27 Aug Sectional title levies: What should (and should not) be included
Like any business, a body corporate is dependent on the income it derives from its operations. In the case of a body corporate, this income comes from its members paying levies without which the body corporate cannot function.
How are levies calculated?
The budget must be tabled for review and approval by the scheme members at every annual general meeting (AGM). The trustees are responsible for preparing the budget and they may request assistance from the managing agent. Budgets can be set up in many ways and it must always make provision for known and unknown expenses.
The budget must make provision for the following income and expense items:
- Income from ordinary levies
- Income from exclusive use areas
- Any rental income derived from letting activities of common areas
- Levies for the maintenance reserve fund
- Income for CSOS levies
- Any other income such as electricity and water (this may be metered)
- Accounting and audit fees
- Bank charges
- Management fees
- Salaries for staff employed by the scheme
- Utility charges such as water, refuse, sewerage and electricity
- Insurance premiums
- CSOS levies payable
- All contractual obligations such as cleaning and security services
- Provisions for all planned maintenance as well as potential unknown maintenance items
Once the budget has been approved at the AGM by the members, it serves as the basis for calculating each member’s levies based on their individual section’s participation quota (PQ) for the next 12 months.
How do you check if your levies are correct?
After the AGM, the trustees must write to the owners informing them of the new levies that are due by providing a levy schedule. This schedule must show each section owner, the size of the section as well as the PQ value attached to the section.
By using the approved budget and comparing it to the levy schedule, the owners will be able to ascertain if the levy for their section has been calculated correctly.
What can (and cannot) be included on a levy statement
A levy statement is an invoice from the body corporate sent to each of its members indicating what they are liable to pay. This invoice should be clear and concise with regards to what is due and payable.
Ideally, the levy statement should include the following:
- The ordinary levy payable
- The CSOS levy payable
- The EUA levy payable – if the owner has use of an EUA
- Any rental, if the owner is renting any common property from the body corporate
- The owner’s share of the maintenance reserve
- Any utility charges such as electricity if not pre-paid
It is important to note that the body corporate may not charge any item to a levy invoice if not agreed to by the owner. Items such as legal fees cannot be charged unless the owner has agreed to the amount being charged to their account. The only exception is where charges are raised on the account if a judgement or adjudication order has been issued for the charges to be recovered.
Levies are the lifeline of all sectional title schemes. Owners generally assume that the levies they are paying are correct and never question or understand the process of how these are calculated. Correct calculations are important to ensure enough funds are collected from the members to pay the expenses incurred by the complex.
Without due process, and an understanding of budgeting requirements, a scheme can find itself under financial distress which will directly lead to financial pressure on the members of the scheme.