Conflict can be healthy, except when it is between the trustees/directors and the managing agent! In this newsletter, a very uncomfortable and distressing phenomenon is addressed, which is seldom discussed in any forum, but unfortunately lived in the real world, much too often.

The trustees/directors and managing agent need to be a team to successfully manage the scheme. If the relationship deteriorates, it spells trouble and all efforts should be made to address the causes thereof as quickly as possible.

Usually, and unfortunately, the trustees may have a problem with the way the managing agent executes (or not executes!) its duties. In this case, the matter must be taken up with the managing agent and pointed out, and if the breach is not corrected, the managing agent must be placed on terms. If it becomes clear that the managing agent is not cooperating and is negligent in its duties, it may be necessary to consider other options.

It may then be time to consider procuring the services of another managing agent. It is not something to leave for too long as the body corporate can suffer immense damages, and the longer the situation continues, the worse it will get. We have taken over schemes where the management of the scheme had deteriorated to such an extent, that losses could not be recovered, important documentation was not obtainable, important legal requirements were overlooked, levies were insufficient, which caused serious deterioration of buildings and infrastructure, etc. Another serious area of negligence is where arrear levies are not recovered speedily and effectively, which has a serious effect on the cash flow of the scheme. To get such a scheme back on track can cause a lot of hardship for owners.

However, sad to say, there are some other serious reasons for conflict! The legislation, whether directed at directors or trustees, both in sectional title and homeowners associations (HOA), are endeavouring to regulate as well as possible, the moral requirements of these office bearers, to use the powers bestowed on them, to serve the interests, not of themselves, but of those they represent and act for. (Management Rule 8 of the STSMA specifically address this in Sectional Title).

There is sometimes a tragic breakdown of the trust relationship, where trustees who seek control or are self-serving, causes great distress for managing agents. In such cases, the owners will probably not know what is going on and although the legislation requires the managing agent to inform the body corporate (all members together), of serious matters they should know about, to do so will be occupational suicide as it will put them on a collision course with the people who are in control of their continued managerial appointment! Auditors are also in the same position.

The sectional title legislation provides for managing agents to be appointed either by the body corporate (mostly by means of a general meeting), or the trustees. This is necessary from a legislative and sometimes practical perspective but can lead to a very bad outcome for the body corporate and the managing agent.

It is important for members to appoint trustees/directors that have the interest of the body corporate or HOA at heart – above that of their own, but how can they do that if they do not really know the persons being nominated? Most often in real life and politics, it is the person who speaks the most and can impress the meeting, that gets nominated or appointed. Unfortunately, character cannot be judged in that way! One of the most troublesome matters damaging relationships between trustees and the managing agent (if it is a trustworthy agent with integrity!), is the non-payment of levies or the breach of rules by trustees.

Sometimes it is just an innocent oversight by a trustee, that sets the dilemma in motion, for instance, non or late payment of levies being acted on by the managing agent per instructions. Sometimes it is not so innocent. What does a manging agent do if a chairman acts in breach of legislation or rules?

It should be reasonable to expect that a managing agent must point that out (in a VERY tactful way, as offense is taken easily). Should the fact that it is a trustee who accidentally paid his levy late, influence the processes of levy collection agreed upon by die body corporate, the relative legislation, or trustee resolutions, be ignored in the case of a trustee? It should not be the case and in the case of Jotam, the processes are followed without the staff dealing with the collection of levies, even knowing who are trustees and who not. An immediate confrontation on high level may immediately ensue, but more seriously, a sudden resentment towards the managing agent can develop, which will from then on colour the interaction of that trustee with the managing agent (the managing agent often not even being aware of it).

The moral guideline for anyone accepting the position of trustee or director can only be their own character, as rules and laws can only TRY to guide behaviour. To try and help trustees to comply with this aspect of their trust relationship towards those they represent, Jotam had compiled a Code of Ethics for Trustees/Directors, which can be obtained from Jotam.

To try and minimise this human weakness, I believe that a resolution can be included in the agenda and, therefore, the minutes of the Annual General Meeting, that trustees must sign the Code of Ethics and that owners must be informed by the managing agent, should a trustee not uphold the terms of the code, after being made aware of it and within a reasonable time to rectify the situation.

It can even be a requirement that trustees have debit orders in place to prevent accidental non, or late payments, which will put the managing agent in a position where the required processes have to be followed. The unfortunate part is that owners are often unaware of this conflict of interest and may not even know that it played a part in the decision of trustees to suddenly change managing agents, without substantial motivation and rationale behind their decision. They may want to obtain the services of a more ‘reasonable’ managing agent, to the detriment of the body corporate.

To prevent this from happening, a resolution can be taken by the AGM, that the services of the managing agent may only be terminated at a general meeting of owners. This will at least ensure a proper discussion and motivation by trustees, before enacting a difficult reversible decision by trustees, for the wrong reasons!