Sectional Title trustees control literally millions of rands worth of levies paid by owners every month, so it is not surprising that they are often approached with proposals to invest at least some of this money in stocks and shares, government bonds, commodities and even much more speculative vehicles such as art, wine, antiques and bitcoin.
However, says Andrew Schaefer, MD of leading national property management company Trafalgar*, the Sectional Title Prescribed Management Rule (PMR) 21(4) stipulates that all payments received by a body corporate must first be deposited to an interest-bearing bank account that is either in the name of the body corporate or the trust account of a registered estate agent or attorney.
“In addition, while Section 4(g) of the Sectional Title Schemes Management Act (STSMA) and PMR 21.3.4 do provide for the trustees to invest surplus cash held in their scheme’s administrative or reserve funds, the legislation also says that they can only invest in secure financial institutions such as banks and others listed in Section 1 of the Financial Services Board Act.”
The purpose of these restrictions is obviously to ensure that body corporate funds are not put at unnecessary risk, he says, “and as a further precaution, PMR 23.7 states that the body corporate must take out insurance against the possible loss of money due to fraud or misappropriation by any trustee, managing agent or employee of the body corporate who has access to the body corporate funds.
“The amount of this insurance is usually decided by the members of the body corporate during a general meeting – but may not be necessary if the trustees have authorised a managing agent such as Trafalgar to operate the scheme’s bank accounts, and if that agent has its own fidelity insurance, as we do.”
If insurance is deemed to be necessary, Schaefer notes, the Community Schemes Ombud Service Act (CSOSA) says the minimum amount of cover must be whatever the total value of the scheme’s reserves and any investments were at the end of the previous financial year, plus 25% of the scheme’s administrative budget for the current financial year.
“Meanwhile, prudent trustees will also insist that any documents signed on behalf of a body corporate must carry two signatures – either those of two trustees or those of one trustee and the managing agent.
“And owners can ensure even more protection for body corporate funds when they take an active interest in how their scheme is being run and scrutinize budgets to keep track of exactly how their money is being used or invested.”