Body corporate, trustees, common property and levies – the world of sectional title schemes is full of jargon. And for those new to this world, it’s a lot to take in. But once you start getting familiar with the terms, and what they all entail, it’s not actually that complicated.
If you live in a sectional title property, you will be required to pay monthly property levies. While this might seem like a grudge expense, it’s important to remember that no type of property ownership is without costs. It comes with the territory of being a property owner.
As an owner, you need to understand how levies in sectional title properties work – from what expenses they cover, how they’re calculated and why they might be raised.
Let’s dive straight into it.
What is a property levy?
A levy is a monthly instalment paid by sectional title unit owners, used in the maintenance and management of the communal property of a sectional title scheme.
Each body corporate is required in terms of section 3(1)(a) and (b) of the Sectional Titles Schemes Management Act of 2011 (“the Act”) to establish an administrative fund and a reserve fund, reasonably sufficient to cover its expenses.
Owners are obligated to pay levies and may not withhold payment due to certain maintenance being neglected. Any costs incurred as a result of negligence should be documented and then claimed from the trustees of the body corporate.
What are sectional title property levies used for?
The levy covers necessary expenses in the administration, upkeep, running and repair of the common property, including:
- Rates, taxes, gas, water and electricity for the common property.
- Insurance, sewerage, sanitary and security for the common property.
- Maintenance and repairs for the common property.
- Staff wages and salaries, payment of contractors etc.
Who’s responsible for paying these bills?
The body corporate is responsible for maintaining the common property. This includes ensuring the exterior of the building, roofs, walkways and communal gardens are well maintained.
Sectional title levies also include the CSOS levies, trustee reports and audits (all required by the Sectional Titles Schemes Management Act).
Owners should note that levies don’t cover repairs or maintenance to their units, but only to the sectional title common property.
How are sectional title levies calculated?
Levies for the upcoming year are decided upon by the body corporate at the AGM, taking into account expenses in the budget. Your managing agent and trustees normally draw up this budget.
IGrow Wealth Investments lists the three ways to calculate sectional title levies:
- Participation quota
The Sectional Titles Act stipulates that:
“the participation quota of a section shall be a percentage expressed to four decimal places, and arrived at by dividing the floor area, correct to the nearest square metre, of the section by the floor area, correct to the nearest square metre, of all the sections in the building or buildings comprised in the scheme.”
- Equal pro rata
All owners pay the same amount regardless of their unit size. This works well in complexes where all units are alike, but not where they differ vastly in size.
- Value of owner investment in the scheme
This is not a standard method as the investment value changes over time and as units are sold.
So, what should you expect to pay?
Generally speaking, property levies can range anywhere from R700 to over R3,000 per month. It all depends on the complex/estate and its expenses. Larger estates will generally have lower sectional title levies as there are more owners to split the costs.
The facilities within the sectional title will also influence the property levies. For example, estates with large swimming pools, clubhouses and gyms will likely have higher levies than those without.
How the houses are built, and the required maintenance will also influence the levies. For example, face-brick homes incur fewer costs than painted houses as they don’t require regular painting. The same goes for houses with thatch roofs and wooden window frames – these both require regular (often expensive) maintenance.
If you want to avoid paying high levies – don’t buy a sectional title property that requires too much regular maintenance!
Don’t forget about the reserve fund!
The levy should also make reasonable provision for unforeseen future expenses. According to the latest Act, a reserve fund is required to be established by the body corporate. This additional fund serves as a safety net should there be a need for costly or unforeseen maintenance.
Separate books of the account, as well as different bank accounts, should be maintained for the administrative and reserve funds of the body corporate. Owners should contribute a minimum amount to this reserve fund on an annual basis – this depends on what the balance of the reserve fund was at the end of the previous financial year.
Moore South Africa summarises it nicely below:
|Reserve fund balance at the end of the previous financial year||Budgeted contribution to the reserve fund in the current year|
|Less than 25% of total contributions to the administrative fund.||At least 15% of the total budgeted contribution to the administrative fund.|
|Equal to or greater than 100% of total contributions to the administrative fund.||No minimum contribution required.|
|Between 25% – 100% of total contributions to the administrative fund.||At least the amount budgeted for repairs and maintenance to common property in the administrative fund budget for the year.|
Property owners must ensure that their reserve fund levies are calculated correctly, and provision made for adequate long-term upkeep and maintenance of their investments.
This reserve fund aims to reduce the need for hitting owners with unwanted special levies.
Wait, what is a special levy?
As an owner, a sectional title special levy is not something that you want to happen (especially in these challenging economic times).
When the Sectional Titles Schemes Management Act no 8 of 2011 was started in October 2016, many trustees and owners in sectional title schemes were under the impression that special levies were now a thing of the past.
This was due to the obligatory requirement for a maintenance, repair and replacement plan (MRRP), requiring schemes to save for significant expenses over time (in their reserve fund).
In the past, raising special levies was mostly due to the lack of extra funds. Because of poor planning for costly maintenance projects, schemes were forced to call for special levies to raise enough funds.
Should emergency costs arise (for example if there is damage caused by a storm) that cannot be covered by the available funds; a body corporate is entitled to raise a special levy to cover these costs. Body corporates can’t use special levies for normal maintenance expenses – as the levy must meet an urgent or necessary expense.
Property owners can be required to pay the special levy as one lump sum, or the trustees can divide the lump sum into monthly payments for three, six or 12 months.
When buying a sectional title property, make sure to find out if there is any pre-existing special levy that is still being paid! Because as soon as you become the owner, you will be liable to continue paying this.
Levy payments are essential in maintaining the financial health of any sectional title scheme. As an owner, it’s important to understand where your levies are going and why they are necessary.