Know the law when procuring vendors for your residential scheme

To protect your financial interests and your investment, you’ve volunteered to be chairman of your body corporate or homeowners’ association.

As the person in charge, you’re now navigating things like cleaning, greening, security, and a host of other issues. When it comes to handling the vendor procurement process, understanding the law will help you avoid any pitfalls.

“The tender process should provide a solid framework to govern the appointment of a new vendor for a project or scheme that by-passes potential bribery and nepotism. It all depends on the scheme and custodians must be aware of which pieces of legislation apply,” says Estate Living COO, Louise Martin.

If you are a trustee of a sectional title scheme

Governed by the Sectional Titles Act of 1986, the Sectional Titles Schemes Management Act of 2011 (‘STSMA’), and the Prescribed Management Rules (‘PMR’), sectional title schemes are managed by an elected board of trustees. Although management more often than not falls to an appointed managing agent, the buck stops with the trustees, who retain the fiduciary duty or ‘duty of due care’ in which one party acts in the best interests of the other.

The STSMA allows trustees to contract on behalf of the body corporate for the following:

• Appointing agents and employees
• Purchasing and taking transfer of units
• Acquiring movable property
• Borrowing and investment of funds
• Alienation of common property
• Buying land to extend common property

However, none of the current legislation provides for any tender-specific guidance and regulations so how do trustees conduct this process?

• Section 7(1) of the STSMA and PMR 9(b) allows scheme members to impose restrictions or give specific directions to the trustees, for example limiting the amount of money to be spent on a capital purchase or the restriction to contract with one service provider over another.
• No powers can be exercised by one single trustee and these powers are also subject to the scheme budget pre-approved in general meeting.
• A signed document is only valid and binding if signed on the authority of a trustee resolution and is signed by two trustees or one trustee and the managing agent. These requirements will, to some extent, curtail possible tender irregularities.

Martin explains: “Ultimately, the duty of good faith by trustees will govern tendering processes and this should be backed by stringent scrutiny of members in general meetings.”

If you are a director of a homeowner’s association

A homeowner’s association (HOA) can be established either as a common law association or a non-profit company (NPC). The latter option is by far South Africa’s more widely adopted method.

HOAs established as NPCs are or can be governed and regulated by the following:

• The Companies Act of 2008 and a Memorandum of Incorporation (MOI) which provides governance structure of the HOA. The MOI details the HOA’s purpose and the rights and responsibilities of owners (members) and directors (executives) which may not contravene the MOI.
• The King Code applies to all organisations registered in South Africa and should be applied on a proportionality basis, taking into account the nature, size and complexity of the organisation. Compliance with the code is voluntary, unless prescribed by law or a stock exchange listing requirement.

In addition to the requirements set out in section 66(1) of the Companies Act stating that a company’s business affairs must be managed by the directors, procurement matters will be governed by the MOI and any specific responsibilities or limitations dictated by the owners to the directors. This MOI should, at all times, be read in conjunction with the approved rules and guidelines.

In conclusion

Procurement, and spending on potentially big-ticket items, can be a contentious matter, especially in a custodial role. “The application of basic common sense, driven by the desire to prioritise the needs of the scheme, and backed by a diligent understanding of the rules and documents of incorporation, will stand you in good stead,” concludes Martin.