Introduction
The body corporate is the governing body of sectional title schemes. The body corporate then elects a group of trustees to act as their executive body at every annual general meeting of the members. The trustees’ powers and functions are subject to the provisions of the Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”); the rules applicable to the scheme; and any direction given or restriction imposed by the body corporate.
The management of a scheme requires a high level of knowledge and experience in various fields such as physical maintenance, accounting, meetings, human resources, banking, law, and insurance. Although outsiders can also be trustees, the majority of trustees are required to be sectional owners. Efficient management of a scheme requires various managerial, secretarial, financial and physical responsibilities toward the body corporate.
In order to avoid the mismanagement of the scheme and to avoid the possible appointment of an administrator it is important to have an efficient management structure in place. Without an executive, the general meeting of owners would have to convene a general meeting every time a decision needs to be taken regarding the management of the scheme.
What is a Managing Agent?
Many schemes, because of their size or circumstance, require the assistance of a managing agent to execute some or all of the administrative functions of the scheme. Many schemes are made up of hundreds of units and various pieces of common property and exclusive use areas. There are even sectional title schemes that are located within larger home owners’ associations. The administrative management of these schemes required layered and integrated execution of the administrative and financial functions of the body corporate. It is for this reason that these schemes may opt to utilize the services of skilled and experienced managing agents that have the infrastructure required to efficiently manage these schemes. The managing agent is contractually appointed to assist trustees with the management of the scheme.
What is an Executive Managing Agent?
Some schemes may require the appointment of an experienced and knowledgeable single professional manager or managing agency firm as an executive organ of the body corporate. In some circumstances this option could be preferable to the position where the trustees are elected as the executive arm of the scheme, and who may supplement their expertise by appointing a managing agent to assist them in the day-to-day management of the scheme.
The executive managing agent is appointed to perform the functions and exercise the powers that would otherwise be performed and exercised by the trustees. The executive managing agent is therefore subject to all the duties and obligations of a trustee in terms of the STSM Act and the rules of the scheme.
Difference between Executive Managing Agent and Managing Agent
While most of the financial, secretarial, administrative or other management services can be delegated to the managing agent, it is important to note that the trustees remain in a supervisory role over the managing agent. PMR 28(5) specifically states that financial, secretarial, administrative or other management services must be executed under the supervision of the trustees. The trustees remain in a fiduciary relationship with the members of the body corporate, while the managing agent is in a contractual relationship with the body corporate.
Managing agents are required to provide guidance in good corporate governance, correct procedures and adherence with the legislative requirements to the trustees who are more often than not ill equipped to manage the scheme properly. Therefore, the success or failure of the scheme will often depend on the professional performance of the managing agent. The more qualified the managing agent, the more secure the trustees can be in the knowledge that the managing agent knows and understands the relevant legislation and the rules applicable to the scheme.
There are often not a sufficient number of owners who are prepared to stand for election as trustees. Owners may feel discouraged to volunteer for that office due to possible liability. The ordinary managing agent can only be held accountable to the body corporate on the basis of contractual breach, whereas the executive managing agent owes a fiduciary duty to the body corporate. In this way the legislation has elevated the executive managing agent to the role of trustee and has expressly created fiduciary duties for the executive managing agent. The professional manager, as the executive organ, could then be held legally responsible for his or her mismanagement of the scheme. The professional executive managing should take out fidelity insurance to cover these risks.
In schemes where there are complicated management issues to deal with the appointment of a professional manager as the executive organ of the body corporate, instead of the voluntary appointment of a managing agent would place the routine management of sectional title schemes in the most capable hands.
The professional executive managing agent should have the required knowledge, training, experience and skill for the management of a scheme. Such a professional executive managing agent could come from a specialised management company with professional facilities, infrastructure and staff at his or her disposal, which would render the management of the scheme much more professional and business-like.
Conclusion
A normal managing agent is only appointed to perform specified financial, secretarial, administrative or other management services under the supervision of the trustees in terms of a contract, while the executive managing agent is tasked with the same statutory powers and duties as the trustees.
The main difference is that the executive managing agent stands in a fiduciary relationship towards the body corporate, in the same way that the trustees would, while a normal managing agent stands in a contractual relationship towards the body corporate, and is still under the supervision of the trustees who maintain their fiduciary obligation to the body corporate.
