In this expert article, Rizaar Smidt from TVDM Consultants unpacks what special levies are, when they can be applied, and how they impact both buyers and sellers.
It is a common misconception that the introduction of the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) eliminated the need for special levies in sectional title schemes. This misunderstanding is often caused by the introduction of compulsory reserve funds, which all schemes must now maintain for the repair and maintenance of common property.
As a result, many new owners are surprised and sometimes frustrated when they receive a notice of a special levy.
What is a special levy?
A special levy is an additional amount of money raised from owners to cover unbudgeted and unanticipated expenses, usually for emergency repairs, significant upgrades, or once-off projects that fall outside the scheme’s normal maintenance budget.
In this regard, Section 3 of the STSMA provides as follows:
“(3) 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: 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;
(4) ‘Special contribution’, for the purposes of this section, means any contribution levied under subsection (1) other than contributions which arise from the approval of the estimate of income and expenditure at an annual general meeting of a body corporate, determined to be a contribution to be levied upon the owners during the current financial year.”
When may a special levy be raised?
While trustees may raise a special levy by passing a trustee resolution, without the need for member approval, this authority is subject to two key limitations:
- The first is that the special levy must be necessary, and
- The second is that a special levy cannot be raised to pay an expense that was already included in the budget approved at the last Annual General Meeting (AGM).
Necessary means that a special levy cannot be raised for an expense that can wait for inclusion in the budget for the next financial year. The budget restraint means that a special levy cannot be used, for example, to pay a maintenance expense because maintenance must be included in the budget.
What changed between the old and new Acts?
The STSMA, like the previous Sectional Titles Act 95 of 1986 (STA), gives trustees the power to impose special levies. Owners cannot refuse to pay a validly raised special levy.
However, one of the most notable changes introduced by the STSMA relates to liability on sale of a unit.
Under the STA the seller was required to settle any special levy amounts before transfer, in order to obtain a levy clearance certificate.
Under Section 3(3) of the STSMA liability automatically transfers to the purchaser, who becomes liable for a pro-rata portion of the special levy from the date of registration of transfer.
This shift can lead to frustration for new owners, particularly if the expense relates to events that occurred prior to the sale. If a seller fails to disclose the existence or likelihood of a special levy, they may be held liable to the purchaser for non-disclosure of a latent defect.
To avoid disputes, it is essential that all parties involved in the sale of a sectional title unit ensure that the sale agreement clearly sets out:
- who is responsible for ordinary levies;
- who will pay any existing special levies, and
- who will bear liability for any special levies that may arise after the date of transfer and/or occupation.
Buyers must be alert to the possibility of inheriting unpaid special levies and should seek clarity from both the seller and the body corporate before finalising a transaction.
Communication is key
Special levies continue to play a necessary role in the financial management of sectional title schemes, particularly for unexpected or urgent expenses. While the STSMA introduced improved financial planning through compulsory reserve funds, it did not abolish the trustees’ ability to raise special levies.
Trustees must act within their powers, and both buyers and sellers must be proactive in addressing the implications of special levies during the sale process. Clear communication and proper disclosure are vital to prevent misunderstandings and to protect the rights of all parties involved.
By Rizaar Smidt from TVDM Consultants.
If you require any more information on the above, please contact [email protected].
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of TVDM Consultants. The content herein is for information purpose only, and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless the application and accuracy has been confirmed by a legal advisor. TVDM Consultants and the author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content.