Warning for Homeowners Associations in South Africa

Trustees overseeing various community schemes in South Africa, including sectional title complexes, homeowners' associations, retirement housing schemes, share block companies, and housing cooperatives, might not be fully aware that they can be held personally accountable and even sued for mismanagement of these schemes.

This revelation came to light during the inaugural Community Schemes Ombud Service (CSOS) gathering in Johannesburg. The event emphasized the importance of effective governance within community schemes and the roles that stakeholders play in ensuring their success.

Speakers at the conference emphasized specific legal points from the Sectional Title Schemes Management Act and the Community Schemes Ombud Services Act. These provisions stipulate situations in which trustees could face liability, encompassing cases of gross negligence, fraud convictions, and violations of their fiduciary duties. Such duties involve caring for the beneficiaries' best interests with diligence, impartiality, and proper action.

Among the key responsibilities of trustees is to officially register the scheme and its regulations with CSOS. However, about half of South Africa's roughly 70,000 community schemes have yet to complete this registration.

Thembelihle Mbatha, Acting Chief Ombud and Chief Financial Officer of CSOS, announced the organization's increased efforts to enforce registration, backed by the National Prosecuting Authority (NPA).

Mervin Dorasamy, Regional Ombud for KwaZulu Natal, Free State, and Mpumalanga, underscored the negative implications of not submitting scheme rules to CSOS. This omission results in a lack of quality assurance from regulators regarding governance documents, leading to confusion, uncertainty, and inadequate oversight, potentially triggering CSOS interventions.

Advocate Menzi Simelane, an External Adjudicator, raised concerns about the legal implications facing trustees. He noted that the role of a trustee can be arduous and often goes unnoticed, yet their actions hold immense personal liability. Simelane stressed that trustees must grasp the potential consequences of their conduct and decisions, as these could lead to legal actions against them.

Additionally, the Minister of Human Settlements, Mmamoloko Kubayi, suggested that trustees and managing agents could soon face more extensive liabilities beyond administrative duties. She hinted at forthcoming changes that might require compliance with Black Economic Empowerment (BEE) and transformation requirements within these schemes.

Kubayi addressed the significant economic impact of community schemes, accounting for 27% of South Africa's residential property value. As such, she advocated for mandatory economic transformation within the sector. She emphasized that the scale of these schemes contributes substantially to job creation, particularly through services like security and gardening, often provided by small and medium enterprises. To facilitate opportunities for emerging businesses from disadvantaged communities, she called for mandatory procurement strategies.