How to deal with special levies

05 Dec 2012

The term “Special levy” can often strike fear into the hearts of owners in sectional title schemes, as is frequently seen in the course of business at Propell.

Owners become liable for paying their portion of a special levy in accordance with their participation quota and these portions can be substantial and hit them without warning.

The annual budget must be drawn up by the trustees and approved by members at the annual AGM. In a perfect world, this budget would include a surplus which allows for a build-up of a reserve fund to cater for ongoing maintenance and upgrades in services such as security and elevators, etc. However, this is often not the reality in a large percentage of schemes today.

The prescribed management rules (PMR) 31(4) gives the trustees the power to raise special levies sometimes, due to unforseen expenses, provided that two requirements are met. Firstly, the expense for which the special levy is raised must be necessary and secondly, the expense must not have been included in the budget approved by owners at the last AGM. The trustees may decide whether to make the special levy payable in one lump sum or in instalments, as the trustees see fit.

In terms of section 37(2) of the Act, the persons who are owners at the time of the special levy being raised will be liable for payment thereof. Trustees are also authorised to exercise sole discretion in the interpretation of “necessary” and “unforeseen” subject to the provisions of sections 39 and 40 of the Act.

In accordance with section 39(1) of the Act and rule 30 of annexure “A” to the Sectional Title Regulations, the function of determining the amounts to be levied upon members is up to the trustees, and no member is entitled to dispute liability for the payment on the grounds that they are excessive.

If an owner does decide to dispute whether the special levy was indeed necessary and was not budgeted for, they would need to declare a dispute with the trustees and then take the matter to arbitration.

Any owner who believes a special levy was raised irregularly would be well advised not to react by withholding payment, as the result of this can only be that they will incur additional expenses in the form of collection commission, interest and legal costs.

Trustees who are in the position where they are considering raising a special levy should ensure they are adequately informed of the options available for members of their body corporate. In the current economic climate, there will be a percentage of owners that would be hard pressed to produce large sums in a short period in order to cover their portion in the case of a hefty special levy.

If a scheme finds itself in the position where additional monies are needed to cover an unforeseen expense, they should look to financial loan companies that have specially formulated products to help with financial products for Bodies Corporate. - Johann le Roux.

About the Author

Johann le Roux

Johann le Roux is a qualified Chartered Accountant and the business development director at Propell. Propell is a levy finance and collections specialist. The company has been supplying innovative financial solutions to the South African sectional title and Home Owner Association market since 1999 - www.propell.co.za