Advice and Opinion

Sectional Title Schemes Management Act: special levy provision

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While provisions have been set in the Sectional Title Schemes Management Act (STSMA) (which became effective on the 7th October 2016) for a reserve fund to be established for future maintenance and repair work to common property in sectional title schemes, there might still be the need for special levies to be raised in certain circumstances.

“The new Act caters for special levies in Section 3 (3) and provides that “Any special contribution becomes due on the passing of a resolution in this regard by the trustees of the body corporate levying such contribution and may be recovered by the body corporate by an application to an ombud from the persons who were owners of units at the time when such resolution was passed” – which does not indicate any remarkable change except that the ombud can now be approached to help collect special levies”, says Michael Bauer, general manager of property management company IHFM.

A notable addition, however, is that the STSMA goes on to stipulate that: “Provided that upon the change of ownership of a unit the successor in title becomes liable for the pro-rata payment of such contributions from the date of change of such ownership.”

In many cases where special levies are being raised, the owners cannot afford to pay a lump sum up front and an installment plan can be offered to them by the body corporate.

“Where an installment plan is in place, the estate agent and the potential buyer must be made aware that the new owner will become responsible for the pro rata special levy installments – from the date that the buyer takes transfer. Provision should be made in the sale agreement to formalize the acceptance of the responsibility of the special levy installments from the date that the new owner takes occupation”, said Bauer.

“An easy example of how a special levy would be pro-rated, is if a unit is sold on the 1st October, with a special levy resolution passed on the 2nd of October, payable in 12 equal monthly installments starting on the 1st November. If the transfer of the unit is to take place on the 1st January, then the new owner will take over payments of the special levy on that date – which means he pays 10 of the 12 installments as the original owner would have paid two of the installments by that stage”, said Bauer.

“It’s a fair and simple system, one that is not overly complicated, but buyers do need to check if there is a chance of a special levy being raised in the near future or while the sale process is taking place, and agents need to notify their buyers of such a condition – as they should have to show the financial statements to the potential buyers anyway”, he said.

“Sale agreements of sectional title properties tend to stipulate that the purchaser becomes liable for special levies once transfer takes place and it is only by mutual agreement between the buyer and seller that this condition can change. It is simpler to stick to the standard modus operandi, and not deviate with complicated alterations to payment plans”, advised Bauer.