For the newcomers in Ekurhuleni, there are many questions regarding the separate payment of rates and taxes by owners directly to the council. Prior to the implementation of the Rates Act, the position was that the body corporate would receive one account reflecting a lump sum amount in respect of rates and taxes.
The trustees of the complex would in turn divide up the account, in all probability by participation quota, and would make one payment to the council and receive the requisite amount back from each owner.
Since the rollout of the Municipal Rates Act in each area, at different times, each owner receives his own rates and taxes account which he pays directly to the council. Whilst we are certainly not in the vanguard of local government competency, after many teething problems, the system of paying individual rates appears to be sustainable, and alleviates the administrative burden on the body corporate.
The scheme's monthly invoice excludes any amount for rates and taxes.
The question now arises: Does the normal levy reduce by the average amount of the divided municipal account?
Many irate owners have telephoned to complain that they are still paying the same levy, and in addition, over and above the levy, they have to pay rates and taxes.
The truth of it is, in most of the complexes with which I deal, the trustees, utilising their delegated power and discretion, have decided to maintain the same levy payment. The rationale behind this decision is that the additional amount will create a buffer in the account, which may avoid the need of having to pay special levies at a later stage.
The Sectional Titles Act does not prescribe any amount to hold in an account in excess of the income received to cover the expenses. After all, a body corporate is not a profit-making organisation. Consequently, it is incumbent upon the trustees to make prudent decisions based on the particular requirements of the body corporate.
You may encounter a conservative group of trustees, as I did in a complex in Johannesburg, where the chairman was a previous minister of finance for the country. Those chaps held a buffer of R500k, and still raised special levies to be on the safe side. There is no set formula. Each building is different.
I encourage trustees to maintain the levy in spite of a separate payment by owners for rates. It is a wise decision in these times and in my opinion constitutes good governance in keeping with their fiduciary duties.
Many trustees have allocated the additional monies received to specific projects for the building. This appears to be more palatable to owners.
Transparency and good communication is vital in order to keep the peace. Too many owners simply receive an account without an explanation as to why the levy is not being reduced. On the other hand, it is heartening to see an increasing number of complexes sending out professional newsletters on a monthly basis, which serve to convey important information to members of the body corporate.
Marina Constas is director of BBM Attorneys and co-author of Demistifying Sectional Title.
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Nice article!
What was not mentioned is that property tax has increased substantially for sectional title owners as prier to a year back the tax was calculated on the land size and not the value of each property.
The body corporate is still paying tax on the common property which is a large chunk of the total property and thus the tax bill received by the body corporate is only marginally less than it used to be hence the levies are unchanged or increased to account for excessive municipal increases.
So in summary sectional titles owners are being double taxed with the new system to fund the
ailing municipalities (recall the double billing in Tshwane Metro during May to "align billing…". - Greg
While we understand that the property Taxes have increased incurring higher tax costs than prior to the separate Rates & Taxes being instituted, it does not make sense that the individual owners should be paying the additional R500k per month into the body corporate account.
1) This account is said to be well run if the balance is near as possible to zero balance at the financial year end.
2) Another reason being is, what happens if an owner decides to sell their unit, does he/she have a claim to his proportion of the funds collected to date? – Real Estate agent on KZN Lower South Coast
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