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Directives and restrictions

19 February 2015

Directions and Restrictions - looking for the legitimacy lodestar

Section 39(1) of the Sectional Titles Act determines that all functions of the body corporate, such as imposed in section 37 and 38, are to be exercised by the trustees (accordingly not by the body corporate in general meeting), excluding such functions in respect of which the Act or the rules determine differently, and subject to any restrictions imposed or directions given by the members at a general meeting.

An example of a function about which the Act determines differently would be authorisation for extension of a section, for which a special resolution by the members is required. The provisions in section 24 are specific and approval can never be granted by the trustees.

The exercise of the trustees’ powers and functions are furthermore subject to such directives or limitations as may be issued by the members at a general meeting. The imposition of such ‘instructions’ to the trustees only require a normal members’ majority resolution and may be issued at a special general meeting, or at the annual general meeting as ‘special business’ provided that it had been included as an agenda item under ‘Special Business’ for such meeting.

Diverging briefly from the subject matter, it is disquieting how trustees and even novice managing agents sometimes think that matters to be dealt with as special business in an agenda or even at a special general meeting require a special resolution, which is obviously not correct. Trustees should note that a special resolution or a unanimous resolution is required and permissible only when specifically prescribed by the Act or the rules.

What trustees should also remember is that a resolution adopted unanimously is not equivalent to a unanimous resolution and it should not be recorded as a unanimous resolution in the minutes.

Returning to the actual matter to be considered in this article, the question arises whether the scope of the members’ powers to issue directives to, or impose restrictions upon trustees are subject to any constraints and if so, how such limitations must be determined.

In my view the members’ powers to ‘instruct’ trustees are undoubtedly limited. The members cannot instruct trustees to do something or prohibit them from doing something if such action or inaction would be in contravention of any law or the provisions of the Act or the rules. That would be the underlying principle but applying the principle in specific instances is not always a simple matter. Clarity is served by considering some examples.

I have seen members at a general meeting resolving ‘unanimously’ and instructing their trustees to assign levies differently. Convincing as the reasons may be, they should first amend the Management Rules. Sectional title schemes are governed by rules, not by resolutions as I have pointed out before in previous issues of this humble publication.

A directive or restriction not to perform maintenance, for example not to repair the lifts in a building would not be legitimate, because section 37(1)(j) specifically instructs the body corporate, and therefore the trustees, ‘to properly maintain the common property (including elevators) and to keep it in a state of good and serviceable repair.’

Similarly, the members do not have the power to instruct the trustees to increase levies at a certain percentage or determine levies at a certain level because Management Rule 31 prescribes how levies are to be determined and neither the trustees nor the members in general meeting can deviate therefrom without changing the rule.

A very general problem is the keeping of pets by residents. Can the members at a general meeting instruct the trustees not to allow cats in their scheme? Again, such an instruction would not be legitimate unless Conduct Rule 1 is amended appropriately. Upon the Ombud Service coming into operation a resident being denied consent for such a reason would be able to apply successfully to the Ombud for an order setting the members’ resolution aside and instructing the trustees to consider the application properly according to the prescripts of the rule.

A question raised in a recent test paper of my distance training course was whether trustees are empowered to purchase a unit in their scheme. The answer is that they are able to do so without the consent of the members, but that s 38(b) sets the condition that the trustees may only do so if the transaction is essential ‘for the proper fulfilment of its duties.’ Many students sensibly pointed out that a matter as important as this should preferably be referred to the members at a general meeting in order to keep them informed or even to allow them to vote on the matter and instruct the trustees. Commendable as such transparency may be, it should be kept in mind that a directive by the members to proceed with the purchase would still not legitimise the matter without a subsequent trustees’ resolution. The action would also be at risk of being set aside by a court, unless the statutory requirement of being ‘essential for the proper fulfilment of its duties’ has also clearly been complied with.

It seems evident that the members’ powers to instruct the trustees are subject to important constraints. Scope nevertheless remains to instruct trustees about how to go about doing certain things, if not always whether to do something. Although the imposition of special levies requires a trustees’ resolution and the members cannot impose levies, special or otherwise, it would not be wrong to call a general meeting to give guidance to the trustees for decision-making regarding funding for, for example, a maintenance project. Members would also be able to instruct trustees regarding certain aspects of the maintenance project itself, although they would not be able to instruct the trustees not to perform the maintenance.

It may accordingly be said that members may instruct the trustees in respect of aspects where choices are allowed by the Act or rules, but not in respect of matters where the Act or rules already provide clear directives or imposes clear duties to do something.

MCS Courier January 2015

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