Trustee troubles? Keep paying your levies!

Private Property South Africa
Martin Hatchuel

Are the finances of your sectional title scheme healthy? And should you withhold your levy payments to force the trustees to behave if you think things aren’t what they ought to be?

Your answers, of course, should be “Yes” and “No” and especially “No” in the light of proposed changes to the legislation.

Financial balance

According to Mandi Hanekom, operations manager of the levy funding company Propell, all sectional title schemes rely on receiving the full levy amounts they expect from every owner every month.

“If one owner does not pay their levies, for whatever reason, it upsets the financial balance that the trustees work hard to maintain,” she said.

The challenge, of course, is that levy collection problems could affect the trustees’ ability to pay creditors in full, and they could also affect their ability to carry out the necessary maintenance on the property both of which could negatively affect the value of each individual title holder’s investment.

Legislation

And, with plans in place to force every sectional title scheme to create reserve funds of between 1% and 2% of their market value (a strategy that’s designed to protect the schemes against financial distress and mismanagement) withholding your levy payments could actually place your investment in jeopardy.

How this will be implemented, and how soon it will become law is still unclear, but according to Lanice Steward, managing director of Knight Frank Residential SA, “It would be wise for bodies corporate to reassess their levies for next year and add the amount into the budget as soon as possible.”

Substantial sums

The sums involved could be substantial, she said. “If you take a scheme of 60 units worth R1.5-million each, this adds up to R90-million so the scheme would have to have at least R900 000 in the bank.

“If it becomes law to have 2% in reserve, I think most in that cases, schemes would struggle to come up with the R1.8-million needed.”

Lanice made the point that schemes need to have “a decent amount in reserve for emergencies and as contingency funds for maintenance and assistance where there are shortfalls.

“It is better to have planned for something to have gone wrong and not have the whole scheme put at risk financially.”

Crippling costs

For those schemes that do struggle with an owner who fails to pay his or her levies, the costs involved in recovering the funds could be crippling especially since the process can become long and drawn out: from letter of demand, to handing over, to the serving of summons.

“Once the summons has been issued the owner has 10 working days in which to respond, and if he doesn’t the Sheriff can then attach goods to the necessary value,” said Mandi. “If he doesn’t find value in the items in the unit, the trustees may have to continue with proceedings to repossess the unit itself to sell at auction which, too, is a lengthy process.”

According to Lanice, shortfalls in levy collections or problems with financial management can cause the financial situation of a sectional title scheme to deteriorate rapidly.

“As a member (an owner of a unit) of a body corporate, it is in your interests to be actively involved in the management of the scheme,” she said.

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