On the 7th of October 2016, STSMA (Sectional Titles Schemes Management Act 8 of 2011) and CSOSA (Community Schemes Ombud Service Act 9 of 201) was signed into law. Connotation, that the new legislation will have an impact on the sectional title levies. Adding this new legislation means that monthly levy contributions from owners will have to be re-evaluated and adjusted.
Some of the affected markets will be owners or tenants of apartment blocks and townhouses , home and property owners’ associates, retirement home complexes, share block companies and housing cooperatives. Student homes are still undecided.
CSOSA – Community Schemes Ombud Services Act
CSOSA has been brought about to incorporate an amount payable quarterly to the Ombud Service. As in other industries, the Schemes Ombudsman Service provides dispute resolution in terms of sectional title, homeowners associations & housing schemes for retired persons and also ensures that good governance, legislation and ethical standards are maintained.
This new CSOSA instituted levy is calculated monthly as follows: Monthly levy minus R500 multiplied by 2% (Levy – R500 x 2%) and may not exceed R40 per month.
STSMA – Sectional Title Schemes Management Act
STSMA needs a corporate legal entity to maintain two funds. Specifically:
- An administrative fund - used to fund the yearly operating expenses of the body corporate. These expenses include: maintenance, repair, management and administration of the common property, rates, taxes and other municipal charges and insurance premiums relating to the sectional buildings and common property
- A reserve fund - primarily used to cover future unexpected costs of maintenance and repairs of the common property not budgeted for from the administrative fund
There are also three divisions to look at to determine the minimum contribution to the reserve fund:
- Division 1 – If the amount of money in the reserve fund, at the end of the previous financial year, is less than 25% of the total contributions to the administrative fund for that previous financial year, the contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund
- Division 2 – if the amount of money in the reserve fund, at the end of the previous financial year, is equal to or greater than, 100% of the total contributions to the administrative fund for that previous financial year, then there is no minimum contribution to the reserve fund. There is thus enough “reserves” for future maintenance
- Division 3 – When contributions from the previous financial year of the administrative fund is more than 25%, but less than 100% of the total contributions to the administrative fund for the previous financial year. The budgeted contribution to the reserve fund must then be at least the amount budgeted to be spent from the administrative fund, on repairs and maintenance to the common property, in the financial year being budgeted for.
Source: Greyvensteins Attorneys
As you can see from this, levies will definitely be increasing but knowing by how much will differ by scheme. The unusual increases in levies should however been seen as a positive contribution, meant to protect owners within different schemes. The financial implications from unexpected expenses or legal battles could be far worse than rather being prepared before-hand.