By Auren Freitas dos Santos
The primary function of the reserve fund established and maintained in terms of section 3(1)(b) of the Sectional Titles Schemes Management Act is to be used for the implementation of the maintenance, repair and replacement plan of the body corporate referred to in prescribed management rule 22.
The golden rule is that the only instance that money may be paid out of the reserve fund is in accordance with trustee resolutions and the approved maintenance, repair and replacement plan. However, as with most things in life, there is an exception to this rule.
In terms of this exception, money may be paid out of the reserve fund if the trustees resolve that such a payment is necessary for the purpose of urgent maintenance, repair or replacement expenses, which shall include the following purposes –
- to comply with an order of a court or an adjudicator;
- to repair, maintain or replace any property for which the body corporate is responsible where there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage to persons or property;
- to repair any property for which the body corporate is responsible where the need for the repairs could not have been reasonably foreseen in preparing the maintenance, repair and replacement plan; or
- to enable the body corporate to obtain adequate insurance for property that the body corporate is required to insure.
Should the trustees resolve to pay money out of the reserve fund in order to pay for one of the aforementioned exceptional expenses, they shall be required to report to the members on any such expenditure as soon as possible after it is made.
It must be kept in mind that any unplanned or unexpected expenses out of the reserve fund in the current financial year will inevitably result in an increase to the annual contributions to the reserve fund for the next financial year. This is why it is so important to ensure that the trustees take great care when preparing the maintenance, repair and replacement plan to prevent any unexpected surprises.
Specialist Community Scheme Attorney (LLB, LLM), Auren Freitas dos Santos, is a Director of The Advisory, a boutique consultancy specialising exclusively in community schemes law.
Contact him at www.theadvisory.co.za or email email@example.com if you require any advice regarding your scheme’s reserve fund and maintenance, repair and replacement plan.