The liquidation of Constantia Sectional Title Management (CSTM), one of the larger Gauteng companies operating in this field, should send a warning signal to every sectional title trustee and sectional title owners in South Africa.
If one thing has become evident from this very unhappy situation it is that many people are likely to lose money - and the reason for this was that too many trustees took too much for granted, without checking the operation to which they handed over their affairs.
The situation that appears to have arisen at CSTM, said Bauer, can be avoided in future if, before appointing a managing agent, trustees carry out certain checks recommended by IHFM and some other established property managing companies.
These checks will not necessarily ensure the scheme a completely trouble-free future, but they will very definitely help to eliminate the fly-by-nights and the inexperienced managing agents posing as experts.
The first check should be to ascertain whether the principal and his staff (if he has a staff) have valid up-to-date Fidelity Fund Certificates from the Estate Agency Affairs Board. If they do not have these, they are probably acting illegally and should not be appointed.
A check should also be made to see if the managing agent is a member of the National Association of Managing Agents. Although membership of this body is not obligatory for managing agents, it does set excellent operating ethical principles by which its members have to operate - and this is an additional safeguard and quality seal or stamp of approval.
Managing agents should also be asked for references from current clients and quizzed on the size and status of the schemes they are involved in.
Then, the question should be asked, “How long has this company been in business?” and “What experience does it have?" No one wants to rule out new firms from getting a foothold in this fast-growing field,but the staff must be able to show that they have learned the ropes before setting up on their own.
A strong recommendation in these cases is that the managing agent and his staff have completed at least one - preferably more - training courses with Graham Paddock or another recognised sectional title expert. These courses have made all the difference to the ability of certain managing agents to perform properly.
Without additional training of this type, added Bauer, there will always be serious gaps in any managing agent’s knowledge of the Sectional Title Act and how it operates. Sectional title trustees should hesitate before appointing a managing company that is run by an employee and not by the owner.
Another factor that he would always enquire about is whether the managing agent receives kickbacks from any of the scheme’s service providers and suppliers. Although this is not illegal, it is a dubious practice and if it is being done without full disclosure that is particularly serious and should possibly be a reason for not appointing the managing agent. It certainly is a warning sign about the agent’s ethical stance.
Successful (or in some cases strongly marketed) managing agencies can easily find themselves with more clients than they can handle efficiently. The agency being investigated should, therefore, be quizzed as to exactly what spare capacity they have.
Finally you should always ask if the scheme’s accounting has been outsourced. It is in most businesses an accepted fact that the man who examines the accounts regularly will usually be the first to pick up problems. If the accounting is handled by an outsider, it is quite possible that anomalies, discrepancies and shortfalls will take a long time to be detected and reported to the trustees.
To help clarify its financial position, every scheme should have its own separate bank account and no one trustee or managing agent should ever be allowed to pay expenses without the approval and signature of another. This is the well-known four eyes principle used worldwide to control payment of expenses and minimise risk.
Bauer added that all trustees should also have online access on a 24/7 basis to the sectional title scheme’s bank account so that they can check what payments are being made whenever a question arises.
