38.     Rules

            (1) Subject to the provisions of this section, a scheme shall be governed by means of rules on the formation of an association for the scheme in accordance with the provisions of section 39.

            (2) Rules shall be made providing for the control, management, administration, use and enjoyment of the section and the common property.

            (3) Rules made under this section shall consist of management rules and conduct rules.

            (4) The form of the rules shall be as may be prescribed or as near to that form as circumstances of the scheme admit.

            (5) A developer may amend or substitute new rules when he submits an application for the opening of a sectional title register.

            (6) The association of a scheme may-

     (a)     by unanimous resolution amend or substitute new management rules;

     (b)     by special resolution amend or substitute new conduct rules.

            (7) Any amendment or substitution effected by a developer or an association-

     (a)     shall not be inconsistent or conflicting with the rules; and

     (b)     shall be reasonable and apply equally to all the owners of the units in the scheme.

            (8) The association shall notify the Registrar in the prescribed form of any amendment made to the rules.

            (9) The Registrar shall not be involved in the enforcement or application of the rules referred to in subsection (2) and is not required to examine or note any amendment thereof against any certificate or other document.

            (10) An amendment referred to in subsection (8) shall come into operation on the date of filing of the notification referred to in that subsection.

39.     Formation of association as bodies corporate

            (1) There shall be deemed to be formed an association which shall be a body corporate whenever any person other than the developer becomes an owner in a scheme.

            (2) The association shall be called by the name of the scheme referred to in section 7(3)(b) and shall have as its number, the number allotted to it under section 13(1)(a).

            (3) The association shall, subject to the provisions of this Act, be responsible for the enforcement of the rules referred to in section 38, and for the control, administration and management of the common property for the benefit of all owners.

            (4) The provisions of the Companies Act, shall not apply in relation to an association.

            (5) The association shall have perpetual succession and shall be capable of suing and of being sued in its corporate name in respect of-

     (a)     any contract made by it;

     (b)     any damage to the common property;

     (c)     any matter in connection with the land or building for which the association is liable or for which the owners are jointly liable;

     (d)     any matter arising out of the exercise of any of its powers or the performance or non-performance of any of its duties under this Act or any rule; and

     (e)     any claim against the developer in respect of the scheme if so determined by special resolution.

            (6) A developer shall convene a meeting of the members of the association not later than 60 days after the formation of the association, the agenda of the meeting to be as prescribed in the management rules, at which meeting he shall furnish the members with-

     (a)     a copy of the sectional plan;

     (b)     a certificate from the local authority to the effect that all rates due by the developer up to the date of the formation of the association have been paid; and

     (c)     proof of revenue and expenditure concerning the management of the scheme from the date of the first occupation of any unit until the date of the formation of the association.

            (7) The developer shall refund to the association any residue, if any, by proof referred to in subsection (6)(c).

            (8) A developer who fails to comply with any provisions of subsections (6) and (7), shall be guilty of an offence and liable on conviction to a fine not exceeding P1 000.

            (9) The developer shall cease to be a member of the association when he ceases to have a share in the common property referred to in section 37(2), and any other member of the association shall cease to be a member thereof when he ceases to be the owner of a unit in the scheme in question.

40.     Functions of associations

            (1) An association for a scheme shall perform the functions conferred on it by this Act and the rules made thereunder, and shall in addition carry out the following functions-

     (a)     establish a fund which shall be used for-

           (i)       defraying administrative expenses;

          (ii)       repairs, upkeep, the control, management and administration of the common property;

          (iii)       payment of rates and taxes;

         (iv)       payment for the supply of amenities and services;

          (v)       payment of insurance premiums; and

         (vi)       the discharge of any duty or obligation of the association;

     (b)     require the owners of units in the scheme to contribute to the fund referred to in paragraph (a) in order to satisfy any claim against the association;

     (c)     to determine the amount to be raised periodically for the fund;

     (d)     to raise the amounts so determined by levying contributions on the owners in proportion to the quotas of their respective sections;

     (e)     to open and operate an account or accounts with a banking institution or a building society;

     (f)      to insure the building and keep it insured to the replacement value thereof against fire and such other risks as may be prescribed;

     (g)     to insure against such other risks as the owners may by special resolution determine;

     (h)     subject to the provisions of section 51 and to the rights of the holder of any sectional mortgage bond, forthwith to apply any insurance money received by it in respect of damage to the building, in rebuilding and reinstating the building in so far as this may be effected;

            (i)         to pay the premiums on any policy of insurance effected by it;

     (j)      properly to maintain the common property (including elevators) and to keep it in a state of good and serviceable repair;

     (k)     to comply with any notice or order by any competent authority requiring any repairs to or work in respect of the relevant land or building;

     (l)      to comply with any reasonable request for the names and addresses of the persons who are the trustees of the association in terms of the rules referred to in section 38, or who are members of the association;

     (m)    to notify the Registrar and the local authority concerned of its domicilium citandi et executandi, which shall be its address for service of any process;

     (n)     to ensure compliance with any enactment relating to the common property or to any improvement of land comprised in the common property;

     (o)     to keep in a state of good and serviceable repair and properly maintain the plant, machinery, fixtures and fittings used in connection with the common property and sections;

     (p)     subject to the rights of the local authority concerned, to maintain and repair (including renewal where reasonably necessary) pipes, wires, cables and ducts existing on the land and capable of being used in connection with the enjoyment of more than one section or of the common property or in favour of one section over the common property;

     (q)     on the written request of any owner or registered mortgagee of a section, to produce to such owner or mortgagee, or any person authorized in writing by such owner or mortgagee, the policy or policies of insurance effected by the association and the receipt for the last premium in respect thereof; and

     (r)      in general, to control, manage and administer the common property for the benefit of all owners.

            (2) Any contributions levied under any provision of subsection (1), shall be due and payable on the passing of a resolution to that effect by the trustees of the association, and may be recovered by the association by action in a court from the persons who were owners of units at the time when such contributions became due.

            (3) The association shall, on the application of an owner or mortgagee of a unit, or any person authorized by such owner or mortgagee, certify in writing-

     (a)     the amount determined as the contribution of that owner;

     (b)     the manner in which such contribution is payable;

     (c)     the extent to which such contribution has been paid by the owner; and

     (d)     the amount of any rates and taxes paid by the association in terms of section 54 and not recovered by it.

            (4) The association shall, for the purposes of effecting any insurance under subsection (1)(f), be deemed to have an insurable interest for the replacement value of the building and shall, for the purposes of effecting any other insurance under that subsection, be deemed to have an insurable interest in the subject-matter of such insurance.

41.     Powers of associations

            The association may exercise the powers conferred upon it by or under this Act or the rules made thereunder, and such powers shall include the power-

     (a)     to appoint such agents and employees as it may deem fit;

     (b)     when essential for the proper fulfilment of its duties, to purchase or otherwise acquire, take transfer of, mortgage, sell, give transfer of, or hire or let units;

     (c)     to purchase, hire or otherwise acquire movable property for the use of owners for their enjoyment or protection, or in connection with the enjoyment or protection of the common property;

     (d)     where practicable, to establish and maintain on the common property suitable lawns and gardens and recreation facilities;

     (e)     to borrow moneys required by it in the performance of its functions or the exercise of its powers;

     (f)      to secure the repayment of moneys borrowed by it and the payment of interest thereon, by negotiable instrument or the hypothecation of unpaid contributions (whether levied or not), or by mortgaging any property vested in it;

     (g)     to invest any moneys of the fund referred to in section 40(1)(a);

     (h)     to enter into an agreement with the local authority or any other person or body for the supply to the building and the land of electric current, gas, water, fuel and sanitary and other services;

     (i)      to enter into an agreement with any owner or occupier of a section for the provision of amenities or services by the association to such section or to the owner or occupier thereof; including the right to let a portion of the common property to any such owner or occupier by means of a lease other than a lease referred to in section 20(1); and

     (j)      to do all things reasonably necessary for the enforcement of the rules and for the control, management and administration of the common property.

42.     Functions and powers of associations to be performed or exercised by trustees

            (1) The functions and powers of an association shall, subject to the provisions of this Act, the rules made thereunder and any restriction imposed or direction given at a general meeting of the owners of sections, be performed and exercised by the trustees of the association holding office in terms of the rules.

            (2) For the purposes of an agreement in respect of the beacons and boundaries of the common property required in terms of the Land Survey Act, the trustees shall be deemed to be the owner of the land.

43.     Fiduciary position of trustees

            (1) Each trustee of an association shall stand in a fiduciary relationship to the association.

            (2) Without prejudice to the generality of the expression "fiduciary relationship", the provisions of subsection (1) shall imply that a trustee-

     (a)     shall in relation to the association act honestly and in good faith, and in particular-

           (i)       shall exercise such powers as he may have to manage or represent the association in the interest and for the benefit of the association; and

          (ii)       shall not act without or exceed the powers conferred on him; and

     (b)     shall avoid any material conflict between his own interests and those of the association, and in particular-

           (i)       shall not derive any personal economic benefit to which he is not entitled by reason of his office as trustee of the association, from the association or from any other person in circumstances in which that benefit is obtained in conflict with the interest of the association;

          (ii)       shall notify every other trustee, at the earliest opportunity practicable in the circumstances, of the nature and extent of any direct or indirect material interest which he may have in any contract of the association.

            (3) A trustee of an association whose mala fide or grossly negligent act or omission has breached any duty arising from his fiduciary relationship, shall be liable to the association for-

     (a)     any loss suffered as a result thereof by the association; or

     (b)     any economic benefit derived by the trustee by reason thereof.

            (4) Where a trustee fails to comply with the provisions of subsection (2)(b)(ii) and it becomes known to the association that the trustee has an interest referred to in that subsection in any contract of the association, the contract in question shall, at the option of the association, be voidable; so however that where the association chooses not to be bound, a court may on application by any interested person, if the court is of the opinion that in the circumstances it is fair to order that such contract shall nevertheless be binding on the parties, give an order to that effect, and may make any further order in respect thereof which it may deem fit.

            (5) Except as regards his duty referred to in subsection (2)(a)(i), any particular conduct of a trustee shall not constitute a breach of a duty arising from his fiduciary relationship to the association, if such conduct was preceded or followed by the written approval of all the members of the association where such members were cognizant of all the material facts.

44.     Proceedings on behalf of associations

            (1) When an owner is of the opinion that he and the association have suffered damages or loss or have been deprived of any benefit in respect of a matter mentioned in section 39(5), and the association has not instituted proceedings for the recovery of such damages, loss or benefit, or where the association does not take steps against an owner who does not comply with the rules, the owner may initiate proceedings on behalf of the association in the manner prescribed in this section.

            (2) Any owner referred to in subsection (1) shall serve a written notice on the association calling on the association to institute such proceedings within one month from the date of service of the notice, and stating that if the association fails to do so, an application to the court under subsection (3) will be made.

            (3) If the association fails to institute such proceedings within the period of one month specified in subsection (2), the owner may make an application to the court for an order appointing a curator ad litem for the association for the purposes of instituting and conducting proceedings on behalf of the association.

            (4) The court may, if after considering the application, it is satisfied-

     (a)     that the association has not instituted such proceedings;

     (b)     that there are prima facie grounds for such proceedings; and

     (c)     that an investigation into such grounds and into the desirability of the institution of such proceedings is justified,

appoint a provisional curator ad litem and direct him to conduct such investigation and to report to the court on the return day of the provisional order.

            (5) The court may on the return day discharge the provisional order referred to in subsection (4), or confirm the appointment of the curator ad litem for the association, and issue such directions as it may deem necessary as to the institution of proceedings in the name of the association and the conduct of such proceedings on behalf of the association by the curator ad litem.

45.     Powers of curators ad litem

            (1) A provisional curator ad litem appointed by the court under section 44(4) and a curator ad litem whose appointment is confirmed by the court under section 44(5) shall, in addition to the powers expressly granted by the court in connection with the investigation, proceedings and enforcement of a judgment, have such powers as may be prescribed by regulations.

            (2) If the disclosure of any information about the affairs of an association to a provisional curator ad litem or a curator ad litem would in the opinion of the association be harmful to the interests of the association, the court may on an application for relief by that association, and if it is satisfied that the information is not relevant to the investigation, grant such relief.

46.     Security for costs by applicants for appointment of curators ad litem

            The court may, if it appears that there is reason to believe that an applicant in respect of an application under section 44(2) and (3) will be unable to pay the costs of the respondent association if successful in its opposition, require sufficient security to be given for those costs and the costs of the provisional curator ad litem before a provisional order is made.