Get ready for higher levies

2017-01-18 06:01
Anneri Moolman

Anneri Moolman

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Question:

My body corporate has warned that due to recent changes in the sectional title legislation, we should be expecting higher than normal levy increases. I live on a tight budget and this news has me very worried. Is it true that my levies will increase or is the body corporate just making this up?

Answer:

New legislation affecting the sectional title environment came into effect recently, namely the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the Community Schemes Ombud Service Act 9 of 2011 (CSOSA), with both pieces of legislation potentially having an impact on sectional title levies.

The STSMA requires a body corporate to establish and maintain two funds, namely an administrative fund and a reserve fund.

The administrative fund must be used to fund the estimated annual operating expenses of the body corporate for the particular financial year.

Such expenses will include maintenance, repair, management and administration of the common property, as well as rates, taxes and other municipal charges and insurance premiums relating to the sectional buildings or land.

In turn, the reserve fund must primarily be used to cover the (unexpected) costs of future maintenance and repairs of the common pro­perty.

The STSMA regulations prescribe specific formulas that a body corporate must use to determine the minimum contribution to the reserve fund, all dependent on the amount of money in the reserve fund at the end of the previous financial year and whether there are enough “reserves” for future maintenance.

If your sectional title scheme does not have any reserve fund in place, your levies are likely to increase in order for the body corporate to implement the practice of a reserve fund.

In general, there is no limit to what the levies can be increased to, but the management rules do determine that the body corporate may, on the authority of a written trustee resolution, increase the contributions due by the members by a maximum of 10% at the end of a financial year to take account of the anticipated increased liabilities of the body corporate.

The second piece of legislation – CSOSA – is intended to establish the Community Schemes Ombud Service and to provide for a dispute resolution mechanism to resolve disputes in community schemes (sectional title schemes, home owners associations, housing schemes for retired persons, etc.) and to ensure their good governance.

Every community scheme must, in each calendar year on a quarterly basis, pay to the Ombud Service a compulsory levy, subject to discounts or waivers as may be prescribed.

Based on the above pieces of legislation now in place, there is a realistic chance that your levies may increase in order to allow your sectional title scheme to start recovering contributions from you and the other units, in order to pay the levy over to the Ombud Service and establish a reserve fund for the scheme.

How much your levies may increase will differ from one scheme to the next. But nonetheless, prepare yourself for the possibility of a higher than usual levy increase this year.

Anneri Moolman, candidate attorney, Phatshoane Henney Attorneys

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