Thinking Inside the Box

A Paddocks Sectional Title Lifestyle Blog

Levy collection – In light of the Sectional Titles Act, the Sectional Titles Schemes Management Act, and the Community Schemes Ombud Service Act

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By Zerlinda van der Merwe

In this article, I will unpack the similarities and differences between the Sectional Titles Act 95 of 1986 (“the STA”), the Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”) and the Community Schemes Ombud Service Act 9 of 2011 (“the CSOSA”), relating to levy collection in sectional title schemes. In doing this, we will take a look at the function of the trustees in determining and raising levies, the expenses which levies relate to, the types of levies and contributions recoverable, and the process of recovery of levies.

Let us first take a look at section 37 of the STA, setting out the functions of the body corporate which, in terms of section 39(1) of the STA, is performed by the trustees elected to represent the members of the body corporate. One of the most important functions of the trustees, is to establish, for administrative expenses, a fund for:

  • the repair, upkeep, control, management and administration of the common property;
  • the payment of rates and taxes, and other local authority charges for the supply of electric current, gas, water, fuel and sanitary, and other services to the building/s;
  • any insurance premiums; and
  • the discharge of any duty or fulfilment of any other obligation of the body corporate.

The trustees determine the amounts to be raised for the aforementioned purposes, and raise them by levying contributions on the owners, in proportion to their participation quotas.

Section 3 of the STSMA similarly sets out the functions of the body corporate which, in terms of section 7(1) of the STSMA, must be performed by the trustees.

The STSMA goes further by introducing the requirement for a reserve fund, containing amounts which are reasonably sufficient to cover the cost of future maintenance and repair of common property, but which are not less than such amounts as may be prescribed by the Minister in the Regulations of the STSMA, which is still in its draft form.

The STA and the STSMA provides that the trustees raise additional contributions on the owners who are entitled to the right of exclusive use, whether registered in terms of section 27 or created by the rules in terms of section 27A of the STA, as is estimated necessary to defray the costs of rates and taxes, insurance and maintenance, and the provision of electricity and water.

The STA and the STSMA further provides that the trustees require that the developer, who is entitled to extend the scheme in terms of a right reserved as set out in section 25(1) of the STA, to make reasonable, additional, contributions to the fund, as may be necessary to defray the costs of rates and taxes, insurance and maintenance, and the provision of electricity and water, of the part/s of common property affected by the reservation.

The STA provides that the liability for these contributions levied upon the members,accrues from the passing of a trustee resolution (for an article on the importance of this trustee resolution, take a look at “Levy contributions authorised by trustee resolution”), and may be recovered by the body corporate by action in Court of competent jurisdiction from the persons who were owners of units, holders of exclusive use areas, and holders of real rights of extension, at the time when such a resolution was passed. Provided that upon the change of ownership of a unit, exclusive use areas and real rights of extension, the successor in title becomes liable for the pro-rata payment of such contributions from the date of change of ownership.

Whereas the STSMA provides that contributions levied may be recovered by the body corporate by an application to an ombud, in terms of the CSOSA. In this regard, section 39 of the CSOSA sets out various prayers for relief which the ombud may make, including an order in respect of financial issues.

The STA and the STSMA provides that the trustees may from time to time, when necessary, make special levies / contributions upon the owners in respect of all such expenses not included in the budget for that financial year (see section 37(2B) of the STA and section 3(4) of the STSMA for a definition of “special contribution”).

The STA provides that any special contribution becomes due on the passing of a trustee resolution, and may be recovered by the body corporate by action in any competent court having jurisdiction, from the persons who were owners of units at the time when such resolution was passed. Whereas, the STSMA further provides that special contributions levied may be recovered by the body corporate by an application to an ombud.

In summary, the most noticeable amendments with regard to levy collection in sectional title schemes, is the future statutory requirement for a reserve fund for future maintenance and repair of common property, and the ability to apply to the Community Scheme Ombud Service for an order relating to the recovery of arrear contributions.

Should you have any queries or comments, please contact us at Paddocks on 021 686 3950 or at consulting@paddocks.co.za.

Image source: adegboyegailori.com

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10 comments on “Levy collection – In light of the Sectional Titles Act, the Sectional Titles Schemes Management Act, and the Community Schemes Ombud Service Act

  1. Jackie
    October 24, 2016

    3(3) of STSMA has an additional phrase regarding the pro-rating of Special Contributions when a unit changes hands. “Provided that upon the change of ownership of a unit, the successor in title becomes liable for the pro rata payment of such contributions from the date of change of such ownership.”

    Does this have any impact in the case of a Special Levy being raised between issue of Levy Clearance Certificate and date of transfer, or will the old owner still be liable for the any special levy raised until date of transfer?

    • Paddocks
      November 1, 2016

      Hi Jackie,

      Thank you for your comment. Please email us on consulting@paddocks.co.za with regards to your matter, and we can provide you with a no-obligation quote, so that we can assist you.

      Kind regards,
      Paddocks

  2. Monique
    October 17, 2016

    May trustees enter into a payment arrangement with an owner in regard to special contributions? For example, the scheme raised special levies payable over two months, one owner is now asking to pay it over a period of three months instead of two due to financial strain.

    • Paddocks
      November 1, 2016

      Hi Monique,

      Thank you for your comment. Please email us on consulting@paddocks.co.za with regards to your matter, and we can provide you with a no-obligation quote, so that we can assist you.

      Kind regards,
      Paddocks

  3. Li-Juan
    September 29, 2016

    Hi,

    Could you please advise whether it will be optional or mandatory to apply to the ombud created in terms of the STSMA for purposes of levy collections? From my understanding it seems that trustees MAY/CAN apply to the ombud for assistance with tricky collections, however, that this is entirely optional?

    Thank you

    • Paddocks
      November 1, 2016

      Hi Li-Juan,

      Thank you for your comment. Please email us on consulting@paddocks.co.za with regards to your matter, and we can provide you with a no-obligation quote, so that we can assist you.

      Kind regards,
      Paddocks

  4. Ilario
    September 28, 2016

    Dear Paddock

    May I ask if for an example to be published on where and how the line items for the reserve fund should reflect in the budget.

    • Paddocks
      September 28, 2016

      Hi Ilario,

      Thanks for your suggestion. We will consider this for the future.

      Regards,
      Paddocks

  5. Valerie Thompson
    July 18, 2016

    Thank-you for your article. Much education lies ahead for us! Re: “The trustees determine the amount to be raised……” Shouldn’t it be made plain that the owners say yay or nay to the budget proposed by the trustees at the AGM and only after they have voted to approve it may the trustees meet to ratify or amend it according to the owners’ wishes and then ” raise them( the amounts) by levying contributions on the owners according to their P.Q.’s”? Best wishes.

    • Paddocks
      July 20, 2016

      Hi Valerie,

      Yes, that is the correct procedure. However, the budget is prepared by the trustees and as part of the process the levies are determined. The budget is then proposed for approval by the members at the AGM following which it is raised on the owners.

      Thanks,
      Paddocks

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