Can a managing agent’s tenure with a body corporate survive a lapsed contract?

• A body corporate sought the immediate termination of its managing agent.
• The court found the AGM resolution invalid but also found that the contract had already lapsed.
• The managing agent was ordered to hand over all records and cease acting immediately.

The management of a sectional title scheme is not a simple undertaking. In South Africa, most complexes employ managing agents to perform the financial and administrative functions of a body corporate.

By nature, the relationship between a managing agent and a body corporate is a contractual one. However, when a body corporate is dissatisfied with its managing agent, the body corporate can terminate the managing agent’s service as long as the correct procedure is followed.

In the 2021 Pretoria High Court case of Drakensberg Body Corporate and Others v Trafalgar Property Management and Others, one of the key issues to be determined was whether or not a managing agent could continue rendering services to a body corporate after the contract between the parties had lapsed.

The dispute before the High Court

In this case, the First Applicant was the Drakensberg Body Corporate, followed by the other Applicants, who were owners from the Drakensberg scheme. The First Respondent was Trafalgar Property Management, while the other Respondents were a combination of trustees, an alternative managing agent and a group of owners who signed a petition to remove the First Applicant’s trustees.

All Applicants on this matter placed an urgent application before the High Court to have the management services of the First Respondent terminated. The Applicants additionally requested that the First Respondent hand over all books of account and documents relating to the First Applicant.

In response, the First Respondent opposed the application by arguing that they had outstanding duties to complete for the First Applicant. The First Respondent further stated that the Annual General Meeting resolution (where the Applicants resolved to terminate the managing agent contract with the First Respondent) was procedurally invalid.

The court found the resolution invalid

Interestingly, the Court did find that the Annual General Meeting resolution to terminate the First Respondent’s services was, in fact, invalid on the basis that it did not comply with the requirements of Prescribed Management Rule 28(7) of the Sectional Titles Schemes Management Regulations 2016 because some of the signatories on the resolution were no longer body corporate members of the First Applicant.

However, the Court also found that the First Respondent’s contract with the First Applicant had already lapsed, resulting in the First Respondent having no authority to continue acting as the First Applicant’s managing agent.

A lapsed contract ended the authority to act

Consequently, the Court ruled that the First Respondent’s services as the managing agent of the First Applicant were to be terminated with immediate effect. The First Respondent was directed to hand over all relevant books of account to the First Applicant, as well as pay the costs of the suit.

This ruling serves as an important reminder that managing agents must comply with the law of contract, especially when it comes to their written agreements with the body corporates they serve. If a contract between a managing agent and body corporate has concluded, the managing agent cannot continue to render services without an appropriate mandate from the body corporate.

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