12 Mar Can a body corporate still raise special levies?
When the Sectional Titles Schemes Management Act no 8 of 2011 was promulgated 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. What lead to this impression was the obligatory requirement for a maintenance, repair and replacement plan (MRRP), compelling schemes to save for big expenses and evidently eliminating the need for special levies.
Despite this, special levies remain an option for bodies corporate under specific circumstances.
Purpose of the maintenance, repair and replacement plan (MRRP)
In the past, raising special levies was predominantly due to the lack of surplus funds. As a result of poor planning for costly maintenance, schemes were forced to resort to special levies to raise sufficient funds. Some schemes made use of external financing, available at the cost of high interest rates.
The purpose of the MRRP is to ensure that sectional title schemes are well-maintained and to avoid burdening owners with special levies over a short period of time.
Administrative fund levies vs maintenance and reserve fund levies
The new legislation determines that ordinary levies are paid to the administrative fund while provision is also made for levies to be paid to a maintenance and reserve fund.
The levies paid to the administrative fund allows the body corporate to meet its day-to-day financial obligations such as maintenance expenses, payment of staff, utilities and other creditors.
Levies allocated to the maintenance and reserve fund are seen as savings for future capital expenditure which includes painting the building, upgrading or replacing the lifts, and replacing the roof. As these items typically deteriorate over time, it is sensible to gradually save for these items in order to spread the financial burden over a longer period of time.
When can a special levy be raised?
Pro-active financial planning for costly maintenance work reduces the need for special levies but in many schemes this prudent practice is still not followed.
As trustees are responsible for the maintenance and upkeep of the common property in a scheme, it is their duty to critically assess the financial situation of the scheme when maintenance becomes necessary, and where there is a lack of funds, they have the option to raise a special levy.
The decision to raise a special levy comes into effect when the trustees sign a resolution at which point the owners become liable for their share of the special levy.
When the trustees decide to do alterations or improve common property, they have to motivate the decision and provide the members of the scheme with all the necessary information regarding the proposed alteration or improvement.
Aside from the motivation, the information they need to supply must include how the proposed alterations will be funded, possible drawings of the proposed works as well as each owner’s total financial contribution to the special levy. The members must be given a 30-day period to consider the proposed alteration or improvement. Only if none of the members have requested a general meeting to discuss the proposal may the trustees proceed with the work.
Should any of the owners request a general meeting to discuss the proposal, a special resolution must be passed at this meeting in order for the trustees to proceed.
Conclusion
The Sectional Titles Schemes Management Act promotes a culture of saving for big maintenance expenses a scheme may have to incur. It reduces the monetary strain on owners as well as the body corporate.
The correct implementation of this savings mechanism is critical to ensure the preservation of the owners’ property asset as well as financial state of the scheme. In this regard, it is vital to partner with an experienced managing agent and skilled trustees to guide the process prudently and carefully.