Sectional title complexes and gated estates have become the popular way to live in South Africa. There are a few obligations that come with living in a sectional title scheme for homeowners, and one of these is the payment of levies. The body corporate relies on these levies to cover its expenses, which range from repairs and maintenance of the common property to insurance premiums and taxes. It’s outlined in section 3(1)(a) and (b) of the Sectional Titles Schemes Management Act of 2011 (“the Act”), that a body corporate needs to form both an administrative fund and a reserve fund to cover expenses. So, the onus is on the managing agent, trustees or attorneys to collect levies for these funds. However, what happens when these levies aren’t being paid?
The importance of levies
First let’s take a look at exactly what these levies are used for, and why it’s so important that homeowners pay them. At a body corporate’s Annual General Meeting (AGM), a budget is approved for expenses that may be incurred over the next year, both planned and unplanned. The trustees can then determine, based on both the administrative and the reserve budget, how much they will need in order to cover all the body corporate’s expenses for the year. This amount is then divided between the homeowners to form the levy amount for the year, using a specific calculation that varies, depending on the type of scheme. Homeowners usually pay their levies in monthly instalments, and the trustees determine a certain amount of interest that will be charged for overdue levy payments.
There are a host of expenses that levies can be used to cover, here are a few examples:
- Services: cleaning, gardening, pool maintenance, security and anything else that the scheme may need.
- Maintenance: this refers to electrical work, plumbing, painting and so on.
- Utility charges: such as water, refuse, electricity and sewage.
- Body corporate employees: like caretakers, gardeners and cleaners.
Now that we know how levy payments are calculated and why they’re important, you can see why outstanding levy payments may have severe consequences for the entire sectional title scheme. It’s also important to note that when a homeowner sells their property, they will need a levy clearance certificate from the body corporate to indicate that they have settled all levies owing to the scheme before they can continue with the sale.
Outstanding levy payments
Sometimes, particularly in uncertain periods like a pandemic, homeowners are unable to cover all of their expenses, and this can include levy payments. It’s crucial to note that even a few missed levy payments from a few homeowners can have a drastic impact on the scheme’s overall financial situation, particularly if the body corporate does not have adequate reserve funds. Homeowners going into arrears with their levies can have big impacts on the scheme, such as services being interrupted, delays in maintenance, interest charged by the municipality on overdue accounts and more.
A body corporate should have a plan of action for such situations so that the sectional title scheme is not drastically impacted by these outstanding levies. The first step to dealing with outstanding levy payments is for the body corporate to pinpoint which homeowner/s have not paid, and the amount that is owing. The next step is to notify the homeowner/s and come to an agreement if possible, otherwise, legal action can be taken by the trustees as a last resort. However, in the interim, the scheme can be left without funds to cover the necessary expenses that have occurred. Here’s where Propell comes in.
We have a financial solution for body corporates that help fill the gap when there are outstanding levy payments. Our Debtor Finance will see you through this time, by providing your sectional title scheme with a reliable and steady cash flow. Debtor Finance is a revolving loan of up to 80% of levy arrears, which means that your scheme will have no interruptions on maintenance and other bills that need to be paid. It also means that other homeowners won’t have to pick up the slack of those who aren’t paying their levies. Click here to find out more about how our Debtor Finance option can save your scheme from disaster.
Another option is Project Loans, which are unsecured revolving loan facilities that we provide to sectional title schemes and homeowners associations. You’ll be able to access funds immediately to complete projects like maintenance, upgrades, repairs and energy-saving solutions. Or you can use Project Loans to settle municipal arrears or fund professional services such as legal fees and consulting fees. This can be a game-changer for schemes where there are levies in arrears, and the body corporate does not have enough funds to pay for these. Find out more about how Project Loans can help your sectional title scheme here.
It pays to have a backup plan, in the event of levies not being paid. We’re here to make sure that your scheme can continue running as normal, while any outstanding levies are being handled.