It has been four years since the revised and amended laws were enacted and many property owners are still coming to terms with the requirements of the legislation especially with regards to the setting of budgets. This is according to Michael Schaefer, CEO of specialist property finance company ZDFin.
“When the Sectional Titles Schemes Management Act (STSMA) was signed into law on 7 October 2016, it shook up the lives of many body corporate members” he says.
Schaefer emphasized that the intention of the Act is good and in essence positive for trustees. However, implementation of the legislation has proven to be less successful. “Many schemes have been slow to embrace both the requirements and intent of the legislation insofar as scheme maintenance is concerned and directed, the biggest failure being in that it assumes the maintenance will be done.”
In ZDFin’s experience in practice, this is not necessarily the case. In Schaefer’s opinion, three to five-year plans would be more realistic and more achievable. Definitive plans and the reserve levies require to implement these are often not practically affordable.
The legislation makes it mandatory for every scheme to have a ten-year ‘Maintenance Plan’ detailing projected works and providing the computation for levies, that must be approved by the owners at the Annual General Meeting (AGM). Delayed AGMs due to Covid-19 and rising levels of debt, exacerbated by a weak economy, are also compromising the ability of schemes to run effectively. The financial wellbeing of these schemes is under threat and often funds ring-fenced as reserves – as per legislative directive – are utilised out of necessity, to fund administrative shortfalls.
“Sectional title schemes have to reassess levy contributions and critically, build up separate funds for reserve spend – on top of day-to-day expenses. This has created a challenge for many trustees, whose fiduciary duty it is to fulfil this obligation. In all fairness, being a trustee is often a thankless task, carried out by well-meaning volunteers, who often, understandably, have neither the skill nor the experience in putting together 10-year maintenance plans and how to finance them” says Schaefer.
With the recent fourth anniversary of the promulgation of the Sectional Title Management Act (STSMA), Schaefer reviews aspects of the Act and offers advice with specific reference to Sectional Title Bodies Corporate on how community schemes (residential juristic entities, sectional title bodies corporate, homeowners associations and share block companies) can measure their current status and plan the way forward:
- Levies and budgets are schemes running the two required levy funds and are schemes ensuring that day to day expenses are not being funded by what is meant to build up reserves, to be implemented for the ten-year plan?
- Maintenance Plan – does your scheme have a ‘Maintenance Plan’ and are you managing the scheme in accordance with this plan?
- Role and responsibility of trustees – now more accountable as a result of the legislation, trustees, many who do not fully appreciate that they are personally liable, need to take more of a lead in devising the long-term maintenance plan, prioritising the work and allocating budgets.
- Fidelity insurance – all schemes, not only sectional title, need to ensure against potential loss such as fraud and/or misappropriation by related parties, for example.
- Insurance requirements – when did your scheme last have a professional valuation and to update its insurance? At least one should have been done within the last cycle.
“We recognised the numerous challenges facing community schemes which is why we started ZDFin” said Schaefer.
“It is my view that only the market will correct the above, when prospective owners actively and critically assess reserve budgets and associated funds available, direct a maintenance and management plan and, critically, both managing agents and scheme executives accept that maintenance should be managed professionally and are prepared to meaningfully engage with specialists in the field” he concluded.