Trustees of sectional title property schemes may be tempted to under budget levies but this is tantamount to courting disaster. 

The reluctance to raise levies is always strengthened by a lack of information on the true cost of managing and maintaining a sectional title scheme, says Bauer.

This is according to Michael Bauer, general manager of property management company IHFM, who says that all too often in setting the budgets for the new financial year, which now has to be done prior to the financial year end of the body corporate, trustees bow to pressure from their members  and set the levies too low. 

Bauer says this then results in expenditure on important maintenance, repairs, security and other matters being put on the back burner, with disastrous long-term results. 

The reluctance to raise levies is always strengthened by a lack of information on the true cost of managing and maintaining a sectional title scheme, says Bauer.  

He adds that for this reason at IHFM they have drawn up a database of levy figures for sectional title schemes, which is based on a levy per square metre benchmark – but takes into account such relevant facts as the area, the age of the building and the additional facilities (such as gardens, lifts, gymnasia, swimming pools and parking areas).  

“It gives a good guide as to the actual cost of running a sectional title scheme,” he says. 

As managing agents involved with all types and sizes of sectional title schemes, IHFM, says Bauer, is amazed to find how great the differences in levies can be (e.g. from R15 per m² up to R30 per m² per month for schemes in the same area). Almost invariably, he says, the low paying schemes have the most immediate problems and in the long run these schemes hit serious maintenance problems.

“Schemes in financial difficulties will inevitably lose value – but it is surprising how often people buy into them without asking to see its accounts and a record of its meetings.” 

Bauer says this tendency is exacerbated by estate agents who, while understanding the units that they are selling, remain in the dark on the overall situation of the scheme in which the section is situated.  This can now have repercussions for them in terms of the Consumer Protection Act, he warns. 

“I have actually been asked by a seller if legally he is obliged to reveal a maintenance backlog in his sectional title scheme to the buyer. In most cases, such facts are quietly overlooked.” 

Bauer says banks today will never grant a bond on a unit without carrying out a due diligence on the financial affairs of the body corporate.  

He adds this is putting pressure on trustees to perform better and to fulfil their fiduciary responsibilities, but there are still often cases where a new buyer, having budgeted for a levy at a rate he can afford, is told a few months later that he has to find funds for a special levy.  

Bauer says that the trustees of schemes with lifts have to accept that at some stage the usual maintenance costs will be inadequate:  a total overhaul or a replacement is likely to be essential at some stage in any scheme over 25 years old. If the lift is regularly maintained, lifts can work for 50 years and more. 

Although special levies are unpopular, they should not be shirked where unforeseen expenditure has become essential, says Bauer.  

“It is far better to cause a little pain now, than to see a sectional title scheme deteriorate because it is inadequately maintained, secured and insured.” 

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