Everything you need to know about levies in sectional title schemes – Part 1

by JENNIFER PADDOCK and ANTON KELLY

Whether you are a sectional title unit owner, a trustee, a managing agent or an attorney, you will agree that the contributions levied on members by the body corporate are essential to the efficient running of sectional title schemes.

Each body corporate is required in terms of section 3(1)(a) and (b) of the Sectional Titles Schemes Management Act of 2011 to establish an administrative fund and a reserve fund, reasonably sufficient to cover its expenses. A body corporate’s expenses include the repair, upkeep, control, management and administration of the common property, payment of taxes and other local authority charges for electricity, gas, water, fuel, sanitary and other services to the buildings and land, any premiums of insurance, and sufficient for the discharge of any duty or fulfillment of any other obligation of the body corporate.

Additionally, the body corporate must prepare a 10 year maintenance, repair and replacement (MR&R) plan and pay for its implementation from the reserve fund. Contributions are raised to gather the money necessary to pay for these expenses and usually make up the bulk of the funds credited to the body corporate’s administrative fund.

The outgoing trustees estimate the body corporate’s expected expenditure from both the administrative and the reserve funds in the next financial year  and these budgets are considered at the annual general meeting. Once approved by owners, perhaps with alterations, the trustees meet again to divide the estimated expenditure between the owners and work out what amount each owner must pay as their annual contribution, in what instalments the contribution will be paid and what rate of interest will be charged on overdue  payments. The trustees then notify each owner of the amounts due and each owner is then liable to pay their contributions, normally in monthly instalments.

The approved budgets of estimated expenditure are normally divided among owners in accordance with the participation quota (PQ) of each owner’s section. The PQ is expressed as a  percentage to four decimal places worked out, for residential sections,  by dividing the floor area of each owner’s section as shown on the sectional plan by the total of all the floor areas of sections in the scheme. For example, if owner A’s section has a floor area of 50m2 and the sum of all the sections floor areas is 1 000m2, then owner A’s PQ will be 5% because 50 ÷ 1000 = 0.05 x 100 = 5.

However the PQ formula for liability to pay contributions is not absolute; it can be varied if the correct procedure is followed. Section 11(2) of the act makes it possible for the developer when opening the sectional title register, or later for the body corporate by special resolution, to make rules by which the liability of the owners to make levy contributions is modified so as not to be based on the PQ.

But where an owner is adversely affected by the adoption of a rule in this regard, their written consent must be obtained. A rule of this nature could be adopted in a scheme where the owners specially resolve that owners of ground floor sections should not have to contribute towards lift maintenance costs, or where it is specially resolved that owners will pay equal contributions, provided of course that those owners who are negatively affected give their written consent.

Part 2 and 3 of Everything you need to know about levies in sectional title schemes will focus on special contributions, when they become payable, who is liable to pay them and what happens when units change hands during a financial year.

Paddocks Community Scheme Specialists offer UCT training courses, legal advice, consulting and books for those involved in sectional title schemes, homeowners’ associations and other forms of community schemes.

Email consulting@paddocks.co.za, call 021 686 3950 or visit www.paddocks.co.za.