CapeTalk 567AM hosts a podcast series titled: Early Breakfast With Africa Melane. This morning, the podcast covered the topic of why sectional title schemes need to be compliant with minimum reserve fund amounts as prescribed by the Sectional Titles Schemes Management Act. Our very own Auren Freitas dos Santos featured in the discussion.”
Summary of transcript:
The conversation focuses on the importance of reserve funds in sectional title schemes, as outlined by the Sectional Titles Schemes Management Act. Auren Freitas de Santos, director of The Advisory, explains that the fund is a mandatory financial provision for long-term maintenance and repairs. Sectional title schemes are required to contribute annually, with a minimum contribution increase of 15% to comply with the Act. This rule was introduced because previous contributions had been artificially low, leading to special levies when major repairs were needed, creating financial instability.
The 15% minimum is an initial adjustment, meant to ensure schemes are adequately funded. Once the required reserve fund is reached, it becomes easier to maintain the contributions. Schemes must also develop a 10-year maintenance plan to ensure realistic and sufficient reserve fund contributions. Auren notes that while 50% of the clients they work with have made efforts to comply, many schemes are unaware of the requirement or have not increased levies sufficiently.
Failure to comply with the reserve fund requirements can result in negative consequences. Auditors will qualify the scheme’s financial statements, making it difficult for homeowners to secure loans. Additionally, potential buyers may avoid purchasing properties in non-compliant schemes. The lack of proper maintenance could lead to the deterioration of buildings, prompting municipal intervention, as seen in Cape Town’s bylaw enforcement for derelict buildings.
The reserve fund is strictly for planned maintenance and repair. In emergencies, such as fire damage, it can be used if the expenses are unforeseen in the maintenance plan. Auren concludes by highlighting the importance of homeowners ensuring trustees maintain the reserve fund appropriately.
For more information, feel free to reach out to Auren at info@theadvisory.co.za.
