Courts are cracking down on sectional titles’ dirty secrets

South African courts are cracking down on sectional titles schemes, invalidating decisions where conflicts of interest or improper procedures were involved, and warning trustees that shortcuts can lead to personal liability.

With millions of South Africans living in sectional title schemes, homeowners’ association (HOA) boards often seek cost-effective, quick solutions.

However, recent high-profile court rulings, including a landmark 2025 High Court reinstatement of ousted trustees, signal that “shortcuts” in governance are landing boards in hot water.

This is according to VDM Incorporated’s director of community schemes and compliance, Johlene Wasserman, who explained that, across the country, trustees and HOA directors frequently wear multiple hats.

This could look like a trustee who is also the scheme’s attorney, a director whose company maintains the gardens, or an accountant serving on the board who also prepares the scheme’s financial statements.

“These arrangements often start with good intentions like saving costs, using trusted expertise, or keeping work within the community,” Wasserman said.

“But beneath these seemingly practical decisions lies one of the most misunderstood legal risks in community governance: The conflict of interest.”

She noted that there is a common misconception that trustees or directors are automatically barred from doing business with their own schemes. However, the law doesn’t necessarily prohibit the arrangement.

“The problem lies in secrecy, inadequate disclosure, and staying involved in discussions or decisions where a personal benefit exists,” she said.

A major wake-up call came during the 2025 case of Nielopahr Cassim; Shereen Cassim v The Trustees of Drakensberg Body Corporate and Others.

In this matter, Wasserman explained, the High Court reinstated two trustees after finding their removal at a Special General Meeting procedurally invalid under the Sectional Titles Schemes Management Act.

The court declared the meeting a nullity and ruled that the managing agent acted ‘ultra vires’, or beyond their powers.

The court also held that the original Community Schemes Ombud Service (CSOS) adjudication was flawed, with the presiding officer making defamatory, unfounded conclusions against the applicants.

“This case underscores that trustees who fail to disclose their interests, or who participate in decisions where they stand to benefit, risk personal liability,” Wasserman said.

“It also illustrates the courts’ increasing scrutiny of governance processes. The message is clear: Trustees have to remove themselves entirely from any decision where they have an interest.”

Conflict of interest rules tighten for trustees and directors

Referring to both the Sectional Titles Schemes Management Act and the Companies Act, Wasserman stressed that trustees and directors may only carry out fiduciary duties if they act honestly and in good faith.

“A conflict of interest arises where a board member, whether directly or indirectly, stands to benefit from a contract or decision, including where a relative, partner, or linked firm may profit,” she said.

The risk arises when a trustee or director influences the process – even subtly – by participating in discussions, comparing quotes, or remaining in the room while others deliberate.

“Influence doesn’t only happen through a vote. It can happen through presence, tone, or steering the conversation, which is why full recusal is essential,” she said.

Another key judgment that has shaped the need for transparency and power plays landscape comes from the 2024 case of Singh v The Body Corporate of St Tropez.

This case involved a judge with a perceived conflict of interest, and the principle applies equally to schemes, Wasserman explained.

“Even when a decision is substantively reasonable, procedural defects – including undisclosed interests – can undermine the validity of the outcome,” she said.

The 2021 case of Trustees of the Legacy Body Corporate v Bae Estates and Escapes is another key judgment related to sectional title scheme governance.

In this case, the Supreme Court of Appeal held that body corporate decisions must be lawful, reasonable, and procedurally fair.

“The court confirmed that trustees have to prioritise the scheme’s interests over personal relationships,” Wasserman said.

Meanwhile, the 2020 Stenersen and Tulleken Administration CC v Linton Park Body Corporate ruling clarified that CSOS appeals are restricted to questions of law.

“For schemes, this means governance failures and conflict of interest issues can escalate quickly. Once a matter reaches the High Court, the record must show that the scheme followed the law to the letter,” Wasserman said.

To avoid personal liability, having to repay undisclosed profits, or having decisions overturned, Wasserman advised boards to:

• Disclose in writing: Record the nature and extent of the interest before the item is discussed.
• Recuse completely: The conflicted trustee/director must physically leave the room for the discussion and decision, and must not vote.
• Ensure independent approval: Unconflicted members must evaluate quotes and make the final decision.
• Keep a clean paper trail: Minutes and resolutions should clearly show independent decision-making.

“In community governance, the conflict of interest itself is often manageable,” she said. “The legal problem is usually the failure to disclose it properly.”