When it comes to special levies, residents in Sectional Title schemes can end up feeling confused and even resentful. In a bid to clarify the issue, Whitfields Residential and Commercial Property Administrators recently issued succinct advice on what constitutes a special levy and what doesn’t.
Consider this scenario: You’re looking over your complex’s budget at the AGM and somebody proposes that to raise funds for future painting, a special levy should be approved to run for the next 12 months. Everyone agrees, the budget is approved and the managing agent lists the special levy on the owners’ levy accounts.
This appears be perfectly in order, but according to Whitfields it’s not. While it is acceptable to propose amendments to the budget at the AGM, and for owners to then approve additional charges, these additional charges do not in fact constitute special levies and should be listed as painting levies (or whatever they are to be used for).
It’s all in the name
According to Whitfields, it’s important to use the correct terminology because a special levy has significant consequences for an owner who wants to sell his unit. Upon transfer of the unit into a purchaser's name, the seller has to pay all the remaining instalments of any special levy currently running. Given that special levies can sometimes be significant, this can amount to a large sum of money.
The same process does not apply to levy increases, additional levies, security levies, painting levies and the like as these just transfer to the new owner, with a simple pro-rata adjustment for the month during which the transfer takes place.
So what actually constitutes a special levy? There are two important considerations to keep in mind:
A special levy does not arise out of the approval of the budget at the AGM
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A special levy may not extend beyond the end of the current financial year
How special levies work
Whitfields adds that if owners agree outside of an AGM to raise funds to paint a complex over an 18-month period, the trustees would first need to pass a special levy for the remaining months of the financial year. On day one of the new financial year, the trustees would then need to pass a second special levy for the balance of the funds agreed to by the owners. As such, an owner whose unit is transferred before the first day of the new financial year will only be liable for the first special levy. The purchaser will be liable for the second special levy.
In a nutshell, it therefore is quite apparent that levies need to be correctly named. Doing so will avoid confusion and ensure that come time to sell your unit, you won’t be paying for something that is actually the responsibility of the purchaser.