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Sectional Title Advice: Levy Budgets

The Sectional Titles Act of 1986 (STA), Sectional Title Schemes Management Act (STSMA) and the Community Schemes Ombud Service Act (CSOSA) all have requirements with regards to levy collections in sectional title schemes.  In establishing what levy amounts should be and the way they are allocated and collected, trustees need to look at all three Acts before setting a budget for the year, says Michael Bauer, general manager of property management company IHFM.
 
Section 37 of the STA sets out the functions of the body corporate, which are performed by the elected trustees who represent the members in the scheme. Of the most important tasks set out in Section 39 (1) is to establish a fund for administrative expenses, which pay for:
 
the repair, upkeep, control, management and administration of the common property;
the payment of rates and taxes, and other local authority charges for the supply of electric current, gas, water, fuel and sanitary, and other services to the building/s;
any insurance premiums; and
the discharge of any duty or fulfilment of any other obligation of the body corporate.
 
The trustees will determine the levy amounts to be raised and these are paid by the owners according to their participation quota in the scheme.
 
With regards to the STSMA and levies, there is a further requirement – the reserve fund, says Bauer. This should contain enough money to cover the cost of future maintenance and repair of the common property and should not be less than that prescribed by the Minister in the STSMA Regulations (approximately 25% of the year’s annual levy contribution amount is recommended). 
 
The STSMA also states that a property developer should make reasonable additional contributions to the fund as this may be necessary to cover costs of rates and taxes, insurance and maintenance, plus the provision of water and electricity, if there is an extension right in place (per section 25 (1)).
 
The STA says that the liability for levy contributions begins when a trustee resolution is passed. The STSMA, however, also provides that levy contributions may be recovered by the body corporate if there is difficulty in doing so, by applying to the Ombud, in terms of the CSOSA. 
 
The STA and STSMA provides that the trustees may, where necessary, call for special levies for those expenses not included in the budget for the financial year (37 (2b) of the STA and section 3 (4) of the STSMA).
There is also a small CSOS levy, which is payable to CSOS either quarterly or annually in advance – and this will be charged in addition to the monthly levy amounts payable by body corporate members. This is calculated on the value of units, according to a set table available from the CSOS.
 
In short, said Bauer, the most significant changes to the levy budgeting process would be the additional reserve fund amount that needs to be budgeted for and the ability for trustees to now appeal to the Ombud for assistance in cases of recovering arrear levy contributions.
 


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