Levy increases are an essential aspect of property ownership in sectional title schemes. As property owners within these complexes, the responsibility of maintaining, managing, and repairing common property falls on the body corporate—the collective of unit owners. The funds necessary for these responsibilities are generated through levies, which are typically adjusted annually. These adjustments are usually decided at the annual general meeting (AGM) of the complex.
To shed light on the legal framework and process surrounding increases, we take a look at what you need to know to remain compliant and keep the sectional title financially sound.
The timing and process of levy increases
As per Section 3 of the Sectional Title Schemes Management Act (STSMA), levy increases must be discussed and approved at the AGM - a meeting where owners come together to deliberate and decide on various matters, including the proposed levy increase for the upcoming financial year.
It is therefore vital that the trustees remain responsible for passing a resolution to increase the levies. This ensures that the process is handled democratically, with input from the unit owners. Before anything can move forward, a quorum - a minimum number of members present - is required at the AGM.
To calculate the quorum you need to calculate the participation quota (PQ) value of each unit, which is essentially the size of the section relative to the entire complex. For smaller schemes with four or fewer sections, a quorum of 66.66% is required, meaning two-thirds of the total PQ must be represented at the meeting. For larger schemes with more than four units, the quorum is reduced to 33.33%.
Guidelines for levy increases
Although there are no rigid legal guidelines specifying exactly how much levies should increase each year, the increase is largely determined by the Body Corporate’s budgetary needs. In order to keep the sectional title scheme financially sound, trustees must consider anticipated expenses for the maintenance and repair of common property, as well as other operational costs like insurance and security.
According to prescribed management Rule 21 of the STSMA, levy increases are capped at a maximum of 10% at the end of a financial year. This limitation is in place to account for anticipated increased liabilities without placing an undue financial burden on property owners.
This 10% cap offers a balance between ensuring the Body Corporate has sufficient funds to manage the complex while protecting owners from sudden, steep increases.
Disputes regarding levy increases
Despite having safeguards in place, disputes can sometimes arise regarding levy increases. The most common dispute is when owners believe the increase is unjustified or disproportionate to the needs of the sectional title scheme.
Owners have the right to raise their concerns at either the AGM or a Special General Meeting (SGM). The Body Corporate must follow an internal dispute resolution process if they are outlined in the scheme’s Management and Conduct rules.
If internal efforts do not resolve the issue, the matter can be escalated to the Community Schemes Ombud Service (CSOS). To prevent disputes from escalating, it is important for the Body Corporate to remain transparent, offering clear explanations and documentation to justify the increase.
Applying the levy increase
Once the levy increase is approved, it typically takes effect from the start of the Body Corporate’s financial year. This timing ensures that the increased levies align with the annual budgetary cycle.
For instance, if the financial year begins in March, the levy increase would be applied from March onwards. In some cases, the levy increase may be applied immediately after the AGM, depending on the resolutions passed at the meeting.
Notification to owners
Clear communication is crucial when implementing levy increases. According to Prescribed Management Rule 25 of the STSMA, all unit owners must be formally notified of the levy increase within 14 days of the AGM.
The notification must include essential details such as the new levy amount, the due date, and any applicable interest rate for late payments. While the minutes of the AGM will reflect the increase, it is always advised to provide additional communication to ensure owners are fully aware. Emails, physical notices, and official letters are all effective modes for information distribution and should ideally be sent out at least 30 days before the new levies take effect.
Communication to tenants
Owners who rent out their units should also inform their tenants of levy increases, as it could also mean adjustments to their rental payments. Owners should therefore ensure that their rental agreement has a clause that allows a landlord to pass on levy increases to the tenants. However, tenants must be given sufficient notice, usually between 30 to 60 days, in line with the lease agreement’s terms.
What to do when owners claim they are unaware of increases
A common issue that can arise is when owners claim they were unaware of the levy increase and, as a result, fall behind on payments. In these instances, the Body Corporate should be able to produce evidence of notifications sent to the owners.
It is important to keep a record that due diligence was observed and proper notice was given. This will ensure that claims of unawareness are unlikely in any legal context. Owners are expected to stay informed of decisions made at AGMs and are responsible for reviewing meeting minutes and correspondence.
If an owner still defaults on their payments, the Body Corporate has the legal right to initiate proceedings to recover the outstanding debts.
Advice for owners and the body corporate
To ensure smooth community management, both the Body Corporate and owners must prioritize open communication and transparency. Regular updates, clear notices, and readily accessible meeting minutes can go a long way in preventing misunderstandings or disputes.
Owners should be active in the scheme by attending AGMs or, at the very least, thoroughly reviewing the minutes afterward. Understanding the reason behind levy increases helps maintain a harmonious living environment and can prevent future conflicts.
For more information on why the body corporate is the backbone of a sectional title scheme, read our blog on the key responsibilities of the body corporate.
