Levies and Sectional-titles; Important Facts You Need to Know

The “life-blood” of every sectional-title scheme is the contributions levied on owners by their body corporate for the maintenance and repairs of a property. These levies are collected on a monthly basis by either the trustees or a designated managing agent/attorney. Considering the importance of these contributions, it is essential for all owners within a sectional-title to understand what their levies are used for, procedures to be followed and the repercussions of non-payment. 

Costs Covered by Levies

Besides the upkeep of a property, levies also cover the following costs: Management and administration of common property, limited building insurance, rates and taxes as well as other municipal charges. 

In terms of the Sectional Titles Schemes Management Act of 2011, each body corporate is required to establish two funds, namely:

Administrative Fund: Covers the estimated annual operating costs for repairs, maintenance, and management and administration of common property. This also includes provisions for future costs.

Reserve Fund: This is an additional fund used to cover unforeseen maintenance and repair costs, which have not been budgeted for. Additionally, the body corporate is responsible for preparing a 10-year maintenance, repair and replacement plan and pay for its implementation from the reserve fund. 

The Process of Determining Levy Cost

Determining the levy amount for the year ahead is the responsibility of the outgoing trustees. They are tasked with working out the expected expenditure from both the administrative and reserve funds. These budgets are then considered at the annual general meeting (AGM), and after deliberation and perhaps changes, the owners will approve the final levy amount. The trustees will then divide the expenditure between the owners to arrive at an annual estimated amount, and this typically gets divided into monthly instalments. 

When to Raise Special Contributions 

From time to time, trustees may raise special contributions for unexpected but necessary expenses which were not budgeted for in the last AGM. The trustees will decide if the contribution is payable in a lump sum or in instalments. Furthermore, trustees reserve the power to raise a special contribution without the consultation of owners, and this is in accordance with the provisions in the prescribed management rule in the Sectional Titles Schemes Management Act. However, It is important to note that a special contribution may not be raised if a budgeted expense exceeds an already approved estimate. 

Sanctions Imposed against Defaulters

If an owner chooses to default and not pay their levies in spite of a court or adjudicator's order to do so, then he/she is not allowed to vote for an ordinary resolution. This type of resolution is decided on majority votes and is used to, for example, approve the budget at an AGM or to vote for trustees to be elected. Since the sanction only applies to ordinary resolutions, an owner is still allowed to vote for other types of resolutions, namely, special and unanimous resolutions. They may also attend trustee and body corporate meetings.

In the event of an owner continuously refusing to pay his levies, the body corporate is then obliged to follow due processes. This includes notifying the owner that their payments are overdue and they must pay the outstanding amount within a certain period of time. If these steps fail then the situation may be escalated to the Ombud for a payment order.

Considering the popularity of sectional-titles among home buyers, it is imperative to understand the purpose of levies when managing and maintaining a property of this nature. Both the body corporate along with its appointed trustees are required to uphold complete transparency and efficiency, while it is the duty of individual owners to ensure that levies are paid on-time to ensure the orderly management of a property.