In Sectional Title Schemes, levies are part of the essential framework that ensures the scheme runs smoothly. Levies are mandated by the Sectional Titles Schemes Management Act (STSMA) for the purpose of paying for all common expenses of the scheme, and the operating costs that the scheme is likely to incur over a financial year.
The purpose of levies
When it comes to operating expenses, the levies cover the following expenses and more:
- Security measures, including walls, fences, security guards and security systems
- Maintenance and repairs for common property such as gardens, swimming pools and roads
- Rates, utility payments and taxes
- Payment for the managing agent
- Insurance instalments
- Salaries of staff that are employed by the body corporate, as well as payment to contractors
Levies are allocated to 2 funds which the body corporate operates, the administrative fund and the reserve fund. The administrative fund is created to take care of the day-to-day running costs of the scheme according to the budget, while the reserve fund is used for maintenance and repairs in the scheme, as per the 10-year Maintenance and Repair Plan.
Types of levies
General levy: This is based on the scheme’s operating costs and annual budget and is raised at the Annual General Meeting (AGM). The general levy is mandated by the STSMA and is vital to the success of the scheme. The general levy is divided into the admin levy and the reserve levy. The admin levy covers operational expenses such as insurance and management fees, while the reserve fund levy is used for maintenance, repairs and replacement of assets, like roads and roofing.
Special levy: A special levy is raised when there is an unexpected expense that was not budgeted for. This is raised when it is needed. Unforeseen repairs to common property would fall under this category.
General levies increase annually after the budget has been approved at an AGM and Trustees give notice of the increase to members. Pending approval of the budget at an AGM, Trustees have the power to increase levies by a maximum of 10% at the end of a financial year to take into account anticipated increased liabilities of the body corporate. Such increases remain in effect until members receive notice of the levies due for the next financial year. The latter will usually take place to make up the difference between year-end and when an AGM is held, and a new budget is approved by the members.
Homeowners are not always conscientious in their payments of levies, and there are situations in a scheme where homeowners default on their levy payments. The knock-on effect of these defaults is that the other members of the scheme end up having to cover the shortfall, or bills cannot be paid.
Trustees have the option to take legal action against the defaulting homeowners using an attorney or try to settle the matter with adjudication from the Community Schemes Ombud Service (CSOS). While the CSOS route is less expensive and doesn’t require a lawyer, the outcome is still legally binding.
However, while the trustees are handling the defaults, the relevant payments are still not being made, which can result in utilities being shut off, common property maintenance not being done and so on. In this case, a body corporate may need to get a loan to cover these expenses while they are getting the matter sorted out.
The financial solution for outstanding levies
Our Debtor Finance solution is ideal for community schemes that are in hot water due to homeowners not paying their levies. It’s not advisable for a scheme to dip into their reserve fund, so our Debtor Finance offers scheme’s a way to cover their bills while they are dealing with the defaulting homeowners, to avoid disaster.
Debtor Finance is a revolving loan of up to 80% of levy arrears. It allows schemes to pay their bills with no interruptions, and without dipping into the reserve fund. Propell makes an advance payment to the scheme which amounts to 80% of levy arrears at the start of the agreement. Then every month the community scheme or its managing agent provides Propell with updated reports of arrears and the status of the collection process. Propell then determines whether a further advance is payable by it to the community scheme or whether the community scheme is required to make a repayment.
At Propell, we pride ourselves on being a helpful solution for community schemes that are in financial trouble, to make sure that when payments dry up, your revenue stream doesn’t.