By Ané de Klerk
This year marks the tenth year since the Sectional Titles Schemes Management Act (“the Act”) and Regulations came into operation. One of the big shifts back then was the introduction of prescribed minimum amounts for reserve fund contributions that had to be levied by bodies corporate going forward. Nearly a decade later, we look at the application of these prescribed minimums and whether they are still relevant after so many years.
We find these prescribed minimum amounts in Regulation 2, and while it certainly contains information to note, it cannot be read and applied in isolation. It is vital that we consider it alongside the fact that the Act also requires that bodies corporate:
“establish and maintain a reserve fund in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of common property but not less than such amounts as prescribed by the minister.”
The legislature also obliges bodies corporate to determine the levies to be raised from unit owners for this purpose based on what is reasonably sufficient to cover the scheme’s future common property maintenance and repair costs.
These provisions clarify that, while Minister Sisulu prescribed absolute minimum requirements for these contributions, the body corporate may not follow the prescribed requirements blindly, but must instead ensure that the amounts they raise for this purpose are reasonably sufficient to cover the anticipated actual costs the body corporate would have to pay from this fund in future.
For this purpose, the legislature requires that the body corporate prepare a 10 year maintenance, repair and replacement plan and that the annual contributions to the body corporate’s reserve fund for each major capital item listed in the plan be levied in accordance with the formula: [(estimated cost minus past contribution) divided by expected life].
The inclusion of these requirements emphasise that the prescribed minimum amounts is just that, the minimum, and that the trustees must apply their minds, and the above formula, to ascertain whether it is necessary to levy greater amounts from body corporate members to meet the scheme’s actual needs.
It is therefore clear that, while Regulation 2 sets out the absolute minimum amounts a body corporate must raise to fund the scheme’s Reserve Fund, the trustees, on behalf of the body corporate, are obliged to consider other factors in determining the appropriate amounts to levy from its members for this purpose. They must ascertain what amounts would be appropriate to establish and maintain a reserve fund that is reasonably sufficient to cover the scheme’s future common property maintenance and repair costs; what amounts the scheme’s 10 year maintenance, repair and replacement plan require to be raised to fund future major capital items and what amounts the body corporate, by ordinary resolution, have determined must be paid into this fund.
While it would have been understandable for bodies corporate to fall back on prescribed minimums ten years ago, more than enough time has now passed for schemes to properly implement all legal requirements set out in the sectional titles schemes management legislation. By now, a ten year maintenance plan should not only be in place, but be feeding into the Reserve Fund budget seamlessly every year.
The only circumstances in which one would expect to see the prescribed minimums presented for approval at an AGM today would be when a scheme is brand new or so low maintenance and/or well maintained that the prescribed minimums exceed the scheme’s actual financial needs.
If your scheme still falls back on the prescribed minimums and you need help adapting to the legal requirements mentioned in this article, you are welcome to reach out to us at info@theadvisory.co.za for a no-obligation quotation for a consultation to discuss your scheme’s situation and the way forward.
Specialist Community Scheme Attorney (BA, LLB), Ané de Klerk, is a Director of The Advisory, a boutique consultancy specialising exclusively in community schemes law. Her focus is legal education, which includes presenting seminars and running online and in-person training programs and courses. You can reach out to her via email at info@theadvisory.co.za to for assistance with ensuring that your scheme’s budgets meet the requirements of the law.
