Community scheme executives are often ignorant of their personal liability risk

Trustees and directors at community schemes such as sectional title complexes, homeowners’ associations, retirement housing schemes, share block companies and housing cooperatives are often unaware that they can be held liable and even sued in their personal capacity for failures in governing a community scheme.  That includes failing to register the scheme and its rules with the Community Schemes Ombud Service (CSOS).
 
This is according to speakers at the first Community Schemes Ombud Service (CSOS) Indaba for stakeholders in Johannesburg  this month.  The Indaba outlined good governance of community schemes, and the roles and responsibilities of stakeholders.
 
Speakers highlighted provisions of the Sectional Title Schemes Management Act and the Community Schemes Ombud Services Act where trustees and directors could be held liable, including where there is gross negligence, a fraud conviction, or a breach of their fiduciary duties of care, diligence, impartiality, and acting in the best interests of beneficiaries.  And this includes failing to ensure that their scheme has registered the scheme and its rules with the CSOS, which almost half of the approximately 70 000 schemes have not done.
 
Mervin Dorasamy, Regional Ombud KwaZulu Natal, Free State and Mpumalanga, noted: “The non-submission of rules to CSOS prevents the value of a regulator’s quality assurance of that scheme governance documents. When rules and scheme governance documentation is not submitted to CSOS, it creates a state of confusion, uncertainty and a lack of transparency. A state of inadequate governance may trigger CSOS enforcement.”
 
Who wants to be a trustee?
 
Also speaking at the Indaba, Advocate Menzi Simelane, External Adjudicator, said: “I always ask myself when we get an adjudication – who wants to be a trustee? From my experience and observations, it’s a thankless task. Nobody’s ever going to thank, and yet everything you do, you do for them.”
“Many trustees have not even begun to comprehend the legal implications of being a trustee. In other words – the personal liability for your work as a trustee is great. Many have not gone to explore that. Sometimes when I have to make findings in terms of an adjudication, I find myself having to tweak an order in such a way that my explanation for getting to the order does not result in somebody following further on that order by taking legal action against a trustee, because it can easily happen. The implications of your conduct as a trustee are immense to you personally, and many don’t think seriously about that,” Simelane said.