Legal Articles

It was common for trustees of a sectional title scheme to find it challenging to make provisions for the body corporate reserve funds in the annual budget.

In the past, there has been a sort of push and pull regarding raising special levies when the need arises or maintaining higher, monthly levies that secured a sufficient reserve fund over time.

Body corporate reserve funds ultimately eliminate the need to raise a special levy that many members or owners of a sectional title scheme are unsatisfied with.

Body Corporate Reserve Funds and the Administration of Body Corporate

However, when the Sectional Titles Schemes Management Act of 2011 came into force in October 2016, rules around body corporate reserve funds changed.

Now, bodies corporate are compelled to make provisions for reserve funds on an ongoing basis which fits into the long-term, obligatory maintenance requirements of the scheme.

The maintenance plan must cover a 10-year period and is required to project all forecasted expenditure that will be necessary over this period.

An annual review of the maintenance plan must be carried out to establish what maintenance was in fact carried out throughout the year and what the plan is for the next 10-year period.

Two Budgets Required for Body Corporates

Administrative Budget

This is the original body corporate budget that is still required and makes provision for every day maintenance activities within the sectional title scheme.

Reserve Fund

This fund serves as an additional budget which provides finances for a 10-year maintenance plan through collecting levies from the members.

The reserve amount must be calculated to ensure there is sufficient capital for the administrative budget.

This calculation is done by way of three methods:

• The body corporate must provide for a reserve fund equal to 15% of the levy income for the new financial year if the reserve fund at the end of the financial year is less than 25% of the levy income generated during the same year
• The body corporate is under no obligation to provide for a reserve fund amount in the new budget if the reserve fund at the end of the financial year is equal to or more than the levy income generated in the same year
• The body corporate must provide for a reserve amount equal to the repairs and maintenance items provided for in the new budget if the reserve fund at the end of the financial year is between 25% and 100% of the levy income generated during the same year

Van Deventer & Van Deventer Incorporated – Property Attorneys South Africa

The fundamental purpose of the new Act is to ensure that community schemes such as sectional title schemes continue to save on an ongoing basis.

For more information regarding body corporate reserve funds and other matters related to sectional title schemes in South Africa, please contact us.