Sectional title levies

Sectional title levies

 

Community scheme levies are paid by owners as their proportional contribution towards the expenses of running the scheme. It is important that owners understand how the Estate is managed, what is included in the levy and how the final amount is reached.

A sectional title levy is typically made up of the contributions required for the reserve fund, the admin fund and the Community Schemes Ombud Service (CSOS).

Reserve fund levy

The reserve fund is used to cover expenditure for the maintenance, repair and replacement of capital assets, such as roofing, exterior walling, roads, driveways and other common property structures. Also known as planned or preventative maintenance, the aim is to maintain and extend the life of these capital assets.  The reserve fund levy amount for the current financial year is determined as follows:

Reserve fund levy = [cost of planned maintenance activities] – [the reserve fund opening balance + interest earned on the reserve fund account]

When planning the levy for the current financial year, trustees and property managers must take a long-term view and ensure that it covers increase as a result of inflation perspective and that it also covers planned maintenance activities. The aim is to pre-empt circumstances that would result in special levies. The annual reserve fund contribution must also and importantly meet the minimum amount prescribed by the Sectional Titles Scheme Management Regulations.

For the best long-term financial management, trustees must focus on a cashflow projection that is based on the 10-year maintenance plan – that will show the amount of money available at the end of each financial year. With a regularly updated long-term cashflow forecast and contributions available, special levies or bridging loans can be eliminated.

Admin fund levy

The administrative fund is used for operational expenses such as management fees, insurance premiums, salaries and routine (not planned) maintenance activities. Routine maintenance includes replacing light bulbs, fixing leaking taps, gate motor repairs, cleaning and upkeep of the pool, garden services, elevator maintenance and related tasks. Other admin fund expenses typically include water and sanitation, electricity, refuse removal, bank fees, accounting, the insurance valuation, the 10-year maintenance plan, CSOS levies, etc.

These amin fund expenses must be drawn up, budgeted for, presented and approved at the AGM. Trustees may also follow the same guidelines as for the reserve fund, i.e., projecting the cashflow for the over a 10-year period. This, together with the reserve fund cashflow forecast, will help the scheme to manage its finances effectively.

Community Schemes Ombud Service (CSOS) levy

On the 7th October 2016, 2 pieces of legislation came into force – the Sectional Title Schemes Management Act 8 of 2011 and the Community Schemes Ombud Service Act 9 of 2011 (CSOS)  The Body Corporate is now obliged to collect a monthly CSOS levy from owners which is equal to 2% of the amount by which the monthly admin levy exceeds R500, but not more than R40.

(Note: the 2% is based on the admin fund levy and excludes the reserve fund portion.)

Calculating your total monthly levy

To calculate the total monthly levy for your unit, apply the formulas for each portion as illustrated below and add these together:

 

Understanding the various components that comprise the levy will help owners to appreciate the purpose of the levies. It is the owners right to know how the body corporate funds are being spent and how their investment is being maintained