An executive managing agent – a fairly “new” concept showing great results

3 September 2021 | Vincent Duys

Many community schemes grapple with the realities of working as volunteers, offering their limited time to run what is effectively a business consisting of massive asset values. Being a trustee in a community scheme is a thankless job but, the team at ZDFin are of the opinion that members should instead be focussing on one all important aspect, “is your scheme being run with the necessary care and skill that it deserves?”

ZDFin is a specialist community scheme finance house with in excess of 50 years combined sectional title experience, and the team is all too familiar with the challenges and realities that face many schemes in South Africa.

As part of the company’s national footprint and tailor-made product focus, ZDFin offers Executive Managing Agent “EMA” services.

While the ins and outs will be dealt with below, effectively an EMA steps into the shoes of the conventional trustees, and becomes responsible for the day-to-day decision making affecting your scheme.

We asked the team what one major benefit of electing them as an EMA for your scheme could be, the overwhelming answer was “by outsourcing what would effectively be the role of conventional trustees, you are afforded the benefit of objective but decisive decision making which is always for the benefit of the scheme. Unfortunately, some schemes can be tainted with the reality of internal politics which can often lead to a lack of decision making. This offers no benefit to the scheme and its paying members”.

“A Scheme consists of millions of Rands in asset values, and very often an individual’s single biggest investment. This can be likened to running a business, and should not at any point be a half-hearted effort. Guarding your investment should be priority number 1, and appointing suitably qualified professionals to do so goes a long way in ensuring that aim.”

The team went on to add that “we understand that it may be difficult for trustees to ‘hand over the reins’ to a third party, and often there is a limited understanding of what a difference an EMA could make to the scheme, and more particularly to the individual trustees; therefore, we encourage them to ask many questions in order to gain a full understanding of the concept, and make an informed decision. Fortunately, the act requires members to make the decision to appoint an EMA, and thus member participation is mandatory”

ZDFin have put together some brief FAQ’s which are often the most pertinent questions raised by members looking at the possibility of appointing an EMA:

What is an EMA?

Brought about with the changes in legislation that came with the ‘new’ Sectional Title Schemes Management Act No 8 of 2011 (“the STSMA”), an EMA is an external individual and/or company employed by a Community Scheme who performs the functions, and exercises the powers that would ordinarily be performed by trustees. The EMA ‘steps into the shoes’ of the conventional trustees, and is responsible for the day-to-day decisions that the trustees would normally make. Important to note, there will no longer be any trustees if an EMA is appointed (https://zdfin.co.za/executive-managing-agent/).

How does a scheme appoint an EMA?

By way of a special resolution of the members, which is per Prescribed Management Rule (“PMR”)  28 of the STSMA.  All owners are members and thus the appointment is essentially an owner decision. Members can also apply to the Community Schemes Ombud Service (“the CSOS”)  to appoint an EMA to a scheme, provided those members hold 25% of the total quota of sections in the scheme.

Is the EMA our MA?

A MA can act as an EMA but not in all cases. The EMA and MA perform separate functions. The MA usually takes instructions from the trustees, but if an EMA is appointed, the MA will take instructions from the EMA, who takes the role of the conventional trustees.

Who do EMA’s Report to?

To all owners/members, as per PMR 28 and in particular PMR 28(3)(f), every 4 months by way of an EMA Report, that reports on the administration of the scheme. In reality, the EMA works very closely with the MA of the scheme, as the trustees would. Good synergy between the MA and the EMA is very important.       

ZDFin has adopted the approach of monthly reporting to all owners where they have been appointed as EMA. Experience, being invaluable, has shown that while the regulations provide for quarterly reporting, the monthly reporting approach ensures transparency, and lessens the number of queries from members every quarter, who instead have the benefit of more frequent and consistent reporting on the management of their scheme.

The pro’s and con’s of appointing an EMA?

Being a trustee in a scheme is a time-consuming, often thankless job and requires hours of meetings and engagements, mostly without remuneration. Important decisions need to be made on a daily basis.

Not all owners want to be a trustee, and not all owners have the time to give the scheme the attention it needs.

An EMA is ideal for schemes who are struggling to get volunteer trustees. They have the know-how and practical experience to assist schemes with what would sometimes be difficult for volunteer trustees to do.

Practically, owner trustees have day jobs and thus, an experienced EMA is arguably a ‘no-brainer’ for many schemes.

Notably EMA’s perform their functions as the ‘trustees’ of a scheme without indemnification that the STSMA affords conventional trustees.

How do we know the EMA is doing what they are meant to?

As alluded to, an EMA must report to every member of the scheme at least quarterly, as per the legislation, concerning the administration of the scheme.

An EMA must also inspect the common property at least every 6 months. In our experience monthly reporting is far more valuable, and common property inspections need to be done at least bi-monthly; however, the STSMA allows for the above every 6 months.

What else does the EMA do?

The EMA is required to manage the scheme with the required professional level of skill and care that would be required from trustees. In addition, the EMA Is liable for losses suffered by the scheme, should the EMA not apply such skill and care.  Just like trustees, the EMA has a fiduciary duty to all members, although the STSMA affords indemnification to trustees and NOT to an EMA. In our experience, very few trustees are fully aware of the indemnification issue.

 If I have an issue what do I do?

Ordinarily the MA remains your point of call, who in turn take instructions from trustees.

If an EMA is appointed there will be no trustees and thus the MA takes instructions from the EMA. The lines of communication do not change for members and the EMA is always available on request. 

And, if we are not happy with the EMA? What now?

Just as appointing an EMA is done  by special resolution, the same applies to terminating an EMA’s services. One hears numerous horror stories in the industry, pertaining to schemes being placed under administration, with administrators abusing their power, and often resulting in substantial losses for schemes. When it comes to an EMA, they can be dismissed as easily as they were appointed.

This is important for schemes to be aware of and to avoid the losses that can happen, as noted before, in terms of administration and/or inactive trustees. Practically, members pass a special resolution to remove an EMA, and then elect trustees once more. While a good synergy between an EMA and the MA is highly advised, from a transparency point of view, it is recommended that these services are provided by different parties.

For more information visit ZDFin.

Should you have any questions on the above please contact us on info@tvdmconsultants.com or 061 536 3138.

About the Author: Vincent Duys is an attorney and property manager at ZDFin.