If you own a sectional title office unit, you may soon notice an increase in the monthly levies in your building. New legislation that requires body corporates to maintain a reserve fund for future building repairs may see levies in both commercial and residential buildings increase in the near future. We take a look at the new act.

The STSMA aims to phase out special levies

The Sectional Title Schemes Management Act (STSMA) of 2011 recently became effective, changing the rules that govern the management of body corporates.

One of the most important changes is a requirement that body corporates should have a reserve fund to pay for future foreseeable building repairs (like painting, general maintenance and other upgrades).

In the past, many body corporates imposed special levies on owners to cover these repairs, causing disagreements, refusals to pay, and cash flow problems for owners and the body corporate alike.

The STSMA aims to eliminate the need for special levies by making the reserve fund a legal requirement – however, special levies may still be charged if the fund doesn’t contain enough money to pay for repairs.

Will levies increase immediately?

In order to create a reserve fund, many body corporates will need to increase levies to generate the necessary funds. The increase in monthly levies will depend on the body corporate’s financial position.

If the body corporate has reserves that come to less than 25% of its annual income, it will need to budget an extra 15% the following year and add it to the reserve fund. This could mean a 15% levy increase for sectional title owners.

On the other hand, if the body corporate has reserves of between 25% – 100% of its annual income, the amount that must be added to the reserve fund will be less than 15%.

If the reserve fund is equal to 100% of annual income, no extra funds will be required. In that case, levies shouldn’t need to increase.

When in doubt, ask the body corporate

Sectional title owners have the right to know the details of their body corporates’ finances. If you’re concerned about levy increases, contact your body corporate and ask them about the status of their reserve fund – and whether they plan to increase levies in the near future.

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