- Trustees cannot raise special levies to cover legal costs caused by their own misconduct.
- Special levies are only allowed for necessary and unforeseen expenses.
- Legal precedent prohibits shifting trustees’ personal legal costs to body corporate members.
With every sectional title scheme in South Africa governed by the Sectional Titles Schemes Management Act 2011 and its Regulations (2016), there are a number of financially oriented management rules that a scheme’s trustees must comply with in their role.
A trustee’s duties
Section 7 of the Sectional Titles Schemes Management Act 2011 sets out that the trustees of a sectional title scheme’s body corporate must carry out the functions and powers contemplated in the Act, subject to its provisions.
In furtherance, Section 8(2) of the Sectional Titles Schemes Management Act 2011 compels trustees to act in good faith, exercise their powers in the interests of the body corporate, and not exceed their powers as part of their fiduciary duty.
Any trustee who acts in breach of their fiduciary relationship with the body corporate they serve is liable for any loss suffered by the body corporate under Section 8(3)(a) of the Sectional Titles Schemes Management Act 2011.
Legal costs caused by trustees
However, more often than not, trustees deviate from the powers conferred upon them and make decisions that fall outside their authority, adversely impacting the body corporate’s funds.
In cases where a scheme’s litigation is escalated beyond the Community Schemes Ombud Service and proceeds to court, it becomes a costly endeavour for all parties concerned. If the trustees are found at fault for causing the litigation and the body corporate is ordered to pay costs to a particular scheme member, can the trustees raise a special levy for such expenses?
Special levy considerations
In terms of Section 3(1) (c) of the Sectional Titles Schemes Management Act 2011, the body corporate is authorised to raise levies only for the purpose of meeting its obligations regarding the management and maintenance of the common property and scheme finances.
These levies must be reasonable, lawfully incurred, and necessary. A special levy may therefore only be raised, as provided for in Prescribed Management Rule 21(3)(a), where there is a necessary and unforeseen expense.
In instances where the trustees have caused significant expenses by not complying with a scheme’s rules or with the Act, such legal costs would not qualify for a special levy, as they arise from the misinformed actions of the trustees and would not constitute an unforeseen or collective obligation of the scheme’s body corporate.
Restrictions on trustees raising special levies
As laid out in Stilfontein Extension 4 Sectional Title Scheme v Swanepoel and Others (North Gauteng High Court, 2013), the Court held that the trustees of a body corporate may not raise levies to cover costs resulting from their own improper conduct or litigation where they have acted without proper authority.
The judgment made it clear that the raising of levies to satisfy cost orders arising from such misconduct would amount to an abuse of trustee powers and an unfair financial burden on owners.
A further precedent under Levy v Body Corporate of Eden Gardens (2012 JOL 29027 KZP) confirmed that trustees may not raise a special levy to cover costs for litigation that was not in the best interests of the scheme, particularly if it was ill-advised or unsuccessful.
Consequently, if trustees cause unnecessary legal costs for a sectional title scheme, they cannot use a special levy as an escape route and shift the financial burden onto the members of the scheme’s body corporate, especially if the party to whom the funds are owed is a body corporate member.
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