We all know that a sectional scheme can only function if the members pay their levies; but I would be lying if I said that’s the full story when it comes to levies!
Section 37 of the Sectional Titles Act makes it compulsory for the Body Corporate to establish an administrative fund (‘the levy fund’), which is enough to cover all the expenses of the Body Corporate relating to the common property (repairs and maintenance, payment of insurance, water and lights consumed on the common property, auditors fees and staff salaries, to name but a few).
How does the Body Corporate do this?
I stated in a previous blog that a Body Corporate must be run like a business. Remember that all the people who own units in the scheme (the members of the Body Corporate) have invested considerable amounts of money in the scheme to buy their properties, either to live in or as an investment to rent out. Fixed property in this country has generally proved to be a hedge against inflation and is expected it to increase in value as time passes. This investment must be protected, and it falls squarely on the heads of the Trustees to do so.
The Management Rules (MR 35 and MR 36) require the Trustees to keep (or cause to be kept; which the Managing Agent usually does) books of account and records to explain the transactions and financial position of the Body Corporate.
The books of account must be audited every year and presented to all owners at the Annual General Meeting (MR 40).
To determine the financial needs of the Body Corporate the Trustees, with the assistance of the Managing Agent if one has been appointed, must prepare an estimate of income and expenditure (a budget) to be presented at the AGM.
The budget is based on previous financial information, which is the audited financial statement, and both information that is actually known about the future such as the fact that the Municipality always increases electricity and water charges on the 1st of July each year, or Creditors like garden services or lift maintenance companies that usually gives prior notice of percentage increases. Sometimes Trustees have to estimate what increases on certain items will be based on previous percentage increases. In some instances the consumer price index can be used or educated guesses have to be made as to what annual increases will be and when they will take place.
The crux of the matter though is that when the Trustees present the budget at the AGM, and it is obvious that the Body Corporate NEEDS the percentage levy increase proposed by the Trustees THE MEMBERS OF THE BODY CORPORATE WHO ARE PRESENT AT THE QUORATE AGM MUST VOTE TO ACCEPT THE PROPOSED LEVY INCREASE.
If the members are short-sighted and don’t accept the proposed increase it spells trouble with a capital “T” for their Body Corporate!
To be blatantly honest to the point of being rude – if you can’t afford to pay the levy rather don’t buy into the scheme –you’ll be doing yourself and all your fellow members an incalculable disservice if you do buy!
Take care and enjoy the short week!