The Automatic Renewal of Property Management Agreements and what our Courts have said about it

Prescribed Management Rules 28 (7) and 28 (8) state that “a management agreement may not endure for a period longer than three years and may be canceled without liability or penalty, despite any provision of the management agreement or other agreement to the contrary- 

1. By the body corporate on two months’ notice, if the cancellation is first approved by a special resolution passed at a general meeting, or 
2. By the managing agent on two months’ notice. 

(8) The body corporate or trustees may by ordinary resolution cancel the agreement in accordance with its terms or refuse to renew the management agreement when it expires. (my italics) 

The Gauteng Division of the High Court in Johannesburg in the matter of The Appointed Trustees of The Madison at Amberfield Body Corporate & Another v CSI Property Management (Pty) Ltd delivered a significant judgment regarding the interpretation of Prescribed Management Rule 28 (7) and (8).  Acting Judge Todd has put an end to an interpretation that favours the perpetual renewal of management agreements resulting from inaction by bodies corporate or their boards of trustees. 

Background of the Case 

The matter was brought before the court on an urgent basis on 11 June 2024 by the appointed trustees of The Madison at Amberfield Body Corporate and the body corporate itself. They sought relief against CSI Property Management (Pty) Ltd (the Respondent), which had served as the managing agent of the sectional title scheme for over four years. The key issue in dispute was whether the Respondent’s appointment was lawfully extended beyond 15 May 2024, as a result of the automatic extension clause contained in the agreement or if the agreement ended as contended by the trustees. 

The dispute carried serious consequences, as the Respondent controlled the body corporate’s bank accounts, financial information, and other key operational data. Despite the Applicants appointing a new managing agent, the Respondent refused to hand over access to financial records and banking details, leading to difficulties in managing levies and payments for essential services such as security, electricity, and water as they argued that their contract was automatically extended as the termination notice was invalid, that they were thus still the managing agents. 

Key Legal Issues 

The case primarily focused on the following key legal issues: 

1. Termination of the Managing Agent’s Appointment: The court was tasked with determining whether the Respondent’s appointment as the managing agent had been lawfully terminated. The management agreement initially signed in November 2019 expired in October 2022. That agreement was extended by an addendum for an additional 12 months from May 2023 to 15 May 2024. The contract contained an automatic renewal term, potentially extending the term of the contract for an additional period.  
2. The workings of Prescribed Management Rule 28 (8) in conjunction with the prohibition of Prescribed Management Rule 28(7): Can the management agreement be automatically extended beyond three years without a specific agreement to that effect or where the body corporate or trustees refused to renew the agreement.  
3. Governance of the Body Corporate and Trustees’ Identity: The Respondent challenged the validity of meetings held on 18 May 2024 and 22 May 2024, which concerned the appointment of new trustees. The court had to determine whether the Respondent was still authorized to convene meetings after its termination. 

Court’s Findings 

Judge Todd ruled that: 

• The termination of CSI Property Management (Pty) Ltd was valid and effective as of 15 May 2024 as the original contract and addendum came to an end on the last day of the contract and the trustees refused to renew the management agreement beyond that period. 
• The Respondent was not entitled to claim automatic renewal of the management contract, as any renewals must comply with the provisions of the Sectional Titles Schemes Management Regulations and specifically the prohibition that the contract cannot endure for a period longer than three years as contained in Prescribed Management Rule 28 (8) without a specific agreement by the trustees to enter into a new contract. 
• That the email sent to the managing agent by the trustees, although not compliant as a resolution is proof of the fact that the trustees refused to enter into a new contract beyond the term of the contract. 
• The Respondent’s refusal to relinquish control of the scheme’s finances was unjustified. 
• The purported special general meeting held on 18 May 2024, organized by the Respondent, was invalid since the Respondent was no longer the managing agent. 
• The identity of the current trustees remained as it was before the disputed meetings, as no lawful removal or replacement had taken place. 

Legal Significance, Impact, and Conclusion 

The ruling affirms the position that a management agreement cannot endure beyond three years without a decision by the trustees or body corporate to enter into a new agreement with the managing agent.  It further highlights that managing agents cannot continue their roles beyond the expiry of their contracts unless explicitly renewed by the body corporate or trustees. 

This case sets an important precedent in South African sectional title law and strengthens the legal framework for proper governance and accountability in residential estates and sectional title schemes and will now ensure that agents can be held accountable where they refuse to hand over and make available the documents and accounts of the schemes they serve. 

WRITTEN BY MARELIZA BURGER

DIRECTOR OF DTB ATTORNEYS

BA. LLB.

Attorney at Law

Community Schemes Law Expert