Management rule 22 of the Sectional Titles Schemes Management (STSM) Act no. 8 of 2011 requires trustees to provide a comprehensive progress report of the 10-year plan to all members at the annual general meeting (AGM). This report should outline the extent to which the MRRP has been implemented over the past year.
Deficiencies in the Act
Unfortunately, the STSM Act does not provide much guidance as to how the maintenance, repair and replacement plan (MRRP) should be outlined except for specifying that major capital items must be included. This includes items for electrical, plumbing, roofing, painting of internal and external facades, security systems, facilities, water draining systems and roadways.
Calculating capital expenditure contributions
The goal of the MRRP is to make provision for the future replacement costs of capital expenses. The STSM Act provides the following formula to calculate capital expenditure contributions:
Estimated Cost – (minus) Past Contribution / (divided by) Expected Life.
Estimated cost is defined in the Act as the estimated cost to maintain, repair or replace a major capital item while expected life is defined as the estimated number of years before it is expected that the cost of maintenance, repair or replacement of a major capital item will be incurred.
In order to calculate future replacement cost, it is important to be aware of any past contributions to a specific capital item as well as the anticipated escalation of costs. This will complete the data required to do the calculation.
Advantages of updating 10-year plans regularly
By updating the maintenance plan regularly, the trustees can plan ahead and obtain competitive quotes for scheduled maintenance work, allowing them to plan more accurately for the subsequent financial years. Moreover, this ensures that trustees are compliant in their responsibilities pertaining to managing the scheme.
When the plan is kept updated regularly, maintenance works are less likely to fall through the cracks. If certain items have not been attended to during a financial year, it can be moved to the following year.
An updated plan also allows for the contributions to be recalculated so that all changes to the plan are always reflected in the members’ contributions.
Another natural advantage of an updated plan is that it will not be done in haste prior to the next AGM where details may be missed or mistakes may be made. A current plan allows body corporate members to make an informed and confident decisions for the following year, knowing that the base of their decision-making is concrete.
Consequences of not updating a 10-year plan
By failing to keep the 10-year plan updated, trustees and the body corporate will not be able to accurately keep track of the planned capital expenditure. This prevents them from correctly calculating the levy contributions, potentially placing them in a position where they do not have sufficient funds when planned maintenance work becomes urgent.
In addition, this may lead to an unexpected special levy being raised to cover the costs, putting undue financial pressure on both the body corporate and its members, with the latter finding themselves unable to fulfil their financial obligations to the scheme.
Sometimes planned maintenance can simply be moved on but oftentimes, a delay leads to escalated costs due to the deteriorating condition of the building. Ultimately, by not keeping the 10-year plan updated, trustees are not compliant with their responsibilities of managing the scheme.