ZDFin – Executive Managing Agent (EMA)

EXECUTIVE MANAGING AGENT (EMA)

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The Sectional Titles Schemes Management Act (STSMA), signed into Law on 7 October 2016, was the genesis of the Executive Managing Agent (EMA) capability. The concept and overriding objective of an Executive Managing Agent (EMA) is the professionalisation of the trustees’ role, this making the paradigm shift from a volunteer with indemnification to full-time role with liability.

The Executive Managing Agent (EMA) assumes the roles and functions that would otherwise be the responsibility of a board of Trustees; such functions include budgeting and all related financial affairs, maintenance, levy collections and associated procedures, rule enforcement, housekeeping issues and any other tasks on behalf of other owners in a scheme; these all being critical to ensure optimisation of value for which trustees are ultimately liable.

The traditional role of a Trustee has become increasingly difficult and complicated, exacerbated by the part-time and all too often non-professional nature of related capability, protected by some level of indemnity offered by the STSMA.

The many, largely unknown and onerous responsibilities coupled with the thankless nature of being a trustee has led to a dwindling number of willing participants to perform this critical function. Recognising these challenges, the Legislature in line with prescribed management Rule 28(1) of the STSMA, provides for Bodies Corporate, by way of a special resolution, to appoint an Executive Managing Agent (EMA).

Major benefits to appointing an Executive Managing Agent (EMA) include:

Complete objectivity in relation to crucial decision-making; a convenient way for owners to avoid any difficult scenarios pertaining to their fellow owners that may involve legal proceedings, renovation requests, conduct rule transgressions etc.
Ensures full-time focus by suitably qualified and experienced professionals, as opposed to part-time volunteer management. The Executive Managing Agent (EMA) is afforded no indemnification in terms of the STSMA and is fully liable for all decisions, or omissions*.

How will the appointment of an Executive Managing Agent (EMA) safeguard my investment?

* The ZDGroup has R5 million professional insurance cover.

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FREQUENTLY ASKED QUESTIONS

What is an Executive Managing Agent (EMA)?
An Executive Managing Agent (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 Executive Managing Agent (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, that there will no longer be any trustees if an Executive Managing Agent (EMA) is appointed.

Is the Executive Managing Agent (EMA) our Managing Agent (MA)?
The role of the Executive Managing Agent (EMA) and Managing Agent (MA) are not, by definition, one and the same. While technically your MA could be appointed as the scheme’s Executive Managing Agent (EMA), it is our opinion that it is best practice to segregate these separate, critical functions appreciating the Managing Agent (MA) takes instruction from the trustees, this noting the Executive Managing Agent (EMA) would assume the roles and responsibilities of the trustees upon appointment.

The pro’s and con’s of appointing an Executive Managing Agent (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 Executive Managing Agent (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 Executive Managing Agent (EMA) is arguably a ‘no-brainer’ for many schemes. Notably Executive Managing Agent (EMA)’s perform their functions as the ‘trustees’ of a scheme without indemnification that the STSMA affords conventional trustees.

What else does the Executive Managing Agent (EMA) do?
The Executive Managing Agent (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 Executive Managing Agent (EMA) Is liable for losses suffered by the scheme, should the Executive Managing Agent (EMA) not apply such skill and care. Just like trustees, the Executive Managing Agent (EMA) has a fiduciary duty to all members, although the STSMA affords indemnification to trustees and NOT to an Executive Managing Agent (EMA). In our experience, very few trustees are fully aware of the indemnification issue.

How does a scheme appoint an Executive Managing Agent (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 Executive Managing Agent (EMA) to a scheme, provided those members hold 25% of the total quota of sections in the scheme.

Who do Executive Managing Agent (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 Executive Managing Agent (EMA) Report, that reports on the administration of the scheme. In reality, the Executive Managing Agent (EMA) works very closely with the Managing Agent (MA) of the scheme, as the trustees would. Good synergy between the Managing Agent (MA) and the Executive Managing Agent (EMA) is very important. ZDMgt has adopted the approach of monthly reporting to all owners where they have been appointed as Executive Managing Agent (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.

How do we know the Executive Managing Agent (EMA) is doing what they are meant to?
As alluded to, an Executive Managing Agent (EMA) must report to every member of the scheme at least quarterly, as per the legislation, concerning the administration of the scheme. An Executive Managing Agent (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.

And, if we are not happy with the Executive Managing Agent (EMA)? What now?
Just as appointing an Executive Managing Agent (EMA) is done by special resolution, the same applies to terminating an Executive Managing Agent (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 Executive Managing Agent (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 Executive Managing Agent (EMA), and then elect trustees once more. While a good synergy between an Executive Managing Agent (EMA) and the Managing Agent (MA) is highly advised, from a transparency point of view, it is recommended that these services are provided by different parties.

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 Executive Managing Agent (EMA) is appointed there will be no trustees and thus the Managing Agent (MA) takes instructions from the Executive Managing Agent (EMA). The lines of communication

do not change for members and the Executive Managing Agent (EMA) is always available on request.