Sectional title scheme trustees can be held liable for losses

Any trustee who acts in breach of his fiduciary relationship can be held liable to the body corporate for any loss suffered as a result of his actions.

While the role of a trustee in a sectional title scheme is a voluntary and unpaid position, it is one that comes with huge responsibility. Trustees have a fiduciary duty towards their scheme, says Chinelle Hewit, Operations Manager at sectional title finance company Propell.

The word ‘fiduciary’ refers to a very simple concept. It is a trust relationship between the owners and the trustees.

The duty of trust or fiduciary duty means that the person responsible will exercise his powers in good faith and he will not act in his own interest or for another’s gain, but for the people (the owners of the sectional title units) he represents.

Section 8 of the Sectional Title Schemes Management Act (STSMA) refers to the conduct of trustees and the way they carry out their duties and gives a clear instruction in the way a trustee should behave in that he should:

  • act honestly and in good faith;
  • exercise his or her powers in the interest of the body corporate;
  • not exceed the power given to him; and
  • must avoid any material conflict between his or her own interests and those of the body corporate, i.e. he must not receive any personal economic benefit from any decision made.

Any trustee who acts in breach of his fiduciary relationship can be held liable to the body corporate for any loss suffered as a result of his actions, says Hewit.

Prescribed Management Rule 8 (4) of the Regulations does, however, provide some protection for trustees by stating that:

“The body corporate must indemnify a trustee who is not a managing agent against all costs, losses and expenses arising as a result of any official act that is not in breach of the trustee’s fiduciary obligations to the body corporate.”.

And, PMR 23 (7) further stipulates that:

“A body corporate must take out insurance for an amount determined by members in general meeting to cover the risk of loss of funds belonging to the body corporate or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by a trustee, managing agent, employee or agent of the body corporate.”

A competent board of trustees is the secret to all successful schemes. Only people willing to act in the interest of all members should be elected and, once they are, trustees must equip themselves with the knowledge needed to perform their duties competently. Knowledgeable trustees who steer clear of conflicts of interest can never be accused of having breached their fiduciary duty, says Hewit.

Source: Private Property

 

One Comment

  1. Note: Trustees of sectional title schemes or property owner associations that act in a reckless manner should be held personally liable if their actions lead to the body corporate suffering damages or being sued as a consequence of their reckless behaviour.

    Trustees should not enjoy the protection of the body corporate in these instances and the body corporate should not be forced to finance their legal expenses.

    Reply

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