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Thursday Sep 26, 2013

The dos and don'ts of sound sectional-title management

Mismanagement of a sectional-property scheme has widespread repercussions not only for individual owners but for the residential market in general, Andrew Schaefer, the chief executive of Trafalgar property management group, has warned.

He said this was especially important considering that the sectional-title property sector was the fastest-growing side of the residential development market.

'Cash flow difficulties with levy income not meeting expenses, high levy arrears, outstanding maintenance, municipal service interruptions and rapidly declining property values are all potential manifestations of mismanagement', said Schaefer.

'For this reason, it's critical that anyone buying into a scheme reviews the management in place in a complex or block and satisfies themselves that it is of a high standard and that the body corporate is solvent,' he said.

'The worst examples of mismanagement are clearly on view in certain sectors of our inner cities - and it is one of the biggest stumbling blocks to rejuvenation of these areas. But it is not isolated to these areas and can happen even in prestigious suburbs.'

Schaefer said the implications of this could be dire for owners and the residential market in general in view of the proliferation of sectional-title schemes.

'These range from buildings becoming rundown and unsightly - even unsafe in some instances - and maintenance backlogs can snowball. Accounts not being paid in full and on time often result in suspension of services such as security, electricity and water.

'Most critical, if a body corporate becomes insolvent, this will lead to owners having serious problems with selling their units due to the banks not being willing to grant bonds. And property values will decline substantially and the general reputation of the scheme can suffer,' he said.

Schaefer lists a number of actions that are important to prevent mismanagement:

  • Elect trustess who are transparent, honest and willing to work towards what is in the best interests of the body corporate.

  • Appoint a reputable and experienced managing agent with the required industrcy accreditations.

  • The managing agent should provind accurate and time-efficienct financial reporting that will report the financial state of the body corporated

  • An accurate budget should be compiled ensuring levy income exceeds all real expenses, including maintenance costs together with a contribution to building reserves.

  • Have a proper levy debtcollection procedure in place with emphasis on arrear levies and legal recoveries.

  • The trustees must meet regularly to discuss the operational management of the building.

  • Manage creditor payments so the accounts do not fall into arrears.

  • Communicate with owners on a regular basis the financial situation of the body corporate (arrear levies, outstanding accounts with creditors, maintenance to be done).

  • Define, implement and manage a comprehensive maintenance plan.

    If all this fails, Schaefer advises that a body corporate in financial or other distress may apply for a scheme to be placed under administration.

    'An administrator will assume all the powers of the body corporate and trustees and will be empowered to do whatever is necessary to rescue the buildings and the body corporate. This can include vigorous action against arrear levies and possibly implementing enormous special levies.

    'However, this unfortunately places serious financial strain on owners who have been paying their levies all along as well as those who have not, so it's ultimately best avoided by appropriate property management.'

    The Mercury

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