Is CSOS Captured?

Photo: Alexis Fauvet (Unsplash)

For many people the purchase of a home is the single biggest investment of their lifetime. Purchasing a property in a community scheme has become the preferred option in South Africa due to lack of service delivery on the part of the government, and the uncontrolled increase in crime levels throughout the country.

The asset value, even in small schemes is extensive. Many schemes are either badly managed or run by a board elected on popularity without the requisite skills and experience. Each community scheme is a business and should be run responsibly, professionally and ethically. The importance of appointing directors who understand their role in managing the community scheme and who will act with due diligence, integrity, honesty and responsibility is therefore of the utmost importance especially when there is apathy and non-participation by many members and the task falls on a few to manage the affairs of the scheme.

In many instances, a managing agent is appointed by the community scheme to oversee the affairs of the scheme and the Board of Directors or Trustees delegate their powers to the agent.

According to data published on the websites of the Association of Residential Community Schemes (ARC)* and the Democratic Alliance (DA)**, there are 3 000 homeowners associations and 78 000 sectional title schemes in South Africa with 6 million people living in them. According to the worldometers website as of 13 October 2022, South Africa’s population was 61 million and of these approximately 22.2 million are younger than 19 years, 610 000 are older than 80 years and 8 million people are unemployed. It is therefore safe to assume that approximately twenty percent of the workforce live in residential community schemes and are expected to contribute to levies to maintain communal property. ARC states that R11 billion in annual levies are collected and the DA states over R800 billion in assets are managed by Community Managers.

Each of the schemes are required by law to have a Memorandum of Incorporation (MOI) to ensure adherence to good governance practices and above all, to comply with relevant legislation. Problems arise when an MOI has not been properly drawn up, violates the rights of property owners in the scheme and unscrupulous directors or trustees are appointed to oversee the affairs of the scheme and contravene the MOI.

CSOS (Community Schemes Ombud Service) was established in 2011 by the state and falls under the Department of Human Settlements. The purpose of the organization is to regulate the conduct of parties within community schemes and to ensure their good governance.

“The mandate of the CSOS is to: regulate, monitor and quality assure scheme governance documentation; develop and provide a dispute resolution service; provide training for conciliators, adjudicators and other employees of the CSOS; and take custody of, preserve and provide public access electronically or by other means to scheme governance documentation.” ***

Unfortunately, as is the case with other similar state organs, the ability of CSOS to resolve disputes effectively and fairly is far from satisfactory. The Minister of Human Settlements has echoed her concerns on a few occasions whilst on a public platform.

In March 2022 CSOS was called to account before Parliament’s Portfolio Committee on Human Settlements. These were the concerns raised by the DA (Democratic Alliance):

“For some time, this entity has been embroiled in serious controversy – notwithstanding the R80 million worth of scheme funds illegally invested in the VBS bank heist. Mounting calls for assistance from both ordinary scheme members and senior industry players have gone unheard. Having had their cries ignored, these stakeholders are now turning to the DA for assistance.

This week, CSOS appeared before the Portfolio Committee of Human Settlements and despite efforts by the Deputy Minister to silence the DA, the Chief Ombud, Adv. Boyce Mkhize, was finally put to terms.

Allegations levelled at the entity by industry stakeholders include:

1. The irregular issuing of Practice Directives not provisioned for in legislation;

2. Excessive delays and errors in the process of dispute resolution and adjudication;

3. The application of strict BBEEE criteria in the appointment of the Executive Management Agent (EMA) panel – with one single bid having qualified in the Western Cape, and;

4. The protection of delinquent owners via the incorrect application of the Prescription Act in terms of levy write offs;

In addition, owners in sectional title schemes are being denied access to essential body corporate records listed in Management Rules 26 and 27 under the Sectional Titles Schemes Management Act, ostensibly because of the Protection of Personal Information Act (POPIA).

We are deeply concerned about this, as Rules 26. (2) and 27. (4) give all owners the right to access all of this information on request. The POPI Act itself makes provision for critical exemptions that protect the transparency of management in sectional title schemes.

Owners are now routinely being denied access to financial records, minutes of trustees’ meetings, and even the names and contact details of co-owners. This is particularly troubling, as it prevents concerned owners in distressed schemes from calling general meetings, as is their right in terms of Management Rule 17. (4)(a).

These ongoing issues have the potential to impact in excess of 20 million South Africans, residing in over 78 000 sectional title schemes across the Country, representing over R800 billion in managed assets.

The DA calls on all community scheme owners, trustees, community scheme managers and industry professionals who are experiencing problems with the CSOS to send your complaints to: csoscomplaints@gmail.com.

A dossier of such complaints will be delivered to the Chief Ombud by the DA on Monday, 4thApril 2022 and adequate resolution to each and every issue will be requested in line with commitments now made before Parliament.

Should these issues not be adequately addressed, the DA will consider its legal options.”

Most notable is the fact that only Sectional Title Scheme developments have specific legislation in place to govern their management, viz., the Sectional Title Schemes Management Act, 2011. Homeowners Association Schemes are unregulated and the only recourse for justice that property owners have in the event of disputes is firstly to the Community Schemes Ombud Service (CSOS), and thereafter to the High Court.

But it is not only alleged corruption at CSOS that residents in community schemes have to deal with. Over the past two decades the gap in regulatory control of community schemes has led to the establishment of private organizations who purportedly seek to regulate and ensure that these schemes are governed in a professional and ethical manner. These organisations have control over the R800 billion in assets and the R11 billion in levies through their leverage on community schemes which are registered with them and the appointment of managers from within their ranks.

As a community based investigative organization, we are compelled to report to a diverse audience and to highlight possible issues arising regardless of race, creed or affiliation, especially in view of our country’s turbulent past and the current state of affairs. It is therefore with grave concern that we bring the following to the attention of the public.

There are three privately established organisations who purport to regulate the rules governing the management of community schemes. They are the Association of Residential Community Schemes (ARC), the Residential Community Council (RCC) and the Community Associations Institute of South Africa (CAISA). The latter provides training and professional accreditation to its members who are trained to oversee the affairs of community schemes. The directors and management of these organisations collaborate in a number of initiatives, are all white and all former soldiers with security expertise and ties to the private security industry.

During the investigations, the Pecanwood Corruption Watch could not identify a single black community association manager who has been accredited by CAISA. It would therefore appear to be a job market exclusively reserved along the lines of the policies that underpinned the Job Reservation Act of the Apartheid era that excluded Black people in specific positions in the workplace. Considering that the majority of residents in community schemes are not represented by this status quo, the situation merits further investigation by the major mainstream media.

Of further concern is the tie between CSOS and these three organisations. Representatives of these organisations regularly attend CSOS meetings and provide input into ways in which rules and legislation should be applied. As such it may be assumed that relationships have been formed between certain individuals and that these relationships are affecting the outcome of disputes lodged with CSOS. When disputes are lodged with CSOS by community schemes, the trustees or board usually appoint a representative to deal with the matter on behalf of the scheme.

In most of the cases reviewed and reported by homeowners associations, the community manager is appointed by the scheme to represent them in the dispute. This immediately places the respondent at a disadvantage as is evident in cases involving residents of Pecanwood Estate. We have researched cases lodged with CSOS since its inception, by either the Pecanwood Homeowners Association or residents and all these cases have been awarded in favour of the Pecanwood Homeowners Association. Not a single case lodged was of a petty nature and all centered around the payment of levies, violation of the MOI and abuse of power on the part of the Pecanwood Homeowners Association.

As we looked into the matter, we became aware of the connection between the Pecanwood Community Association manager and CSOS. Mr. Hannes Hendricks was appointed as a security risk consultant by the Pecanwood Homeowners Association in 2016, a year before the CSOS started to function. In his capacity as founding member and chairperson of the Residential Community Council, he together with representatives from the other two organisations participated in formulating legislation that influence the governance of CSOS.

Mr. Hendricks’ retainer as risk consultant ended when he was appointed as community manager by the homeowners association board of directors in 2021 without any due process being followed. Since then, Mr. Hendricks has been instrumental in formulating financial and legal policy and introducing ambitious projects that members of the association cannot afford, hence special levies have become the order of the day to cover costs not covered by the approved budgets. Prior to his appointment Pecanwood Estate was already embroiled in an acrimonious and highly contentious battle between its corrupt board of directors and several groups of homeowners who opposed their abuse of power, which has become more marked during the tenure of its chairman Mr. Moses Kgosana, a former CEO of KPMG and a well-known Gupta ally. One could argue that Mr. Hendricks’ appointment as community manager was deliberate and seeks to obstruct residents from obtaining relief through CSOS. Mr. Hendricks reportedly has a very close relationship with Mr. Aubrey Masilo, the Ombud responsible for Gauteng and the North West Province where Pecanwood Estate is situated.

Mr. Hendricks is a highly controversial figure in community scheme circles. When he was employed as estate manager at Serengeti Golf and Wildlife Estate (Lessing vs Serengeti Golf and Wildlife Estate), he infamously prevented residents from accessing their property due to unpaid levies. The court pronounced harshly on his intimidation and bullying tactics and ordered the estate to immediately allow access to the said applicants. His employment was terminated shortly thereafter. At Blue Valley Estate his abuse of power led to residents being blockaded inside the estate by taxis who surrounded the entrances. His employment was terminated shortly thereafter. At Pecanwood Estate he is relentlessly pushing for the implementation of a Big Brother camera surveillance system that will track residents’ movements, including their children and domestic staff, and a facial recognition system to identify and track criminals.

The Homeowners Association has not obtained permission from the Information Regulator to implement the system, but residents are being forced to pay for it, hence the implementation of a Special Levy arbitrarily imposed on residents. Suffice to say that Mr. Hendricks drew up the risk assessment prior to his appointment as Community Manager, which justified the need for a facial recognition system and that his ties to the private security industry enabled him to obtain several quotes for its installation. The quotes in question have not even been verified as being market related. A dispute in connection with the Special Levy has been lodged with CSOS and it remains to be seen if justice will prevail.

© Pecanwood Corruption Watch

*. ARC website www. Hoasupport.co.za accessed 14 October 2022

** DA website www.da.org.za accessed 14 October 2022

***CSOS website www. csos.org.za accessed 14 October 2022