When considering the purchase of a unit within a complex, it's crucial to look beyond the surface-level expenses such as the advertised levies. Without thorough research, potential buyers may find themselves facing unexpected financial burdens.
The structure of sectional title schemes
In sectional title schemes, you own your unit but share ownership of the property's common areas with other unit owners. This collective ownership, known as the body corporate, is responsible for the maintenance of exteriors, gardens, security, and the overall upkeep of the complex. These responsibilities are funded through monthly levies, which can be more complex than they first appear.
Monthly administrative levy
The administrative levy is the primary fee in sectional title schemes, varying based on your unit's size, which means that larger units contribute more. This levy covers not just the utilities such as electricity and water, billed collectively to the scheme and then apportioned to units based on usage but also the maintenance of common areas, operational expenses, and building insurance.
Reserve funds and special levies
Since 2016, a law has mandated that a portion of levies be allocated to reserve funds for long-term maintenance, guided by a 10-year capital expenditure plan. This fund, typically no less than 15% of the administrative levy, is designed to prevent the sudden imposition of special levies for major maintenance projects.
Despite the reserve fund's intent to cover large expenses, unforeseen costs like significant repairs or utility billing errors can necessitate special levies. These are decided by the trustees and can represent a significant additional cost.
CSOS levy
The Community Scheme Ombud Service (CSOS) levy, another cost in sectional title schemes, is the lower of R40 or 2% of an owner's levy when it exceeds R500, with no levy charged for amounts under R500. This is collected quarterly by managing agents.
The risk of non-paying owners
Non-paying owners in sectional title schemes pose a significant risk, which can strain the scheme's finances. Trustees can address late levies by seeking an adjudication order from the Community Schemes Ombud Service (CSOS) or taking legal action through an attorney to enforce payments. However, these steps can take time, and in the interim, compliant owners may face unexpected special levies as the scheme manages these financial shortfalls, directly impacting your budget and financial planning.
Make an informed decision
Before committing to a purchase, prospective buyers should request the latest levy statement to fully understand monthly charges, particularly since utilities are included in sectional titles. The actual cost, including utilities, can far exceed initial quotes. It's also vital to review the most recent AGM pack, current budget, and financial statements to understand the financial health of the scheme and avoid investing in a poorly managed, financially unstable scheme.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).
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