Unlawful Stabilisation Fund
- May 10, 2022
- 5 min read
Updated: Aug 9, 2022
Photo: José Reyes
Members, thanks again for your generous support! We have put together this article based on information supplied by homeowners and residents. Enjoy!
Compared to other estates which have successfully implemented a Stabilisation Fund levy, Pecanwood Estate is floundering around with unethical methods to sweep through the implementation of this new fund.
Stabilisation Funds are often established to compensate for weak governance, lack of financial oversight or to fund special projects that are not covered in the budget.
Usually, the levies are kept reasonably low, and budgets adjusted in accordance with the expected income. A Stabilisation Fund would therefore be a once off payment to compensate for the affordable levies and the funds would be utilized on capital expenditure on the common property. In addition, Stabilisation Funds are used by homeowners’ associations to do away with the need for special levies.
This is not the case at Pecanwood Estate. The Association’s levies are amongst the highest, if not the most excessive, in the country. The HOA have incorporated their special levy, which members evidently voted for in 2016 and which was supposedly for one year only, permanently into their levy and are preparing an announcement to implement another special levy.
At a recent “Town Hall Meeting” the estate manager Hannes Hendricks, told attendees of his ambitious plans for new camera surveillance and bluetooth access monitoring and tracking systems which he planned to have installed to the entire estate. He said its costs would require a special levy as the estate was experiencing budgetary constraints.
The introduction of a special resolution for a Stabilisation Fund attempting to get a majority pass by members, was met with vehement opposition by some present in person at the AGM and on the Lumi Global platform.
Whilst electronic voting is allowed by the Companies Act 2008, certain rules in that regard must be adhered to. We will cover the aspect of electronic voting in a future newsletter.
The objection of A. Warrener, an attorney acting as proxy for one of the residents, should be noted because it was included in the minutes of the AGM. All other objections were swept under the carpet and not noted. As a result of A. Warrener’s objection, the chairman of the HOA agreed that there was no basis in law for the introduction of the resolution to implement the Stabilisation Fund but he decided on the spot that the resolution should be changed from a request to implement, to a request to vote on the principle of the resolution.
Here members should note that the Companies Act 2008, Section 62 (3)c notes and I quote, “a copy of any proposed resolution of which the company has received notice, and which is to be considered at the meeting, and a notice of the percentage of voting rights that will be required for that resolution to be adopted;” must be attached to the notice of the AGM announcement. This did not happen for the resolution to vote on the principle of the Stabilisation Fund and the resolution to vote on the implementation of the Stabilisation Fund was abandoned. Of significance in this regard is that the resolution for the implementation of the Stabilisation Fund did not stipulate the percentage of voting rights that would be required for its adoption. On 01 April 2022, a letter was sent to homeowners regarding the immediate implementation of the Stabilisation Fund. The letter was sent on behalf of the board of directors of the HOA by the estate manager. The merits of the content of this letter will be dealt with in a forthcoming article. Members should be aware that the implementation of a Stabilisation Fund without the express permission of a property owner is tantamount to robbing him/her off the fruits of their property. We have dealt with the voting process in our first article and consider the glaring irregularities mentioned sufficient to discredit the entire AGM. The implementation of a Stabilisation Fund without rules and regulations and the express consent of owners is highly irregular in law.
Further consideration should be given to the tax implications of this fund as it cannot be regarded as a levy in terms of SARS Interpretation note 64 (issue4).
We will deal with this in our article to do with the lease agreement between the HOA and Country Heights Holdings.
We encourage residents to oppose the implementation of the Stabilisation Fund as it is an act of unlawfulness and to lodge their objections with the HOA.
Several estates have published their rules and regulations for a Stabilisation Fund in their MOI’s. Dainfern Estate is probably one of the best known in the country and have experienced problems in the past because their MOI was poorly drafted. That has now been rectified and as it is available in the public domain on the internet, we include links for your information.
Please note how their Stabilisation Fund Rules are set out in their MOI from pages 12-14, item 10.15. Also note the long process that they went through to redraft their MOI per the second link to their blog and which we list below.
We include a copy of Item 10.15 of the Dainfern MOI below for ease of reference.
"10.15. The Company may establish a Capital Reserve Fund for the purpose of meeting any extraordinary expenditure and expenditure of a capital nature to be incurred by the Company in carrying out its main objectives and the provision of this MOI. The Capital Reserve Fund shall be funded from levies payable by new Members joining the Company as owners of a unit as well as existing Members who increase their ownership of further unit/s (and thus their voting rights in the affairs of the Company). The Fund shall be subject to the following:
The amount to be contributed by new Members pursuant to the Capital Reserve Fund shall be revised on an annual basis in accordance with the recommendation of the Board of Directors and be subject to the approval of the Company at its Annual General Meeting. The objective of the annual review shall be to maintain the Capital Reserve Fund at an appropriate level having regard to factors such as inflation.
10.16. Each new Member in the Company shall be liable to pay the relevant Capital Reserve Fund contribution on the date of registration of transfer of the unit, calculated on the date on which the purchase agreement was signed.
10.17. In the event of any unit being sold, alienated or otherwise disposed of, the new owner shall be obligated to pay the Capital Reserve Fund contribution applicable at that time. The ex-owner shall not be entitled to a refund of the Capital Reserve Fund contributions paid by him.
10.18. An existing Member will only be liable for such contribution if the envisaged property transaction will result in that Member gaining an additional vote in the affairs of the Company.
10.19. In the event that such additional vote is relinquished within six months from date of transfer by means of a sale, the Company will refund the contribution to the existing Member. The new Member pursuant to such sale, shall be liable and responsible for payment of such contribution to the Company.
10.20. The obligation to contribute to the Capital Reserve Fund is specifically exempted to Members where the Membership is obtained by means of a transfer subsequent to:-
A Decree of Divorce; or
Transfer of the property from a trust, company or corporation to the Member, on condition that the Member was a beneficiary of the trust, director and shareholder of the company or member of the closed corporation, whichever applicable;
A testamentary bequest, or intestate benefit to a spouse or life partner, the latter if the person fulfils (sic) the requirements as provided for in the case law and legislation on written confirmation by the appointed Executor.”
©Pecanwood Corruption Watch
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