Sectional Title Levies: Comprehensive Answers for Trustees and Managing Agents

What are body corporate levies and why are they important?

In sectional title ownership, a body corporate is responsible for the management and maintenance of the common areas and facilities within a development or complex. Alongside the body corporate’s obligation to establish a thorough 10-year maintenance plan, each individual owner of a sectional title unit possesses specific rights and responsibilities.

To cover the expenses associated with the upkeep and management of the common property and the overall scheme, owners are required to pay regular contributions known as body corporate levies or fees.

It is crucial to ensure that owners in a sectional title scheme make timely payments of levies because:

  • It ensures the financial stability and sustainability of the scheme. By paying levies on time, owners contribute to the overall financial health of the scheme, enabling it to function effectively and provide a desirable living environment for all residents.
  • Paying levies regularly helps preserve the value and appearance of the property. Adequate funds allow for timely repairs and maintenance of common areas, preventing deterioration and ensuring that the scheme remains attractive and well-maintained. This helps protect property values and enhances the overall desirability of the development. 
  • Paying levies on time is crucial for complying with the legal obligations of both the owners and the body corporate. In many jurisdictions, failure to pay levies is a breach of the sectional title legislation or the scheme’s rules. Such non-compliance can result in penalties, interest charges, or legal action, which can be costly and create unnecessary disputes. 
What is the difference between admin fund levies and reserve fund levies?

The administrative fund and reserve fund are two distinct components of the body corporate levies in a sectional title scheme.

Administrative fund levies are contributions made by owners to cover the day-to-day operating expenses of the scheme, such as insurance premiums, utility bills, administrative costs, and general upkeep of the common areas. The amount of administrative fund levies is determined by estimating the projected costs for the upcoming year, taking into account factors such as historical expenditure, inflation, contractual obligations, and any expected changes or upgrades to the common property. 

On the other hand, reserve fund levies are contributions allocated to a separate fund, designated for future major repairs, renovations, or unforeseen expenses that may arise in the scheme. Reserve fund levies ensure that the body corporate has adequate financial resources to address significant capital expenditure without relying on special levies or loans. The amount of reserve fund levies is determined by assessing the long-term maintenance and replacement needs of the common property. Factors considered may include the age and condition of the buildings, expected lifespan of various components, and recommendations from experts such as property valuers.

How are body corporate levies calculated and collected?

The total sum of levies comprises the following three types of levies:

  1. Reserve Fund Levy: The contributions towards this fund ensures the ongoing maintenance, repair and replacement of common areas such as lobbies, corridors, elevators, swimming pools, gardens, and other shared facilities. This ensures that the scheme’s major capital assets remain in good condition and can be enjoyed by all owners.
  2. Admin Fund Levy: The contributions towards this fund covers the administrative costs associated with managing the scheme. This includes fees for professional services such as property management, accounting, legal advice, and other administrative tasks.
  3. CSOS Levy: Each unit is calculated as [its individual admin fund levy amount less R500 multiplied by 2%], but not exceeding R40 per month.

The annual budget approved by the owners at the AGM sets out the estimated expenses for the upcoming year, including both administrative fund levies and reserve fund levies. This is why each body corporate should have a 10-year maintenance plan in place that serves as a financial roadmap and guides the collection of levies from individual owners based on their allocated shares. By incorporating a 10-year plan into this budgeting process, the scheme can better anticipate and prepare for long-term financial obligations.

To learn more about how sectional title levies are calculated, read this article.

How do Trustees notify owners of their levies and what happens if the payments are overdue?

A body corporate collects levies from owners through a systematic collection process, typically involving invoicing, payment reminders, and various payment methods.

The trustees of a sectional title scheme typically notify each owner of their annual contribution, which is commonly paid in monthly installments, through various means of communication such as written notices or email. 

The notification outlines the specific details of the contribution, including the amount to be paid and the breakdown of expenses. It also includes information regarding the due date, which is the deadline by which the payment should be made. In addition to the due date, the trustees may also inform owners about the applicable interest rate for late payments. This interest rate serves as an incentive for owners to make timely payments and helps cover any additional costs incurred by the body corporate due to delayed contributions.

Furthermore, the notification usually includes information about the dispute resolution process for overdue payments. It outlines the steps that should be followed if an owner wishes to dispute the amount or any aspect of the levies. This process may involve contacting the trustees or the body corporate's managing agent, providing relevant supporting documentation, and engaging in discussions or negotiations to resolve the dispute amicably.

What methods are used to collect outstanding levies from owners?

To collect outstanding levies, trustees have various methods at their disposal.

Firstly, they can send final notices to owners who have unpaid levies, emphasizing the urgency and consequences of non-payment. These notices serve as a final warning before more serious actions are taken.

If the outstanding levies remain unpaid, trustees may charge interest on the overdue amount. The interest rate is typically specified in the scheme's rules or governing documents and serves as a financial incentive for owners to settle their dues promptly.

In more severe cases, trustees can take legal action to recover the unpaid levies. This may involve applying for a court order or an arbitration award, which grants the body corporate the authority to collect the outstanding amount through various means. These can include attaching movable or immovable property owned by the delinquent owner, such as garnishing wages or placing a lien on the property.

In extreme cases where all other efforts have failed, trustees may consider applying for the sequestration (personal bankruptcy) or liquidation (company bankruptcy) of the delinquent owner's assets. These actions are typically pursued as a last resort when other methods of debt recovery have been exhausted.

How can body corporate trustees and managing agents manage levies effectively?

Trustees and managing agents can employ various best practices and tools to efficiently and transparently manage levies in a sectional title scheme. One crucial practice is maintaining accurate records and accounts, ensuring that all financial transactions related to levies are properly documented and recorded. This includes keeping track of payments, expenses, and outstanding arrears.

Clear and well-structured invoices and statements play a vital role in effective levy management. Trustees and managing agents should issue invoices that clearly outline the amount due, the due date, and a breakdown of the expenses. Detailed statements help owners understand the levies charged and provide transparency in the financial operations of the scheme.

Regular monitoring of payments and arrears is essential to identify and address delinquencies promptly. Trustees and managing agents should track payment statuses, follow up on outstanding levies, and take appropriate actions to recover unpaid amounts. Open communication with owners and service providers is also crucial. Regular updates and reminders can help ensure that owners are aware of their financial obligations and understand the consequences of non-payment.

Utilizing online platforms or software, such as the Mirfin Dashboard can significantly streamline levy management processes. These tools can automate tasks such as generating invoices, tracking payments, and producing reports. They provide a centralized and efficient system for managing levy-related information, enhancing accuracy, transparency, and accessibility for both trustees and owners.

What challenges and issues does a body corporate typically face regarding levies?

Trustees and managing agents may encounter various challenges and issues related to levies in a sectional title scheme. Here are some strategies for addressing common scenarios:

  1. Owners withholding payments: In cases where owners withhold payments due to disputes or dissatisfaction, it is important for trustees and managing agents to promptly address their concerns. Open and transparent communication is key, as it allows for the resolution of disputes and the clarification of any misunderstandings. 
  2. Owners experiencing financial difficulties: Trustees and managing agents might find It beneficial to establish a compassionate approach, such as offering payment plans or exploring alternative solutions that accommodate the owner's circumstances. Open lines of communication and a willingness to work collaboratively can help find mutually acceptable arrangements.
  3. Owners selling or transferring units with outstanding levies: When owners sell or transfer their units with outstanding levies, trustees and managing agents should ensure that any outstanding amounts are settled before the transfer is finalised. This can involve coordination with legal professionals, communicating with the buyer and seller, and leveraging legal mechanisms to enforce payment.
  4. Special levies or discounts: If owners request special levies or discounts for specific expenses or projects, trustees and managing agents should carefully consider the merits of the request. It is important to assess the financial implications, consult legal and financial professionals if necessary, and communicate the decision transparently to all owners. 

In addressing these challenges, trustees and managing agents must approach each situation on a case-by-case basis, considering the specific circumstances and legal requirements.

When should trustees and managing agents seek professional services/advice?

Trustees and managing agents can seek professional advice or assistance from experts or authorities when needed to navigate complex levy-related matters. Here's a brief overview:

  1. Lawyers: Legal professionals can provide guidance on legal obligations, dispute resolution, debt recovery, and compliance with relevant legislation or regulations.
  2. Accountants and Auditors: Financial experts can offer insights on budgeting, financial management, and accounting practices. They can help with the preparation and review of financial statements, provide advice on tax matters, and ensure compliance with accounting standards and regulations.
  3. Executive Managing Agents: Executive managing agents with expertise in sectional title management can provide specialized guidance on levy management, governance structures, bylaws, and best practices. They can offer recommendations for improving financial processes, optimizing levy collection, and enhancing overall scheme management.
  4. Mediators and Arbitrators: In cases where disputes arise between the body corporate and owners, mediators or arbitrators can facilitate negotiations and help reach mutually acceptable resolutions..
  5. Ombudsmen: In some jurisdictions, there are ombudsman services specific to sectional title schemes. These entities offer dispute resolution services, provide information on legal rights and obligations, and mediate disputes between owners and the body corporate.

Engaging with these professionals allows trustees and managing agents to access specialised knowledge and expertise, ensuring that levy-related matters are handled in a knowledgeable and compliant manner. It demonstrates a commitment to acting in the best interests of the sectional title scheme and its owners.

Done with the questions?

Learn how to calculate body corporate levies

Trustees and managing agents can employ several best practices and tools to calculate levies accurately and fairly in a sectional title scheme. You can calculate the total levy for each unit in a sectional title scheme by adding up the administrative fund levy and the reserve fund levy.

Manage your 10-year plan on the Mirfin Dashboard

The objective is not to achieve an accurate 10-year plan from the onset, but to have a reasonable estimate of the reserves required for the preservation of the combined capital assets. Accuracy can only be gained over time through ongoing adjustments in accordance with actual expenditure and contributions. The 10-year maintenance plan is, therefore, a “living” document that should continuously adapt to the scheme’s specific needs.

Comments (4)

  1. Rob Kakebeeke
    December 10, 2023

    we have an Association of Owners of structures (cottages and hangars). We pay a levy based on m2 of each unit. Now management also has a levy based on the amount of use of each unit so a levy based on usage per time unit and persons present then. Is this legal/possible?

    • mirfin_admin
      December 21, 2023

      Hi Rob, Mirfin does not offer legal advice, however, we recommend posting your question on the Facebook group “Sectional Title Living in SA” where you will be guaranteed to obtain multiple opinions:
      Alternatively, for affordable and sound legal advice, we recommend contacting TVDM Consultants:

  2. Maliza
    April 24, 2024

    Hi. I hope someone can help me with my issue, My sectional title duplex is sold, how do the reserve funds work? According to the clearance certificate from the body corporate, we have to pay the reserve funds up to and including January 2025 (over R6k). I only have to pay 2 months levy for expenses while waiting for the registration before we move out? How is it possible that I have to pay 10 months of money for “future” use in maintenance if I don’t even live here anymore? Is there anyone who can help me please?

    • mirfin_admin
      April 25, 2024

      Hi Maliza, we recommend asking the managing agent on which legal basis you are being made responsible for paying the levy after ownership of the unit was transferred. For example, if it was raised as a special levy, there might be a loophole in the STSM Act and Regulations that would make allowance for what you are experiencing. Once you have an answer to this question, we would recommend obtaining advice from a legal practitioner, such as TVDM who offer a reasonably priced service.

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