Sectional title corner – By when does the reserve fund HAVE to be 100%?
With many schemes being unprepared for the requirements of the STSMA and CSOS regulations, they are scrambling to meet their requirements and as such are following the law to the letter. I received an email notice from my managing agent which said our levy would increase by 15% to meet the reserve fund requirement of 25% of annual levy contributions. My question is, even if the reserve fund is zero, is it a regulatory requirement to enforce the maximum 15% levy increase? Or can schemes/managing agents do an incremental increase?
Another question on this: By when do schemes’ reserve funds need to be 100% of their annual levy contributions?
As with all new legislation there is some confusion. There is no maximum 15% increase. The act gives trustees the authority to increase the levies by a maximum of 10% at the beginning of the financial year; at the AGM, however, there is no maximum and the body corporate can increase the levies by 200% or more if needed.
Due to the prescriptions about the reserve fund some complexes will be facing big increases, but there was no deadline given as to by when they should reach the 100%.
There are two pieces of the act that applies here:
Regulation 2 of the STSM
Minimum amounts for reserve fund
Regulation 2. For the purposes of section 3(1)(b) of the Act, the minimum amount of the annual contribution to the reserve fund for a financial year being budgeted for, other than the financial year budgeted for at the first general meeting referred to in section 2(8) of the Act, must be determined as follows:
(a) If the amount of money in the reserve fund at the end of the previous financial year is less than 25 per cent of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least 15 per cent of the total budgeted contribution to the administrative fund;
(b) if the amount of money in the reserve fund at the end of the previous financial year is equal to or greater than 100 per cent of the total contributions to the administrative fund for that previous financial year, there is no minimum contribution to the reserve fund; and
(c) if the amount of money in the reserve fund at the end of the previous financial year is more than 25 per cent but less than 100 per cent of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for.
And PMR 22
22(2) The annual contribution to the reserve fund for the maintenance, repair or replacement of each of the major capital items must be determined according to the following formula: [(estimated cost minus past contribution) divided by expected life].
So they have to follow PMR 22 and the minimum requirements is Regulation 2.
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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.