Budgeting for maintenance in sectional title schemes isn’t optional

Owners and trustees in sectional title schemes should have a working knowledge of sections 37 and 38 of the Sectional Titles Act, because they define the main financial and administrative obligations of a body corporate, says Michael Bauer, general manager of IHFM property management company.

“The functions and powers of the body corporate are exercised by the trustees of the scheme in accordance with the provisions of the Sectional Titles Act and the Prescribed Management Rules. The owners, by passing a majority resolution at a general meeting, may restrict or direct the trustees to run the scheme in a certain way according to section 39(1) of the act,” says Bauer.

“The body corporate must establish an administrative fund that it believes will be sufficient to cover the cost of repairs, maintenance, management, municipal services, insurance premiums and other necessary expenses. It is important to note that the act explicitly states that reasonable provision must also be made for future maintenance and repairs.”

In terms of section 37, bodies corporate have a statutory duty to properly maintain the common property and to keep it – as well as machinery, fixtures and fittings – in a state of good and serviceable repair. The act does not define a standard as to what proper maintenance or good and serviceable repair is, so either the trustees or the owners should determine in a general meeting what their standard of repairs and maintenance will be.

“The bottom line is that repairs and maintenance are not optional. The body corporate can decide to carry out repairs and maintenance only if there is enough money left over in the reserves after the scheme’s normal operating expenses have been covered, but it does need to be done at some point.”

The body corporate has the authority to determine the amounts that must be raised to cover its administrative expenses, and to raise those amounts by collecting levies from owners in proportion to their participation quotas in the scheme. Bauer says that ordinary levies should be sufficient to cover a scheme’s operating expenses and enable it to build up reserve funds for maintenance and repair costs that are likely to arise in the future.

“It is clear from the act that the purpose of ordinary levies is not solely to cover day-to-day essential operating costs, and that keeping levies low is not always acting in the scheme’s interests,” says Bauer.

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