Property Law and Sectional Title

 

 

 

The annual budget process should be transparent and involve owner input.  Typically:

  • Budget Preparation: The Trustees (often with the managing agent) draft a proposed budget for the next financial year.
  • AGM Presentation and Discussion: The proposed budget is presented to all owners at the Annual General Meeting (AGM). Owners have the right to:
  • Receive and Review the Budget in Advance: Budget documents should be circulated to owners before the AGM.
  • Ask Questions: At the AGM, owners can ask questions, seek clarification on budget items, and raise concerns.
  • Propose Amendments: Owners can propose amendments to the budget during the AGM (although significant changes may require further consideration).
  • Vote on the Budget: Owners vote to approve (or reject and potentially amend) the budget.
  • Active participation in the AGM and budget process is crucial for owners to understand and influence how levies are set and how scheme finances are managed.
     

"Special levies" are once-off levies raised for unforeseen and necessary expenses that were not included in the approved annual budget. They are typically raised for urgent or unexpected repairs or projects.  Examples include:

  • Emergency roof repairs after storm damage
  • Unplanned major plumbing failures
  • Urgent security system upgrades


Yes, you are legally obligated to pay special levies if they are validly raised by the Trustees for genuinely unbudgeted and necessary expenses.  Trustees have the authority to raise special levies without needing owner approval at a general meeting, but the expenditure must be demonstrably outside the scope of the approved annual budget.
 

Your levies are divided into two main funds, each covering different types of expenses:

  • Administrative Fund: This covers the day-to-day running costs of the scheme.  Think of it like the "operational" budget. This fund pays for things like:
    • Security services
    • Garden and common area maintenance
    • Building insurance premiums
    • Water and electricity for common areas
    • Managing agent fees
    • Routine repairs (like fixing gate motors or pool cleaning)
    • CSOS levies
    • General administration and bank charges
       
  • Reserve Fund: This is for long-term financial planning and covers major, less frequent expenses related to the upkeep and capital improvement of the common property. It's like a "savings account" for the building. This fund covers projects outlined in the 10-Year Maintenance Plan, such as:
     
    • Building repainting
    • Roof replacements
    • Lift upgrades
    • Major plumbing or electrical work
    • Driveway resurfacing

Understanding this breakdown helps you see where your levy contributions are going and why both funds are essential.
 

  • Disagreement: If you believe your levy is incorrectly calculated or unfair, first discuss your concerns with the managing agent or trustees.  Review your PQ, the approved budget (available from the Body Corporate), and ask for a clear explanation of the calculation.  Attend the AGM to voice your concerns and understand the budget process. If you still believe there's a valid issue, you can formally dispute the levy through the CSOS dispute resolution process.
  • Inability to Pay: If you are genuinely struggling to pay your levies due to financial hardship, contact the managing agent or trustees immediately. Ignoring the situation will worsen it.  While you are legally obligated to pay,  it may be possible to discuss payment arrangements or explore potential solutions, although this is at the discretion of the Body Corporate.  Ignoring levy payments can lead to legal action and further financial penalties.

Important Note: You cannot legally withhold levy payments even if you have a dispute or believe the Body Corporate owes you money. You must continue to pay your levies and pursue formal dispute resolution through the CSOS to address your concerns or recover any amounts you believe are due to you.

A comprehensive levy statement should, at minimum, clearly show:

  • Administrative Fund Levy Amount
  • Reserve Fund Levy Amount
  • CSOS Levy Amount
  • Exclusive Use Area (EUA) Levy (if applicable)
  • Utility Charges (if applicable) if not individually metered
  • Any Arrear Amounts (if applicable)
  • Total Amount Due
  • Payment Due Date
  • Body Corporate Bank Account Details
  • Ideally, it should also include a reference to your unit and the levy period.
  • If your statement is unclear or lacks detail, request clarification from the managing agent or trustees.  Transparency in levy statements is crucial.
     
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Calculation of Levies for Sectional Title Schemes 

Accurate levy calculations are fundamental to the financial health and smooth operation of any sectional title scheme. At Aucamp Attorneys, we understand the intricacies of this process and provide expert guidance to ensure equitable and transparent levy management, fostering harmonious community living.

What are Levies? 

Levies are regular payments made by property owners to cover the costs of maintaining, managing, and administering the common property and services within a shared property scheme.

Understanding Sectional Title Levies: How Your Complex Contributions are Calculated (Johannesburg)

If you own a property in a sectional title scheme in, you're likely familiar with monthly levies. But do you know how these levies are calculated and why they sometimes increase? At Aucamp Attorneys, we understand that sectional title levies can seem complex. This guide breaks down the calculation process to help you understand your contributions and ensure levies are being set fairly within your scheme.

Why Do Sectional Title Schemes Need Levies?

Levies are essential for the smooth operation and long-term financial health of your sectional title scheme.  They are the collective contributions from all owners that fund:

  • Day-to-day Running Costs (Administrative Fund)  These cover the operational and administrative expenses of the scheme, such as:
  • Maintenance of common areas (gardens, hallways, pools, etc.)
  • Security services
  • Building insurance
  • Communal water and electricity
  • Staff salaries (if applicable)
  • Managing agent fees
  • Accounting and audit costs
  • General administration and bank charges
  • Levies to the Community Schemes Ombud Service (CSOS)
  • Long-Term Maintenance and Capital Improvements (Reserve Fund)  The law mandates that schemes build up a Reserve Fund to cover significant future expenses outlined in a 10-Year Maintenance, Repair and Replacement (MR&R) Plan. This fund ensures money is available for major projects like:
  • Building repainting
  • Roof repairs and waterproofing
  • Lift maintenance and upgrades
  • Driveway and road repairs
  • Landscaping projects
  • Installation of new systems (like solar power)

How are Your Monthly Levies Calculated? A Step-by-Step Guide

The calculation of your individual levy involves a systematic process based on your property's size and the scheme's overall budget.  Here's a simplified breakdown:

Step 1: Budgeting for Scheme Running Costs

  • Each year, the Body Corporate Trustees (usually with the assistance of a managing agent) prepares a detailed budget for the scheme's Administrative Fund and Reserve Fund for the upcoming financial year.
  • This budget projects all anticipated running costs, contributions to the Reserve Fund (based on the 10-Year Maintenance Plan), and CSOS levies.
  • The budget is presented and discussed at the Annual General Meeting (AGM) of all owners and must be approved (possibly with amendments) by the owners.
  • It's crucial that the budget is realistic and accounts for expected cost increases and potential unexpected expenses to avoid underfunding and future financial strain on the scheme. Deficit budgets are strongly discouraged.

Step 2: Determining Your Participation Quota (PQ)

  • The Participation Quota (PQ) is a key factor in levy calculation. It represents your unit's proportionate share of ownership in the common property and is primarily based on the size (floor area) of your unit relative to the total size of all units in the scheme.
  • PQ Calculation: (Your Unit's Square Meters) ÷ (Total Square Meters of All Units in the Scheme) = Your Unit's Participation Quota (as a decimal)
  • Example: If your unit is 100m² and the total size of all units in the scheme is 1000m², your PQ is 100m² / 1000m² = 0.10 or 10%. This means your unit accounts for 10% of the scheme's total size.
  • Your PQ is usually specified on the sectional title plan for your property.

Step 3: Calculating Individual Levies

  • Once the total budget is approved at the AGM, the Trustees calculate individual levies using your unit's PQ.
  • Levy Calculation Formula (Simplified): (Total Budgeted Amount for the Year) × (Your Unit's Participation Quota) = Your Annual Levy Contribution
  • This annual amount is then divided by 12 to determine your monthly levy amount.
  • Example (Continuing from Step 2): If the total approved budget for the year is R200,000 and your PQ is 0.10 (10%), your annual levy contribution is R200,000 x 0.10 = R20,000. Your monthly levy would then be R20,000 / 12 = R1,666.67.

Step 4: Understanding Your Levy Statement

  • Each month, the Body Corporate (or managing agent) will send you a levy statement or invoice. This statement should clearly break down your monthly levy contribution, typically including:
  • Administrative Fund Levy: Your portion of the administrative fund budget.
  • Reserve Fund Levy: Your contribution to the Reserve Fund.
  • CSOS Levy: Your contribution to the Community Schemes Ombud Service.
  • Exclusive Use Area (EUA) Levy (if applicable): If you have exclusive use rights to areas like a garden or parking bay, you may pay an additional levy for their upkeep.
  • Utility Costs (if applicable): If utilities like water or electricity are not individually metered and are part of the levy, this may be included.
  • Any Rental Charges (if applicable): If you rent common property from the Body Corporate (e.g., a parking bay), this charge will be on your statement.

Transparency and Fairness in Levy Setting

  • Impartial Budgeting: Trustees have a duty to set levies fairly and transparently, based on the scheme's actual needs and the approved budget. Personal biases should not influence levy amounts.
  • Regular Review: PQ values and budgets should be reviewed regularly to ensure accuracy and reflect any changes in the scheme.
  • Owner Involvement: Owners have the right to participate in the AGM, question the budget, and understand how levies are calculated.
  • Clear Communication: Trustees should ensure owners are well-informed about levy calculations, budget allocations, and how their contributions are being used. Providing a detailed levy schedule showing PQ and levy breakdowns enhances transparency.

Special Levies

  • Unexpected Expenses: The Trustees can raise "special levies" for necessary expenses that were not included in the approved annual budget (e.g., emergency repairs after unexpected damage).
  • Unbudgeted, but Necessary: Special levies are meant for truly unexpected and necessary costs. They cannot be used to cover budget shortfalls if the initial levy was set too low.
  • Trustee Discretion: Trustees have the authority to raise special levies without needing owner approval, but the expense must be genuinely unbudgeted and necessary.

Non-Payment of Levies and Your Obligations

  • Legal Obligation: Paying levies is a legal obligation for all sectional title owners.
  • No Withholding Levies for Disputes: You cannot legally withhold levy payments, even if you have a dispute with the Body Corporate or believe they owe you money. "Set-off" is not permitted for unadjudicated debts. You must continue paying levies and pursue dispute resolution through the CSOS or court to recover any amounts you believe are owed to you.
  • Sanctions for Non-Payment: While voting rights may be restricted for non-payment, this is often not a strong deterrent.
  • Debt Recovery Action: The Body Corporate is obligated to pursue debt recovery against defaulting owners. This often involves legal action and can result in you being liable for outstanding levies, interest, and legal costs.
     

Need Legal Advice on Sectional Title Levies?

Understanding levy calculations is crucial for sectional title owners. If you have concerns about levy calculations in your Sectional Title Scheme, believe levies are being unfairly applied, or are facing disputes about levy payments, Aucamp Attorneys can provide expert legal guidance. Contact us for a consultation to discuss your situation and ensure your rights are protected