Trustees Warned: Good intentions won’t protect you in court

• Volunteer trustees and HOA directors face legal duties that can expose them to personal liability when those duties are breached.
• The STSMA, Companies Act and CSOS framework require proper oversight, financial accountability and transparent decision-making in community schemes.
• Two KwaZulu-Natal disputes highlight why documented resolutions, lawful charges and access to scheme records matter.

Across South Africa’s estimated 70,000 residential community schemes, thousands of volunteer trustees and homeowners’ association (HOA) directors give their time to help manage the properties and communities in which they live.

From broken lifts and malfunctioning security gates to maintenance budgets, insurance and disputes between neighbours, these volunteers are often expected to make decisions involving substantial amounts of money.

But accepting a position on a body corporate or HOA committee carries responsibilities that extend far beyond attending meetings and approving expenditure.

Good intentions alone are not enough to protect trustees when their decisions are challenged.

That is the warning from JD Paulsen, Associate at Van Deventer Dowlath & Marx Inc. (VDM Inc.), who says many volunteers underestimate the legal obligations they assume when taking office.

At the heart of these responsibilities is a fiduciary duty: an obligation to act honestly, in good faith and in the best interests of the community scheme rather than for personal benefit.

For sectional title trustees, these obligations are expressly addressed in Section 8 of the Sectional Titles Schemes Management Act (STSMA). Homeowners’ associations operate under their own governance structures, with company law duties also applying where an HOA is incorporated as a company.

The Community Schemes Ombud Service (CSOS) framework provides an additional layer of regulation and dispute resolution.

Together, these laws and governance requirements place considerable responsibility on the people entrusted with managing community schemes.

The twin pillars of loyalty and care

Paulsen explains that fiduciary responsibilities are built around two fundamental principles: loyalty and good faith, and care, skill and diligence.

1. Loyalty and good faith

Trustees and directors must act honestly, exercise their powers for proper purposes and put the scheme’s interests ahead of their own.

This means they must not use their position to secure undisclosed personal benefits, favour family members or associates in awarding contracts, or pursue personal disputes at the expense of the community.

For example, a trustee whose relative owns a security company cannot simply participate in awarding that company a lucrative contract without addressing the conflict of interest in accordance with the applicable rules. Transparency, disclosure and proper decision-making procedures are essential.

2. Care, skill and diligence

Being honest is only part of the responsibility. Trustees must also take reasonable steps to understand the matters on which they vote, review relevant financial information, oversee maintenance and seek professional advice where necessary. A trustee cannot assume that attending meetings and approving recommendations without scrutiny will always be sufficient.

“Crucially, under the Sectional Titles Schemes Management Act, trustees owe the body corporate a fiduciary duty and must act with reasonable care, skill and diligence,” Paulsen cautions.

“That means personal liability isn’t reserved for dishonesty or gross negligence. Voting without first informing yourself, rubber-stamping a managing agent’s recommendations, or letting essential maintenance slide could all leave you exposed to personal consequences.”

His message is that trustees are not expected to be experts in every aspect of property management, but they are expected to exercise appropriate judgement and take their responsibilities seriously.

Where volunteers fall foul of the law

According to Paulsen, problems do not always arise from deliberate dishonesty or fraud. In many instances, disputes begin with ordinary administrative failures, inadequate oversight or decisions made without following the correct procedures. Some of the most common areas of concern include:

• Undisclosed conflicts of interest: Awarding painting, gardening, maintenance or security contracts to friends, relatives or connected businesses without properly declaring and managing the relationship.
• Rubber-stamping decisions: Approving expenditure or accepting a managing agent’s recommendation without examining the supporting information.
• Poor financial oversight: Failing to review financial statements, monitor arrears, question unusual expenses or ensure that budgets are properly considered.
• Neglecting maintenance obligations: Failing to address the scheme’s prescribed maintenance, repair and replacement planning requirements or obtain required insurance valuations.
• Ignoring governance procedures: Making significant decisions without the necessary trustee resolutions, approvals or documented authority.

These failures can have consequences beyond internal disagreements. Poor maintenance decisions may expose a scheme to expensive repairs. Inadequate financial oversight can contribute to rising arrears or unexpected special levies.

Decisions made without proper authority may be challenged by owners, creating legal costs and uncertainty for the entire community.

For trustees, the lesson is straightforward: a decision should not only be reasonable; it must also be lawfully authorised and properly recorded.

When things go wrong

One of the most important issues for volunteer trustees is understanding when their actions could create personal financial exposure.

Under Section 8(3) of the STSMA, a trustee who breaches the statutory fiduciary duty may be liable to the body corporate for resulting losses or required to account for a benefit obtained through that breach. This is particularly important where a decision causes financial damage to the scheme.

“When a fiduciary breach occurs, a trustee under Section 8(3) of the STSMA, becomes personally liable to compensate the body corporate for any resulting loss or to hand over any personal benefit received,” Paulsen explains.

He also warns against assuming that insurance or indemnity arrangements will necessarily protect a trustee against every claim.
Trustees may benefit from indemnity provisions for authorised actions undertaken in the proper performance of their duties, but those protections are not unlimited.

A breach of fiduciary duty can place a trustee outside the protection they expected to receive. Paulsen also distinguishes between insurance that protects a scheme against certain dishonest conduct and protection for the individual responsible for that conduct.

Fidelity insurance is designed to protect the scheme against specified financial losses; it should not be assumed to indemnify a person who has acted dishonestly. The precise position will depend on the nature of the claim, the applicable legislation and the terms of the relevant insurance policy.

Two rulings show how everyday disputes can escalate

Two KwaZulu-Natal CSOS matters illustrate how disagreements over expenditure, financial records and the authority to impose charges can develop into formal legal disputes.

Importantly, neither case should be interpreted as establishing that every procedural mistake automatically makes a trustee personally liable.

1. The solar installation dispute - CSOS3934/KZN/21

A dispute arose at a residential complex after trustees proceeded with a substantial solar-panel and inverter installation. An owner challenged the decision and sought greater transparency about how the project had been authorised.

The owner also called for the trustees to be removed and held personally responsible for expenditure associated with the project. The CSOS adjudicator did not grant the requested removal or personal liability orders.

However, the body corporate was directed to provide access to relevant minutes, financial information and resolutions. Paulsen says the matter demonstrates why transparent decision-making and reliable records are so important, particularly when trustees approve major capital projects.

“The case and its subsequent appeal is a sharp reminder that failing to build a clear, disclosed paper trail of owner approvals invites costly legal challenges,” he warns.

LESSON FOR TRUSTEES
Before committing substantial scheme funds, establish what authority is required, follow the correct approval process and retain the supporting documentation.

2. The unauthorised interest dispute - Trustees of Monte Carlo Body Corporate v Khanyile, CSOS 6733/KZN/22

In a separate Durban matter, trustees sought to recover more than R115,000 in outstanding levies and interest from an owner. The owner did not oppose the claim.

However, when the adjudicator requested evidence of the authority for the interest charged, the necessary trustee resolution was not produced. The adjudicator considered the requirements governing charges debited to an owner’s account and refused the claim.

The decision also raised questions about how the arrears had been allowed to accumulate. For Paulsen, the case highlights an important distinction between believing that money is owed and being able to demonstrate the lawful basis on which it is claimed.

“Every charge on an owner’s account needs a lawful basis and a resolution behind it,” he says. “Without that paper trail, even an uncontested claim can fail, and the trustees’ own stewardship ends up under the spotlight.”

LESSON FOR TRUSTEES
Financial claims must be supported by the applicable rules, valid authorisations and accurate records. An uncontested claim is not automatically a successful one.

Serving with confidence: Five safeguards for trustees

Although the legal responsibilities may appear daunting, Paulsen believes the framework should encourage better governance rather than discourage volunteers from serving.

Trustees and HOA directors can substantially reduce their exposure by adopting a disciplined approach to decision-making.

1. Understand your legal responsibilities

Read the applicable legislation, management and conduct rules, HOA constitution or memorandum of incorporation, and relevant governance documents.

2. Declare conflicts of interest

Disclose personal or financial interests before decisions are taken and follow the applicable procedures for managing conflicts.

3. Insist on proper records

Ensure meetings, resolutions, expenditure approvals and significant decisions are accurately documented and retained.

4. Monitor finances and maintenance

Review budgets, arrears, insurance arrangements and maintenance obligations regularly. Ask questions when information is incomplete or unclear.

5. Obtain professional advice when necessary

Legal, accounting, engineering and property management specialists can assist with complex decisions. Trustees should understand the advice received rather than simply approving it without consideration.

These steps are not guarantees against disputes, but they create a stronger foundation for accountable management.

Good governance protects everyone

South Africa’s community schemes depend heavily on volunteers willing to contribute their time and experience. Without them, many residential developments would struggle to manage maintenance, finances and the everyday responsibilities of communal living.

But volunteering does not remove the need for accountability. The decisions trustees make can affect property values, residents’ finances and the long-term sustainability of an entire scheme.

The legal framework therefore requires trustees to exercise their powers responsibly, maintain proper records and act in the interests of the communities they serve.

“The goal of the legal framework isn’t to scare well-meaning volunteers away from serving their communities,” Paulsen concludes.

“It is designed to protect diligent trustees just as much as it protects property owners. A trustee who discloses conflicts, keeps proper records, stays informed, and acts within their powers can serve with complete confidence.”

The message is clear: good intentions may motivate someone to become a trustee, but sound governance, informed decisions and proper accountability are what protect the scheme and the people entrusted with running it.