Traditionally, there are three types of property associations that are used to govern property estates and developments: sectional title body corporates, non-profit companies, and voluntary associations.

Sectional title body corporate

Rule 26(4) of the Management Rules prescribed in terms of the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) states that “unless all the sections in the scheme are registered in the name of one person, the body corporate must present audited financial statements to a general meeting for consideration within four months after the end of the financial year”. The intention is that it is not necessary to have the annual financial statements audited while the scheme is owned by only one person (e.g. the developer) and / or no body corporate is in existence. However, once a body corporate is in existence (i.e. once a unit in the scheme is transferred which results in two or more owners in the scheme), then there is an obligation on the body corporate to have its financial statements audited.

Non-Profit Company

Section 1 of the Companies Act 71 of 2008 (Companies Act) defines a Non-Profit Company (NPC) as a company incorporated for public benefit or another objective as defined in the Companies Act. The income and property of a non-profit company is not distributable to its incorporators, members, directors, officers or persons relating to any of them and must be used to advance the purpose for which it was created, as set out in its memorandum of incorporation (MOI).

Accounting, financial reporting, and external reporting requirements for NPCs are determined by the Companies Act. Section 30 (2)(i) and (ii) of the Companies Act states that the annual financial statements must in the case of any non-profit company-

“ (i) be audited, if so required by the regulations made in terms of subsection (7) taking into account whether it is desirable in the public interest, having regard to the economic or social significance of the company, as indicated by any relevant factors, including—

(aa) its annual turnover;

(bb) the size of its workforce; or

(cc) the nature and extent of its activities; or

(ii) be either—

a) (aa) audited voluntarily if the company’s Memorandum of Incorporation, or a shareholders resolution, so requires or if the Company’s board has so determined; or

b) (bb) independently reviewed in a manner that satisfies the regulations made in terms of subsection (7), subject to subsection (2A).”

Accordingly, to the extent that the property association was incorporated as an NPC in terms of the Companies Act, the obligation on the NPC to have its financial statements audited if:

• prescribed by regulations; or
• its MOI, shareholder’s resolution or board of directors have elected to do so

Voluntary Association

This is an association of person that has been formed and that has not incorporated in terms of any Act. These are established by adopting a constitution and rules. They are administered and regulated in terms of common law. The type of voluntarily association, its nature and objects are therefore dependent on its constitution (as its founding document). Further, the drafter of the constitution can provide for any of the existing options related to accounting, financial reporting, and external reporting requirements.

Accordingly, to the extent that property association has been incorporated as a voluntary association, we need to review and consider such property association’s constitution to determine whether it imposes the obligation to have its financial statements audited.

Community Schemes Ombud Service Act 9 of 2011

Section 38 read together with 39(1)(d) of the Community Schemes Ombud Service Act 9 of 2011 states that, in the event of a dispute, a party or affected person can make an application for an order requiring the association or scheme to have its accounts, or accounts for a specified period, audited by an auditor.

Save for body corporates established in terms of the Sectional Titles Act, it appears that there is no strict obligation on property associations to have their annual financial statements audited, we do recommend that from a “good governance”, transparency and reputational standing, that property association do elect to have their annual financial statements audited.