case Grundler was initially appointed as administrator for the scheme, Flamingo Heights, as applied for by the local municipality because of outstanding rates and taxes due. The appointment was for 36 months but the original order provided for early termination if the rehabilitation plan was implemented satisfactorily.

The administrator applied for an extension, his reasoning being that the body corporate was still in arrears and that the scheme was not able to run with its own management.

The body corporate and some owners then accused Grundler of underperforming as an administrator and opposed the application. The courts found in favour of the body corporate and the owners.

"In most cases such as these it has to be asked whether the interest of the body corporate has been served by the administrator, and whether there shouldn't be a regular monitoring period where the administrator must report back to the courts on improvements or lack thereof, and the reasons why," says Bauer.

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