Most of us know that in a body corporate, the annual general meeting (AGM) must be held within 4 months of the financial year-end, and at the AGM, the audited financial statements (AFS) and budget will be presented, and the auditor will be appointed. A similar situation takes place in a homeowners association, except that the time period may differ, and sometimes audits and budgets are not treated the same as in bodies corporate.
However, perhaps you did not know that AFS do not need to be tabled at the AGM, but rather following the AGM, at a special general meeting (SGM), to avoid any delay in the holding of an AGM. In my practical experience, the AFS are still tabled at the AGM, and the AGM is still delayed, sometimes.
Did you know that the AFS are approved by the trustees, and not by the members, who only consider them at the AGM. They are considered draft until the auditor signs them, following the signature of the trustees, which is why, often, draft AFS are presented to the members, as the trustees await direction from the members before accepting them.
A similar situation applies to the maintenance, repair, and replacement plan. Despite the fact that it “speaks to” the reserve fund budget, the plan requires approval at a general meeting, which means that it can be approved by the members at the AGM or an SGM. My view is that it should be tabled for approval at the AGM, before the approval of the budgets, and following consideration of the AFS.
The Sectional Titles Act used to provide that the budget (estimate of income and expenditure) could be approved, with or without amendment. Under the Sectional Titles Schemes Management Act (STSMA), the ability to amend same, at the AGM, although not explicit, has not been taken away, as a member directive can be given to the incoming trustees regarding any amendment(s) required.
Further to the point of budgets, 2 budgets are required, namely an administrative and reserve fund budget, although I have only seen 2 budgets in practice once. All other times, in my experience, the reserve contribution is shown as a line item in, or at the end of the administrative fund budget. I personally don’t know enough about budgeting to say, for sure, how I feel about this, but it seems to work.
At the AGM, the members may further direct the trustees regarding the rate of interest to be raised on arrear contributions, however, under the STSMA, only a trustee resolution is required, noting that no interest can be raised without this trustee resolution.
Another important step that takes place after the AGM is the passing of a trustee resolution and notice regarding the budget approval and raising of levies, adjusted, or remaining the same (unlikely!). Without this, levy increases are not recoverable! The same applies to a special levy.
Talking about special levies, did you know that only a trustee resolution is required, and not a special resolution?! Mind blown!
Most of the disputes we deal with in community schemes, and “out of community schemes” involve money in some shape or form, so it is always better to comply, and if you have your checklist in place, it really is not that terrifying.
Written by Zerlinda Van Der Merwe
TVDM Consultants
