In this first edition of 2019 I want to touch upon a difficult and controversial subject, namely the administrative and management framework for a ‘complex’ scheme. By the term ‘complex scheme’ I have in mind a scheme consisting of multiple sectional title schemes under the ‘umbrella’ of a master association.
The first problem is that such complex schemes differ from each other as far as management structures are concerned, depending upon the extent to which powers and functions are to be assigned to the master association, and what, if anything, is reserved for the constituent bodies corporate to deal with. It is therefore not possible to generalise when discussing such schemes.
A further complication is that some of such master associations have been established as companies – a method not compatible with sectional title legislation and burdening the management framework with insoluble problems.
A third problem might be that some of the components of the complex scheme may be of types other than sectional title, which necessitates a constitution accommodating various types of structures.
A fourth and most common problem is that the structuring of the Management Rules had not been dealt with correctly at the time of establishment of the scheme.
Let us first look at what the legislation allows for and/or requires. The first point to keep in mind is that at the time of establishment of a sectional title scheme, the developer, with a few exceptions, does not have the power to amend the Management Rules, and in order to make provision for the management of a sectional title scheme governed under a master association, the Management Rules need to be amended comprehensively. For this purpose, Regulations 6 (4) and (5) under the Management Act provide as follows:-
(4) If the schedule referred to in section 11(3)(b) of the Sectional Titles Act contains a condition restricting transfer of a unit without the consent of an association whose constitution stipulates that-
(a) all members of the body corporate and of the development scheme of which the unit forms part, must be members of that association; and
(b) the functions and powers of the body corporate must be assigned to that association;
the developer may, when submitting an application for the opening of a sectional title register, substitute any management rule that appears in Annexure 1.
(5) If at the commencement of the Act the members of a body corporate are all members of an association whose constitution binds its members to assign the functions and powers of the body corporate to that association, the management rules in Annexure 1 do not apply.
What does this all mean? In practice I am afraid that many developers and their attorneys have failed to interpret and apply these provisions correctly, with harsh consequences for management.
As an aside I should once again point out the woolliness caused by the legislator’s indiscriminate replacement of the word ‘shall’ by ‘must.’ It is needlessly vague to say that somebody must be a member of the association if the true meaning is that he is in fact a member.
But what is required in respect of the Management Rules in terms of these provisions? What happens in practice is very often that the prescribed rules remain with only a few changes. But what is in fact required if the functions and powers are assigned to the master association, is that ALL the Management Rules must be amended. In fact, because the rules are actually replaced by the constitution of the master association, the Management Rules should all be scrapped except to state that the scheme is to be managed according to the provisions of the constitution.