Advice and Opinion

Sectional titles: special levy requirement under the Amendment Act

Legal generic

Everyone in the sectional title management industry is awaiting the outcome of the public participation process towards the Sectional Titles Schemes Management Act 8 of 2011 (STSMA), where thousands of comments were received up to December 2015, and many trustees are asking whether they should be budgeting for a reserve fund as well as their usual annual levies.

“A notable change to the collection of levies will be the requirement of each sectional title scheme to have a reserve fund set aside for future maintenance and repair of common property”, said Michael Bauer, general manager of property management company IHFM, but at this point in time it is not necessary to budget for the extra funds to be paid in.

“There is no indication when the new Act will come into effect, which could next week or another year, and we don’t know as yet what amount will be stipulated be put into reserve, although it is estimated that it will be 25% of a scheme’s annual levy budget,” he said.

“Twenty-five percent might be a bit excessive”, he said, “but this figure might have been derived from looking at the average size of a building and what it needs each year to run and maintain”.

“The risk with having a large fund built up, is that trustees will spend indiscriminately. In the majority of cases now, where sectional title schemes need large jobs done such as repainting or replacement of windows, the trustees will be very cautious with the quotes accepted, as they are often “pinching pennies” to get the work done. If there is a lot of cash readily available, however, there is a chance that they will not be as cautious in getting comparative quotes in or checking what is being charged for,” said Bauer.

“There should always be a system of getting three to five quotes in and chances are there will be a 30% discrepancy between the different companies. It then might be best for the trustees to take the middle quote after checking for references from the service provider’s other clients”, he advised.

“While it is good for trustees to want to improve the appearance and functionality of things in their scheme, for example replacing wooden windows with better insulated aluminium, or improving an in-house gym, these things need only be done when absolutely essential, and not just because the funds are available (which might be the risk of having funds in reserve)”, said Bauer.