Sectional title corner – can levies be hiked more than 10%?
How are sectional title levy annual increases calculated? Can the increase be up to 16%, and what informs that decision? – Lesego
In order to plan for a specific financial year (or a longer period as determined by the trustees) the body corporate must draw up a budget. It is customary for them to get the managing agent to assist with this.
The budget can only be approved at an Annual General Meeting (AGM) (Prescribed Management Rule 31(1)) – and it is a prescribed agenda point in terms of the Sectional Titles Act. The budget must include reasonable provision for contingencies and future maintenance.
The budget process starts by making a list of all the expenses of the body corporate. This can include (but is not be limited to) the following:
- Rates (where the body corporate owns a section(s))
- Managing agent fees
- Lift contracts
- Security services
- Garden services
- Pool services
- Salaries and wages
- Accounting fees
- Audit fees
- Bank charges
- Meeting costs
- Legal fees (other than that incurred for collecting levies)
- Maintenance expenses
- Meter reading fees
- Printing and stationery
The levies are a function of the expenses: if the expenses for the body corporate amounts to R100,000 per month then the income must be enough per month to cover that.
Examples of income received by the body corporate include:
- Special levies
- EUA levies
- Service recoveries
- Rental of common property
- Interest on arear levies
- Interest on bank accounts
Although the body corporate also derives income from, for example, interest on bank accounts, it is not advisable to budget/rely on this.
There should also be a reserve fund available to the body corporate for unforeseen expenses. Although the current Sectional Titles Act does not prescribe the amounts for the reserve fund, the proposed Sectional Title Schemes Management Act covers this at length – though the act is not in effect yet.
There is no limit to what the levies can be increased to – by the AGM. The only limit is set on the trustees if they want to increase the levies from the first day of the financial year (and get it ratified at the AGM). Prescribed Management Rule 31(4Aa) makes provision that the trustees can increase the levies by a maximum of 10% in this case.
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Who is Karien Coetzee?
Karien Coetzee is the national property management consultant at property management company, Trafalgar. She holds qualifications in sectional title schemes management and homeowners association management.