The Low-Down on Levies
Category Sectional-title Advice
Living in a sectional-title scheme does come with its fair share of perks. For starters, the trustees handle most of the maintenance and day-to-day management of the scheme, or they simply hire a trusted managing agent to do this on their behalf. But, in order to provide this service and ensure the building is well taken care of, there is a small price to pay in the form of levies.
What are levies?
Levies are monthly contributions owners pay each month for the upkeep of the sectional-title building and the common areas around it. It is usually due by the 1st of each month and is collected by the trustees or an appointed managing agent.
What do levies cover?
Common Areas
A large percentage of levies are used to pay for maintenance and repairs to the common areas within the scheme. Common areas include but are not limited to:
Public pools;
Clubhouses;
Parks;
Gardens;
Braai areas;
Security systems;
Driveways;
Passageways;
Parking bays and;
The structural property of the common area such as walls and roofs.
Administrative Costs
Levies are also used to cover administrative costs such as bank charges, management fees, and stationary.
Municipal Costs
These costs include rates, taxes, water and electricity, refuse collection and sewage.
Limited Building Insurance Coverage
Lastly, levies also cover building insurance, which is used to finance the costs of repairing damage to the physical structure of a property in the event of damage or theft. A structure includes roofs, floors, geysers, walls, doors, as well as immovable fixtures and fittings.
How levies are allocated
Once levies are collected from the owners, the funds are then deposited into two separate accounts known as the administrative fund and the reserve fund. The former is used to fund operating expenses for a particular financial year. It covers expenses such as repairs, maintenance, municipal chargers, and insurance premiums. The reserve fund, on the other hand, is used to cover unforeseen costs as well as future maintenance and repairs of the common property. For example; trustees may request funds to be used from the reserve fund if there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage to individuals on the property or the property itself. What's more, the 10-year maintenance, repair and replacement plan (MRRP) is paid for from the reserve fund.
Read more about the administrative and reserve fund.
Read more about the MRRP.
How levies are determined
When it comes to determining the levy amount each owner has to pay in the new year, this is first discussed by the outgoing trustees in the previous year. They will analyse the Bodies Corporate expected expenditure from both the administrative and reserve funds, and these budgets are taken into consideration at the annual general meeting ("AGM"). These may be altered at the AGM until a final figure is approved by all the owners. Once approved, the trustees meet and divide the estimated expenditure between the owners and arrive at the monthly levy amount each owner must pay.
Participation quota
In many sectional-titles, owners may pay different levy amounts depending on the size of their residential units. To determine this, a formula known as the participation quota (PQ) is used, which divides the number of square metres occupied by the owner's section by the total floor area of all sections in the scheme.
Special levies
When disaster strikes or an urgent expense arises which was not budgeted in the last AGM, the trustees may impose a special levy in conjunction with the normal levy amount. This usually happens if there are not enough funds available in the reserve fund, and can include new projects, urgent property upgrades or repairs such as a leaking roof or broken lift.
Read more about special levies.
Levies are essential for the smooth running of every sectional-title property for both long-term and short-term upkeep. If you're looking for a managing agent who will help your building manage their funds better, speak to De Lucia Group today! Michael De Lucia - 082 493 1089.
Author: De Lucia Group
