How to negotiate annual levy increases

At the end of the financial year, homeowners associations (HOA) and body corporates may choose to discuss and implement annual levy escalations.

Should homeowners feel as though the proposed escalation is unreasonable, they may raise any objections to these escalations at the next AGM.

For those who wish to negotiate the levy increase, Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa suggested having all the relevant facts together to make a more compelling argument.

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“The best way to negotiate a lower escalation is to review the HOA’s financial statements to make sure the proposed escalation aligns with the parameters laid out in the Sectional Titles Schemes Management Act (STSMA), Act no 8 of 2011,” he recommended.

According to the STSMA, one of the cases in which the body corporate is not obliged to increase levies is if the body corporate reserve fund at the end of the financial year is equal to or more than the levy income generated during that year.

If, however, the reserve fund of the HOA at the end of the financial year is less than 25 per cent of the levy income generated during that year, the body corporate must make provisions so they can provide for a reserve amount equal to 15 per cent of the levy income for the new financial year.

In other words, levies can be increased by 15 per cent in order to supplement the reserve fund if it is below 25 per cent of the total levy income.

When the reserve is between 25 per cent – 99 per cent of the levy income in that year, the body corporate should only make provision for a reserve amount equal to the repairs and maintenance items provided for in the new budget.

In other words, they can increase levies by enough to cover the required repairs and maintenance to the common property that has been budgeted for within that financial year.

If, after doing these calculations, homeowners find that their body corporate or HOA is proposing escalations that fall beyond these requirements, then Goslett said they have a convincing case for arguing against the proposed levy increase.

“Another tactic homeowners might try is to find out what similar complexes in neighbouring suburbs are charging on their levies. A local real estate agent can prove helpful in providing this information.

“If the proposed levy escalation will make the levies in your complex higher than the levies charged by comparable complexes, you can argue that it is in the greater interest of marketability and overall property values within your estate to keep levies as competitive as possible and the levy increase should therefore be reconsidered,” he recommended.

Ultimately, levy increases are meant to be in the best interest of all who own property within the complex or estate.

If ever you are in doubt about the proposed levy increase, you may request that the body corporate provide a justification for their decision.

“Homeowners should also feel free to speak to their local RE/MAX real estate advisor who can help them better understand whether their levies are fair,” Goslett concluded.

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