Body corporates should not be caught off guard and under-funded when major maintenance issues or capital heavy projects arise.
A body corporate must be able to justify the budget amounts by taking into account well thought out cost estimates.
If you are looking at buying a property that forms part of a sectional title scheme, it is imperative to know and understand what you are buying and what you will specifically own and be responsible for.
You should always request a copy of the scheme’s sectional plans, as well as the registered or approved management and conduct rules, to confirm the legal nature of what is being sold to you.
The sectional plans will indicate whether there are registered exclusive-use areas, which will reflect on the title deed in the form of a Notarial Deed of Cession, and the rules will provide for rule-based exclusive-use areas, if applicable, along with a layout plan and schedule of allocation.
This impacts on your Participation Quota (PQ) which is the formula used to calculate your levy contribution. It is calculated by dividing the number of square metres occupied by the owner’s section by the total floor area of all sections.
In addition to scrutinising the sectional plan and reading the conduct rules, make sure you have interrogated the financials before you put in an offer.
It is particularly important to establish the manner in which the levies have been structured and whether or not the complex complies with legislation governing sectional title schemes. Once you become a member of a body corporate, you are legally obligated to pay contributions to the body corporate, which are called levies.
Before the implementation of the sectional title schemes management act No. 8 of 2011 (STSMA), schemes were comprised of just one fund from which all expenditure was paid. However, as from October 7, 2016, it was required that two separate funds are provided for within a scheme. The funds are referred to as the Administration Fund and the Reserve Fund.
The Administration Fund covers the ongoing running costs of a scheme, whereas the Reserve Fund is used to budget for future required maintenance and capital expenditure in relation to the land, buildings and infrastructure within a scheme.
In addition to the implementation of the Reserve Fund, the STSMA stipulates the formation of a 10 year maintenance plan to be drafted in respect of a scheme. A maintenance plan is a budget that sets out the anticipated maintenance needs of the scheme over the next 10 years.
The intention of the legislature in devising the Reserve Fund and 10 year maintenance plan was ultimately to negate the need for special levies which are most commonly raised for ad hoc maintenance needs that have not been properly planned or budgeted for and can often come as a nasty surprise.
A body corporate must be able to justify the budget amounts by taking into account well thought out cost estimates.
Any individual who has a material interest in the finances of the body corporate and is unhappy with the amount budgeted by members for the Administrative or Reserve Fund may approach the Community Schemes Ombud Service (the “CSOS”) for an order declaring the amount unreasonable and adapting the amount sufficiently.
As numerous sectional title schemes try to become compliant with this particular requirement, we have interacted with many unhappy homeowners, particularly those who may live out of town and have not been present for agm’s or part of the budgeting discussions.
What is however important to understand, is that while in the past having a ‘low’ levy might have been considered a selling point in the short term, many purchasers and body corporates have been caught off guard and under-funded when major maintenance issues or capital heavy projects arise.
Both property owners and prospective purchasers should rather focus on whether or not their body corporate is well managed, legally compliant, and sufficiently funded.
While your monthly levy costs may increase, the potential long-term benefits of increased property values and a well-managed and desirable sectional title scheme should make it well worthwhile.
https://northcoastcourier.co.za/138906/sectional-title-levies-the-devil-is-in-the-detail/
