Understanding bodies corporate and contractual capacity: a layperson’s guide

Bodies corporate are separate legal entities which are automatically created, in terms of section 2(1) of the Sectional Titles Schemes Management Act[1] (“STSMA”), once any person other than the property developer becomes an owner of a unit within the Sectional Title Scheme (“scheme”). Bodies corporate have numerous responsibilities including enforcing rules, controlling, administering, and managing the land and common property on behalf of the unit owners in the scheme.[2]

Bodies corporate often need to enter into agreements to fulfil their responsibilities and duties. As separate legal entities, they have the capacity to enter into agreements in their own name.[3] The elected and appointed trustees of the body corporate act on its behalf, and therefore, any agreements concerning the body corporate, but not necessarily the levy clearance certificate, must be signed by either two trustees or one trustee and the managing agent.[4] Despite being separate legal entities, bodies corporate require authorisation to enter into agreements. Typically, these agreements can be authorised through a trustee resolution, particularly agreements concerning the body corporate’s powers and duties under the STSMA and the rules.[5]

However, there are certain agreements that have more stringent restrictions and cannot be entered into merely by passing a trustee resolution. To enter into such agreements, the body corporate must comply with additional requirements and formalities, such as obtaining authorisation through either an ordinary, special or unanimous resolution from the body corporate members (unit owners). Below are some of the agreements, arrangements and processes which require additional authorisation from the body of unit owners, among others:

Executive managing agent agreement 

Bodies corporate are entitled to appoint executive managing agents to perform the functions and exercise the powers that would otherwise be performed and exercised by the trustees. To enter into such an agreement, the trustees must be authorised by way of a special resolution.[6]

Loan agreement

Bodies corporate often enter into loan agreements to acquire funds necessary for performing their obligations and functions (such as arrear levy or project funding). Prior to a body corporate entering into a loan agreement, regardless of its type, approval through a special resolution is required.[7]

Lease or sale agreement of common property

To enter into a sale or a long lease agreement, defined as a lease extending beyond ten years, regarding the common property or a portion thereof, a body corporate must obtain authorisation via a unanimous resolution. Additionally, the body corporate must be acting under the owner’s guidance and have written consent from any holder of a right of extension.[8]

It is worth noting that for short-term leases (for less than ten years) bodies corporate are only authorised to let a portion of the common property to any owner or occupier, upon special resolution.[9]

Land purchase agreement

Bodies corporate may enter into agreements to purchase land for the extension of common property, provided they are duly authorised in writing by all unit owners.[10] This is a prescribed written unanimous resolution so a “unanimous resolution” taken at a meeting of the owners would not satisfy this requirement as the STSMA specifically states that all owners must authorise this in writing.

Agreement for the purchase, mortgage, sale, transfer, hire or lease of scheme units

For a body corporate to enter into an agreement to purchase, mortgage, sell, transfer, hire or lease scheme units, a special resolution must be passed.[11]

Agreement to exercise, cede or alienate the right of extension

Bodies corporate have the right of extension to add sections to the scheme and they are also allowed to cede or transfer this right. However, to exercise, cede or alienate this right of extension and enter into the relevant agreements, written consent of all the unit owners and mortgagees of each unit in the scheme must be obtained.[12] A unit owner or mortgagee may not unreasonably withhold such approval. Again, this is not the same as a unanimous resolution taken at a general meeting as the STSMA is expressly clearly that all the unit owners and the mortgagees of each unit must provide written consent.

Notarial agreement

Bodies corporate may extend the time period relating to extension of schemes, as stipulated in section 25(1) of the Sectional Titles Act[13] (“the STA”), through the execution of a notarial agreement.[14] Before entering into such an agreement, a unanimous resolution is required.[15]

Delineation, cessions and cancellations of exclusive use rights

Additionally, if a body corporate intends to cancel an exclusive use right, a notarial deed of cancellation must be executed following a special resolution.[16] The owners may also, by unanimous resolution, request the delineation and cession of exclusive use rights to particular owners in terms of section 27(2) of the STA.[17]

Servitude or restrictive agreement

Once a special resolution has been passed, a body corporate is entitled to execute a servitude or restrictive agreement burdening the indicated land, and may also accept a service or enter into a restrictive agreement that benefits the land.[18]

In conclusion, arguably, trustees who enter into any of the abovementioned agreements without obtaining the required additional authorisation from the body of unit owners are acting ultra vires, rendering the resulting agreement potentially void.[19] There does not appear to be empowering legislative provisions permitting bodies corporate (either through the trustees or owners in general meeting) to ratify such ultra vires acts and the subsequent potentially void agreements.

Bodies corporates, being juristic persons created by statute, with perpetual succession, possess only the status and powers bestowed upon them by the STA and the STSMA. These unique entities are creatures of statute. Therefore, as there is no specific empowering provision in the sectional title laws allowing bodies corporate to ratify ultra vires acts and resulting agreements, it is submitted that it cannot be done by a body corporate.

Additionally, trustees who commit such ultra vires acts, may be found guilty of breaching their statutory fiduciary duties.[20] These trustee(s) may held be liable to the body corporate for any loss or damage suffered as a result of the breach.[21]

FOOTNOTES:

[1] Act 8 of 2011.

[2] s 2(5) STSMA.

[3] s 2(7)(a) STSMA.

[4] PMR 10(1)(b) of the Sectional Titles Schemes Management Regulations, 2016 (“STSM Regulations”).

[5] PMR 21(3)(e) STSM Regulations.

[6] PMR 28(1) STSM Regulations.

[7] s 4(e) STSMA.

[8] s 5(1)(a) STSMA read with s 17(1) of the Sectional Titles Act 95 of 1986 (“Sectional Titles Act”).

[9] s 4(h) STSMA.

[10] s 5(1)(d) STSMA.

[11] s 4(c) STSMA.

[12] s 5(1)(b) STSMA.

[13] Act 95 of 1986.

[14] s 5(1)(c) STSMA.

[15] s 5(1)(c) STSMA.

[16] s 5(1)(f) STSMA.

[17] s 5(1)(e) STSMA.

[18] s 5(1)(g) STSMA.

[19] See, primarily, the authority pertaining to this proposition from Prof CG van der Merwe, as referenced in the following article: F Di Palma “Ratifying community scheme resolutions – who has the power” https://www.stsolutions.co.za/ratifying-community-scheme-resolutions-who-has-the-power/ (accessed 16 April 2024).

[20] s 8 STSMA.

[21] s 8(3) STSMA.