Advice and Opinion

Close look at Sectional Title budgets

When the managing agent or the trustees of a sectional title scheme prepares their budget for the year ahead to present to the body corporate members (owners) at the annual general meeting, they will have (or should have) spent some time in ascertaining what will be needed for the year ahead, says Mandi Hanekom, operations manager for Propell.

The preparation of this budget is one of the most important tasks of the trustees and care should be taken to keep the figures up to date as well as the items on the list and not to depend on what was set by the initial developer (if the scheme is still fairly new) or the previous year’s figures, she says.

In established schemes, where there are figures from past years to go on, the starting point would be to examine the prior year to see whether the budgets fell short at any stage or which expenses could be trimmed back.

The most common items on the budget would be:

· Municipal services – water, electricity, sewage and refuse removal. Before 2008, the municipal rates were also added to the budget but these are now billed directly to the owners of units, so this lessens the administrative budget somewhat, said Hanekom. If the scheme has prepaid water and electricity meters, this might bring the budget down even further, she said. This aspect of budgeting is often the “thorn in the side” of most bodies corporate as this figure can fluctuate quite a bit, and it is impossible to predict future costs, so it is often advised to install prepaid meters.

· Insurance – this is compulsory and the trustees have to check that the policy covers the buildings and common property in full and is up-to-date in terms of the value.
· Maintenance for the current year – this will always be needed in every building, so provision should be made for periodic items such as painting. Items that are part of the general maintenance of the scheme should be able to be covered in the budget and should never have to be paid for via a special levy, and this would be an indicator of poor financial planning if it were to happen, she said.

· Contributions to the maintenance fund for larger projects in the future – this should also be included in the budget, and a time frame for this maintenance set, e.g. full refurbishing of an entrance gate and its motor or remote access system, which could be done in two years’ time. If it is allowed for in the budget, it gives the scheme time to save up for it.

· Bank charges – this is one of the expenses that could be forgotten and could add up to quite a significant sum each year. The trustees must remember to check that this has been included, bearing in mind that there might be possible increases from the bank in the year ahead.

· Administrative expenses – while these are not usually high, they must be added to the budget as these are a necessary part of running the scheme. These would include stationery; costs incurred by trustees such as petrol used to collect items for the scheme or telephone calls made on the scheme’s behalf.

· Audit fees – the body corporate financials will have to be done by an approved auditor each year (unless it has less than ten units, in which case an accounting office may sign these off).

· Contingencies – this amount would be unforeseen expenses that are minor such as a burst water pipe, damage to common property or a faulty electricity box.

Apart from the above, which are pertinent to every scheme, there are other items that would need to be added, if they are relevant, and these include managing agent fees, salaries of ground staff, security and other services such as DStv, window cleaning, gardening services, etc.

The draft budget should be given to each owner at the AGM and this will be approved at this meeting. This is the only way the owners can control their levies, said Hanekom, so it is important that the meeting is not closed until the budget is approved. It is approved by way of a majority vote and this shows how important it is to attend the AGM, so that (a) you are aware of the financial situation of the scheme and (b) if you question an increase in the levies, you are there to put that question forward.

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