Common Governance Failures in Sectional Title Schemes

Most trustee liability exposure stems from preventable governance mistakes. Understanding the most common failures—and how to avoid them—is the fastest way to reduce your personal liability risk. This article outlines the governance failures that appear most frequently in CSOS complaints and litigation.

1. Inadequate Financial Controls

The most common failure: schemes that don't maintain proper financial records, don't conduct regular reconciliations, or don't have segregation of duties for financial transactions. This creates opportunity for fraud and exposes trustees to personal liability for missing funds.

2. Failure to Conduct Required Meetings

The STSA requires annual general meetings, special meetings, and board meetings on a regular schedule. Schemes that skip meetings or don't maintain proper minutes create governance gaps and expose trustees to liability for decisions made without proper authority.

3. Undisclosed Conflicts of Interest

Trustees voting on matters where they have a personal interest—without disclosing the conflict or recusing themselves—is a frequent governance failure. This can invalidate board decisions and expose trustees to personal liability.

4. Lack of Insurance Coverage

Many schemes fail to maintain adequate insurance for buildings, liability, and trustee liability. This leaves the scheme and trustees personally exposed to uninsured losses.

5. Poor Documentation and Record-Keeping

Schemes that don't maintain proper records of decisions, contracts, maintenance, or communications create liability exposure. In disputes, poor documentation is interpreted against the scheme and trustees.

6. Failure to Disclose Information to Residents

The STSA requires schemes to provide financial statements, budgets, and other information to residents. Schemes that withhold information or provide incomplete disclosure create resident dissatisfaction and CSOS complaints.