Legal Articles

According to the Sectional Titles Schemes Managements Act 8 of 2011 (STSMA), administrative funds must be established and reserve funds for body corporate must be maintained by the body corporate.

Separate bank accounts must be opened for each fund as they each serve a specific purpose.

Administration Fund for Body Corporate

According to the regulations of the STSMA, the administrative fund must be used by the body corporate to pay for its operating expenses.

These expenses include, but are not limited to:

• Payments of insurance premiums related to the land or building
• Payments of rates and taxes and well as charges related to the supply of gas, electricity, water, sanitary, fuel or other services to the land or building
• Any costs related to the discharge of a duty of fulfilment or any other obligation of the body corporate
• Any costs related to the repair, maintenance, administration, and management of the common property

Body Corporate Reserve Fund Requirement

Reserve funds for body corporate must be used to implement the repair, maintenance and replacement plan as indicated in the Rules annexure of the STSMA.

These rules make provision for all potential costs of future maintenance, repair and replacements of the common property.

This fund ensures that there are available funds for major and unexpected costs related to the common property within the relevant estate.

Administration vs Maintenance Reserve Fund

According to Rule 26(1)(b) of the STSMA, the body corporate is obliged to open separate accounts and keep separate books for the two funds.

The purpose of these funds, the minimum contributions towards them, the requirements which must be met when payments are made from them as well as the financial records that are required for each account make it undeniable that these accounts should be separate from each other.

Reserve Fund Contribution

The body corporate is required to hold annual meetings where the budgets for each of the funds are discussed and approved for the next financial year.

The budget approval must be in accordance with the provisions of the Regulations of the STSMA.

Administrative Fund Payments

Payments made from the administrative fund may only be made if they are in accordance with the approved budget and trustee resolutions.

Reserve Fund Payments

Payments from the reserve fund can be made at any time for the purpose of urgent maintenance, repair or replacement of common property.

However, such payments must be made in accordance with the approved maintenance, repair and replacement plan as well as the trustee resolutions.

Reserve Funds for Body Corporate

According to Rule 26(1)c, the body corporate is required to prepare the yearly financial statements for presentation at the annual general meeting.

Statements must be audited by an independent auditor and must include an in-depth analysis of at least the following:

• The amounts due to the body corporate in terms of contributions
• Amounts available in the reserve fund

Each fund has its own set of requirements and it’s required that the body corporate ensures that each bank account strictly adheres to its relevant requirements.

Van Deventer & Van Deventer Incorporated – Property Attorneys Cape Town

For expert legal assistance with matters related to property law in South Africa, including reserve funds for body corporate, contact us.