Many trustees volunteer their time because they care about their properties and want to contribute to the wellbeing of their communities. However, the role carries legal responsibilities that are sometimes underestimated, particularly by individuals who have limited experience in sectional title governance.
One concern that trustees frequently have is whether they could be held personally responsible if a decision results in financial loss or other difficulties for the body corporate.
Understanding the circumstances in which personal liability may arise is essential for trustees who want to fulfil their duties responsibly.
What Are the Fiduciary Duties of Trustees?
The Sectional Titles Schemes Management Act establishes fiduciary duties that trustees must observe when acting on behalf of the body corporate.
These duties require trustees to act honestly, in good faith and within their authority while exercising the care, diligence and skill reasonably expected in the circumstances.
Trustees must act in the interests of the body corporate and avoid using their positions for improper personal benefit.
For example, when considering a substantial maintenance project, trustees should assess the necessity of the work, review appropriate quotations, consider the scheme’s financial position and ensure that the expenditure is properly authorised.
Trustees should also understand the decisions they are approving and seek clarification when supporting information is incomplete. Careful consideration of these matters helps ensure that the body’s financial resources are managed responsibly.
When Can Trustees Be Held Personally Liable?
Personal liability may arise when a trustee breaches a fiduciary duty and the legal requirements for liability are established.
The circumstances surrounding the conduct are important, including whether the trustee acted honestly, exercised reasonable care and complied with the powers and responsibilities attached to the position.
For example, concerns may arise where a trustee knowingly authorises expenditure without the required approval, acts dishonestly or fails to disclose a relevant personal financial interest.
Where the body corporate suffers a financial loss, the circumstances may require investigation to determine whether a breach of duty occurred and whether the trustee could be held liable.
Trustees should understand that liability depends on the applicable legislation and the facts of each situation. Where concerns arise, obtaining advice from a suitably qualified legal professional is advisable.
Why Conflicts of Interest Require Careful Attention
Trustees may occasionally find themselves involved in decisions where they have a personal or financial connection to the matter being considered.
For example, a trustee may have an interest in a company that has submitted a quotation for painting, security services or maintenance work at the scheme.
In these circumstances, the trustee must comply with the applicable disclosure and conflict-of-interest requirements.
The relevant interest should be disclosed appropriately, and the trustee must follow the legal procedures governing participation in the decision.
Accurate documentation is particularly important because it provides a record of how the potential conflict was addressed.
Financial Oversight and Responsible Decision-Making
Financial management is one of the most important areas of trustee responsibility. The body corporate depends on owners’ levy contributions to meet ongoing expenses, maintain common property and make provision for future repairs.
Trustees should therefore understand the approved budget, review financial reports and monitor the scheme’s financial position regularly.
Particular attention should be given to increasing levy arrears, unexpected expenditure, reserve fund contributions and maintenance projects that may require substantial funding.
Professional Sectional Title Scheme Managing Agents can assist with financial administration, reporting and the coordination of authorised expenditure, depending on the terms of the management agreement.
Trustees remain responsible for exercising their governance duties and should ensure that they understand the financial information presented to them.
Where substantial expenditure is proposed, trustees should establish whether sufficient funds are available, whether the necessary approval has been obtained and whether the decision is consistent with the body’s legal obligations.
Does Insurance Protect Trustees Against Personal Liability?
Insurance is another important consideration for trustees who are concerned about potential personal liability.
Some Sectional Title Schemes have insurance arrangements that provide cover for certain claims involving trustees or office bearers.
However, the protection available depends on the specific policy, including its terms, exclusions and limits.
Trustees should establish whether appropriate liability cover is included in the scheme’s insurance arrangements and understand which circumstances may fall outside that protection.
It is advisable to request clarification from the insurer or a suitably qualified insurance adviser where the extent of cover is uncertain.
Why Proper Records Are Essential
Accurate records provide important evidence of how decisions were considered and authorised. Trustee meeting minutes should clearly document resolutions, relevant voting outcomes and responsibilities assigned to individuals.
Supporting documents such as quotations, financial reports, professional recommendations and written correspondence should also be retained appropriately.
These records can help establish whether trustees considered relevant information and followed the required procedures when making decisions.
Proper documentation is especially valuable when owners question expenditure, disputes arise or new trustees assume responsibility for the scheme.
How Can Trustees Reduce Their Exposure to Risk?
Trustees can manage potential risks by understanding their legal responsibilities, following appropriate governance procedures and ensuring that important decisions are supported by reliable information.
Regular financial reviews, properly conducted meetings, accurate record-keeping and appropriate professional advice are all important aspects of responsible scheme management.
Trustees should also familiarise themselves with the scheme’s management and conduct rules, the approved budget and the requirements of the Sectional Titles Schemes Management Act.
At Fitzanne Estates, we understand the responsibilities that come with serving as a trustee and the importance of having reliable guidance when making decisions that affect an entire community. If your body corporate requires assistance from experienced Sectional Title Scheme Managing Agents, or if you would like to strengthen your understanding of trustee responsibilities through professional training, contact Fitzanne Estates to discuss our sectional title management services and trustee training opportunities.