Sectional Title Levies

Most prospective buyers contemplating the acquisition of a Sectional Title property are likely aware of the importance of scrutinizing the monthly levy costs and its coverage before committing to a purchase. However, it's equally crucial to request a copy of the specific conduct rules governing the desired complex. These rules might diverge from the Prescribed Conduct Rules found in the Sectional Title Schemes Management Act (STSMA).

While the Prescribed Rules serve as a standardized framework to ensure compliance with STSMA provisions, trustees of Sectional Title schemes have the authority to establish supplementary rules addressing unique concerns or requirements within their respective schemes. For instance, rules could pertain to curfew hours for the complex's swimming pool, guidelines for visitor parking, waste disposal regulations, or penalties for rule infringements.

Any modifications or additions to the Prescribed Rules must gain approval and registration from the Community Housing Schemes Ombud before becoming enforceable. Nevertheless, these conduct rules can markedly differ from one scheme to another. Hence, prospective buyers should thoroughly review them to ascertain their comfort level with compliance before finalizing their property purchase.

Additionally, prospective buyers must acquaint themselves with the approved Participation Quota (PQ) schedule specific to the Sectional Title scheme of interest. In most cases, this schedule serves as the foundation for calculating levies, reserve fund contributions, additional charges, and levy increases.

Fundamentally, Sectional Title schemes aim for homeowner costs, including levies, to be directly proportional to the size of each unit as a percentage of the entire scheme (the PQ). For instance, if a unit has a PQ of 0.30, the owner is responsible for 30% of the total monthly levy contributions. Similarly, if the scheme lacks separate utility meters, the owner is accountable for 30% of the overall municipal bill for utilities. Moreover, the owner's voting influence at meetings is also determined by this percentage.

Calculating levies can be intricate, making it vital for owners to comprehend what is encompassed within the levy and the process behind determining the final amount.

Reserve Fund Levy
The reserve fund is allocated for maintenance, repair, and replacement of capital assets like roofs, exterior walls, roads, driveways, and common property structures. This preventive maintenance aims to extend the lifespan of these assets. The reserve fund levy for the current fiscal year is typically calculated as follows:

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

Long-term planning is advisable to ensure a sustainable levy that guards against erratic fluctuations and complies with the minimum requirement specified in Sectional Titles Scheme Management Regulations. A 10-year maintenance plan-based cash flow projection aids in prudent financial management, eliminating the need for special levies or bridging loans.

Admin Fund Levy
The administrative fund finances operational expenses, including management fees, insurance premiums, salaries, and routine maintenance tasks like replacing light bulbs, fixing leaks, and cleaning. Trustees can adopt a long-term approach for the admin fund by projecting cash flow over a 10-year period, complementing the reserve fund projection.

While it is possible for trustees and developers to adopt alternative levy calculation methods, many schemes adhere to the PQ schedule established during construction. Therefore, this information, along with the scheme's recent financial statements, balance sheet, and approved budget, is vital for prospective buyers.

In accordance with the disclosure mandates of the Property Practitioners Act, sellers or their estate agents should provide all relevant documentation. If this information is not readily available, prospective buyers should inquire, as it can significantly influence their decision. Failure to provide such information may raise concerns about the scheme's management and financial stability, prompting buyers to explore other options."