Living in a sectional title property offers many advantages. It also carries certain responsibilities and financial obligations. One of these responsibilities is the payment of levies, also known as contributions, to the body corporate. FMS Property Managers outlines these types of levies related to a sectional title property and how they are determined.
How are Sectional Title Scheme levies determined
Levies are the lifeblood of sectional title schemes. They are essential for the efficient operation and maintenance of the common property within these schemes. According to the Sectional Titles Schemes Management Act of 2011 (STSMA), every body corporate must establish an administrative fund and a reserve fund that are reasonably sufficient to cover its expenses. These expenses encompass a wide range of items, including:
- Repair, upkeep, control, management, and administration of common property.
- Payment of taxes and local authority charges for essential services like electricity, gas, water, and sanitation
- Insurance premiums.
- Fulfilment of other obligations and duties of the body corporate.
Additionally, the body corporate is required to create a 10-year maintenance, repair, and replacement (MR&R) plan and fund its implementation from the reserve fund. Contributions collected from owners make up the majority of the funds credited to the body corporate’s administrative fund.
How are contributions raised?
Raising contributions is a thorough process that includes several steps.
Step 1 – The departing trustees estimate the anticipated expenditure from both the administrative and reserve funds for the upcoming fiscal year.
Step 2 – The budgets are then presented at the annual general meeting (AGM) for consideration by the owners.
Step 3 – After approving the proposal, the trustees meet again to decide
- The annual contribution amount each owner must pay
- The installment schedule for these contributions
- The interest rate applied to overdue payments
- Determining the Quantum of Each Owner’s Levy Contribution
The quantum of each owner’s levy contribution is typically determined based on their participation quota (PQ). The PQ is a formula calculated according to the size of each owner’s property. The PQ formula is the default method for allocating contributions, but it can be altered under specific circumstances.
Section 11(2) of the STSMA allows for the developer, during the initial setup, or the body corporate, by special resolution, to modify the rules governing owners’ liability for levy contributions. This means that if there is a valid reason, the allocation of levies can be adjusted, moving away from the PQ formula. When implementing such changes, it is imperative to follow the right process.
Our Sectional Title Scheme Managing Agents can assist Trustees with this process and the legal understanding of the regulation.
What are Special Levies?
Unexpected and urgent expenses may arise that were not accounted for in AGM-approved budgets. To address these unforeseen costs, ‘special levies’, are introduced. Special levies are additional contributions imposed on owners to cover unexpected expenses, such as repainting common areas, elevator repairs, or security enhancements.
Section 3(3) of the STSMA, in conjunction with Prescribed Management Rule 21(3)(a), grants the trustees the authority to raise special contributions for necessary but unbudgeted expenses. This ensures that the body corporate can address unexpected financial challenges promptly.
Effective levy management is key to ensuring the long-term sustainability and well-being of a sectional title scheme. An unavoidable part of a sectional title scheme, they form part of maintaining and managing the common property.
Understanding how levies and special levies are determined empowers property owners to feel they have more control over their property, and therefore they are better prepare for their financial responsibilities.
Whether a seasoned property owner or a newcomer to sectional title scheme living, FMS Property Managers, will assist you in making informed decisions about your property investment.
Our team of knowledgeable and experienced portfolio managers are committed to excellence. Owners and trustees are assured an exceptional body corporate management service, always.
