It is very surprising how many sectional title property owners in South Africa purchase a sectional title property without “factoring in” into their affordability the sectional title scheme levy or understanding the need to pay a sectional title scheme levy. This is even more concerning considering that levies are a statutory requirement for sectional title owners, in terms of the Sectional Titles Act, so there is no escaping them.
What is a section title property?
Although this is commonly understood, it worth the restating. A sectional title property is a section (part of a property) of a sectional title scheme commonly referred to as a complex, where the sectional title property owner owns a section of the scheme for their exclusive use and benefit and an undivided share in the common property which is for the use and benefit of all sectional title owners in the complex.
The body corporate is made up of every owner of a sectional title within a complex, who decide at the annual general meeting the needs of the complex, the levy to be paid and have ultimate responsibility for the interests of the complex. The body corporate is responsible for managing the complex and the finances of the complex and will appoint trustees at the annual general meeting to manage the complex and make decisions on behalf of the body corporate in line with the scheme rule in between general meetings. The body corporate will generally employ a managing agent to discharge some of the duties of the body corporate entrusted to the trustees.
Trustees are members of the body corporate of are appointed as such on a voluntary basis at the each annual general meeting to oversee the day to day running of the complex and to be the point of contact for the managing agent and any other matters dealing with the maintenance of the complex in between general meetings. The duties of the trustees include the collection of levies and where necessary the employment of service providers to discharge works required in the complex.
The capability of the managing agent can make or break the complex. It is important to employ a reputable managing agent with a proven track record. The managing agent is generally responsible for three areas in respect of the complex, administration, finance and property management. In respect of the administrative duties, the managing agent is responsible for arranging the annual general meeting, taking minutes and following-up on activities, keeping a record of all activities that take place on in the complex, arranging insurance cover for the complex and responding to enquires from owners and sometimes tenants.
From a financial point of view, the managing agent is responsible for collecting levies, managing the body corporates bank accounts, paying body corporate expenses including taxes, water and electricity bills, providing monthly reports to the trustees and providing annual financial statements to the body corporate at the annual general meeting.
In some instances the managing agent may be required to play referee if a conflict arise between owners and trustees or amongst owners and where these cannot be resolved between the parties. The Community Schemes Ombud Service (CSOS) will also mediate conflicts between owners and trustees or amongst owners. Owners pay a monthly CSOS levy (to fund the operations of CSOS).
Levies are calculated using a participation quota (the size of your unit relative to the size of the complex) and increases are set at the annual general meeting by the body corporate depending on the needs of the complex and are generally collected monthly by the managing agent on behalf of the trustees. Levies are critically important in the management of a complex as they pay for the administration and management of the common property, services costs such as water, as well as general maintenance (including gardening services), complex security, insurance, staff salaries, limited building projects (including painting) and service contractor fees. Being in a financially good position ensures that the complex is always well maintained. So if you enjoy the manicured gardens, nice driveways with the nice evening lighting, pay your levy on time.
Owners not paying their levy can cause a lot of strain on the finances of the complex and the trustees should out in place appropriate collection measures.
A special levy which is payable in addition to the general levy may be required to complete the cost of large once off improvements or additions required on the common property or generally for all sections in the complex. A special levy may also be required for other unforeseen expenses for which the complex may not have enough reserves to pay for. This can be required as a lump sum or paid over an agreed period.
With the number of people living in sectional units it is understandable that rules will be required to ‘keep the peace’. The body corporate is the custodian of the scheme rules applicable to the owners and tenants. The rules should outline the management of the complex, the conduct expected of the residents in the complex whether they are owners or tenants and penalties that will apply should there be non-compliance. In order to be enforceable the rules must be registered with the Deeds Registry.
A few things to consider when acquiring a sectional title property
When buying into a sectional title scheme, prior to making an offer:
- ask for a copy of the latest levy statement to ascertain the true cost of the levy and whether you can afford the levy, in addition to the mortgage repayment and municipal rates;
- ask for the financials of the complex dating back 2 or even 3 years to assess the financial position of the complex, you do not want to buy into a ‘sinking ship’;
- ask for and carefully read the rules of the complex, to avoid unnecessary conflict;
- check if a special levy has been implemented and for what and whether you will be required to reimburse the seller;
- check if a reserve fund is being levied;
- request a copy of the maintenance plan of the complex; and
- confirm the managing agent, their registration with the Estate Agents Affairs Board
Lastly, attending annual general meetings is vitally important as this is where decisions pertaining to the management of the complex and the increase of levies are made – always make time for these, no matter how tedious it may seem.
Note: some estates may be freehold and an owners association levy will be payable. Look out for a write up on owners associations in future.
*Disclaimer: The contents of this article should not be considered as legal, professional, financial or any other form of advice. These are merely views based on the writer’s personal experience. Readers should obtain independent advice on any matter prior to making any decision.