MA vs EMA 

(Managing Agent versus Executive Managing Agent)

Matthew Dean (ZDFin)

While you may have heard about a “Managing Agent” in the property industry and in particular regarding Sectional Title Schemes; more recently you may also have heard of the term “Executive Managing Agent”. One may see the two concepts as being similar or even the same; or perhaps an Executive Managing Agent is just a more elite Managing Agent. This article will seek to explain the differences between the two.

To understand the differences, let us first go back to basics:

You have a complex, or a building, where there are owners of units. Such a Scheme needs to be registered as a Sectional Title Scheme. It will have a Body Corporate (BC). The BC needs to have a Board of Trustees (BOT). While not a set requirement, the Trustees will usually be owners of units within the complex. The owners pay levies which covers the running costs of the Scheme. Alternatively, a Scheme – for example, a road enclosure, estate or retirement village – may be a Homeowners Association (HOA). Here, each owner owns their own house and is thus responsible for all their own upkeep, maintenance et cetera; but there would still be some communal costs involved. For this, there would be levies payable as well. The HOA will have a Board of Directors (BOD).

The Trustees or Directors need to run the Scheme – pay all the bills, hire all the contractors, pay staff wages, deal with municipalities and more. But how can they do all of that? They are usually just owners who care about their scheme. Typically, they will be working a day-job and then will still have to deal with the running of the Scheme.

They will thus appoint a Managing Agent (MA). They are professionals and will do all of this for you. They will manage the scheme, issue levy statements to collect the monies, pay staff wages, assist with maintenance quotes and jobs, deal with the municipal matters (BC specific) and more.

However, the MA cannot actually do anything without the Trustees or Directors being on-board and approving everything… and this is where the problems start. With many schemes, it is the Trustees or Directors which may hold back the optimal running of the scheme. No matter how good or reputable the MA may be; without two Trustee or Director approvals, they cannot pay bills or get maintenance work done, for example.

Problems with a Board of Trustees/Directors. Many Schemes may have very good, hands-on, intellectual Trustees and this paragraph is not aimed at them. However, many schemes also have problematic Trustees. Sometimes, an owner will become a Trustee just to fix his or her own problems, not actually caring about the other owners. Often, a Trustee may develop a “god complex” whereby he or she desires a sense of power and authority over the complex, and thus is more focused on exercising power and status instead of caring about the wellbeing of the owners. (In some cases, a person literally only becomes a Trustee just to brag that he or she is a Trustee or Chairperson without actually ever bothering to act!) There are Boards of Trustees/Directors with internal conflicts, politics, personal gripes, vendettas against certain owners, and more. Therefore, there is a real possibility that the decisions of Trustees/Directors are based on bias, or preference, or emotional reasons – which is detrimental to the optimal running of the Scheme.

Verily, the consequences can be catastrophic. Large complexes have their utilities cut off because the Trustees will not sign the municipality’s Acknowledgment of Debt (AOD) to pay arrears. Sometimes invoices may not get paid for up to a year because the Trustees fail to approve the invoices. There are Schemes which fall into financial distress and disrepair due to the bad decisions of the Trustees. Many bills, processes, items only receive one Trustee approval, while nobody else provides the second approval necessary to carry out whatever item is needed. This in turn impacts the service delivery of the MA because they spend far more time following up on things that should have already been dealt with. Vital ad-hoc repairs to owners’ units (in BCs) are not done for similar reasons, which in turn creates major owner dissatisfaction and causes more customer complaints. Failing to fix a unit may even lead to the owner suffering financial loss when they have a tenant moving out due to the inactivity of the Body Corporate fixing their unit.

In rarer cases, a Scheme may battle to get more than one person to be a Trustee (there must be at least two) due to lack of interest. The problem with this scenario is that nothing can ever be done in the complex because nothing can receive two Trustee approvals, which is required.

Thus, if a Scheme has such challenges which end up hampering the performance of the Scheme; then this is where the option of an Executive Managing Agent (EMA) comes in. A Scheme, while still using a Managing Agent, will decide to appoint an EMA. The EMA effectively is the Board of Trustees for the complex. Being a company with employees who are dedicated solely to the cause of running the scheme optimally and without bias, the EMA is able to assist the MA in running the scheme optimally.

EMA Runs The Scheme Professionally. Carrying on with this train of thought; in a complex with a Board of Trustees, you have a Board consisting of people which is typically ill-equipped to make informed decisions, for they are not Trustees by profession. Even though the MA will make a great effort to manage the running of the Scheme professionally, it is still hugely dependent on the decisions of the Trustees – and this is often a major problem.

In dealing with an EMA, the MA is far better equipped to do that which is needed to run their scheme optimally; for they are dealing with an entity which itself understands the challenges of the Scheme, and how Sectional Title works.

EMA Allows MAs To Perform. Since a Board of Trustees usually consists of unit owners which are not equipped in managing a complex; in theory they enlist an MA to run the scheme for them, providing guidance along the way. But in practice, the MA industry in South Africa is so cut-throat, and the Trustees know it – so they tend to develop that “god complex” with the MA. Many Portfolio Managers (PMs) end up rather doing whatever the Trustees want so as to keep them happy and thus not lose the business, rather than actually being the PM they are paid to be in the first place. Their Portfolio Administrators (PAs) then develop an unhealthy fear of the Trustees, to the point they are scared to tell the Trustees that something needs to be done. For example, in the case with a minor maintenance item that needs to be fixed immediately; even when the PM or PA does tell the Trustees the job needs to be done, the Trustees – thinking they are doing the scheme a service with due diligence – ignores the professional advice and wants multiple quotes instead, which greatly delays the suffering of the affected owner; and the PM and PA simply acquiesce the request instead of advising for the minor repair to just be done soonest. As a result of all of this, the PMs are so busy with flattering the Trustees’ egos that the needs of the owners are ignored.

Now, obviously the MA needs to be competent and deliver great service to its Scheme, irrespective of the Trustees. But by the Scheme employing the services of an EMA, the PM and PA teams no longer need to spend half their job worrying about placating difficult Trustees; instead, it can simply engage as a professional, with a professional at the EMA.

EMA Improves Service Delivery. When the MA poses an item to the Trustees/Directors for review, anything can happen. They may only get one Trustee approval to proceed with something, but the action stalls due to no second approval. Or, they get two approvals but also objections (and an e-mail war typically ensues), further stalling the process. Meanwhile, the owners or even the entire complex suffer. And who are the owners going to blame? The MA of course! The MA is deemed to be useless – when in fact the MA has done its job adequately but is paralysed by the Trustees/Directors.

With an EMA, the MA can simply present the item in question to the EMA. The EMA employees will then acknowledge the issue, confirm the finances, evaluate the need, and can provide the necessary approval much faster. Going deeper into this, the EMA could also for example reject the item for a particular unit if the unit is in arrears with its levies (especially if the company providing the EMA service also offers a debt collection service). The EMA may even be able to offer legal assistance, for example in the field of evictions and acquisition of units where the arrears are insanely high.

EMA Offers Impartiality. Sometimes a scheme may be so happy with their MA, that – if the MA offers the EMA service – they may ask the MA to also offer the EMA service. However, many schemes are loath to do this; “putting all their eggs into one basket” is the catchphrase typically cited. Also, with South Africa suffering from a lot of fraud and corruption, people are dubious to hand over too much control or authority to their MA for fear of having their funds misappropriated or mismanaged. Thus, the schemes reject using an EMA service.

However, the MA in turn may be loath to suggest enlisting an EMA service from another company, as those providers are typically also MAs themselves. So the end result is that the EMA ends up just trying to poach the scheme from the MA which employed them in the first place.

In this case, using ZDMgt would be ideal, for it offers impartiality towards both the scheme and the MA by offering an independent EMA service without functioning as an MA itself. Many of its employees have extensive prior experience working for MAs and thus are aware of the relevant procedures MAs would follow; as well as having financial acumen needed to get a Scheme’s finances as healthy as possible.

In closing; a Scheme will always need a Managing Agent to run the Scheme; to deal with the bills, the maintenance, the municipal matters, dealing with owner issues and more. However, when a Scheme suffers from a range of issues – from a lack of Trustees/Directors, or issues with the Trustees/Directors, or financial issues – then appointing an Executive Managing Agent is a no-brainer. ZDMgt is the leading EMA in South Africa; feel free to make contact and get a quote!

By Matthew Dean  (ZDFin)