What is a Levy?
The levy is a monthly instalment paid by sectional title unit owners which facilitates the efficient day-to-day maintenance and management of the communal property of a Sectional Title Scheme. According to the Sectional Titles Act of 1986 (“the Act”) the Body Corporate is responsible for establishing an administrative fund that adequately meets these monthly expenses. Every owner is liable to pay a monetary contribution towards this fund; ensuring that ample funding is available to fulfil the obligations set forth by the Body Corporate and stipulated in the Sectional Titles Act.
What costs does the Levy cover?
The Levy covers necessary expenses incurred by the Body Corporate in the administration, upkeep, running and repair of the common property, such as:
- Rates, Taxes, Gas, Water and Electricity for the Common Property
- Insurance, Sewerage, Sanitary and Security for the Common Property
- Maintenance and Repairs for the Common Property
- Staff Wages and Salaries, payment of Contractors etc
The levy should also make reasonable provision for unforeseen future expenses.
Who pays the Levies?
The unit owners are responsible for paying the levy amount, as well as any Special Levies raised by the Trustees.
Who decides on the Levy amount?
The Body Corporate and Trustees attend the Annual General Meeting. A budget for the new financial year is presented by the Trustees, duly appointed by the Body Corporate, and once accepted, is divided amongst unit owners into a monthly levy amount. This amount may vary according to the participation quota (measured floor area) for each owner’s unit. In other words, larger units will often pay a higher levy. The Trustees also decide on the number of instalments in which the levy will be paid. Although the levy amount is implemented at the start of the Scheme, it may be subject to change by general resolution at the AGM.
What is a Special Levy?
The Trustees may occasionally raise a Special Levy to cover unexpected, necessary expenses or projects that were not included in the budget and approved at the previous AGM, to be paid in a lump sum or instalments by the owners.
What are the Consequences of unpaid Levies?
The Act stipulates that levy payment is compulsory. Owners who do not pay their levies place an unfair burden on the community of home owners within the Scheme who are diligently paying their levies. Levies play an essential part in ensuring that a Sectional Title Scheme continues to operate smoothly in all aspects of management and maintenance; unpaid levies compromise the integrity and condition of the Scheme because the Body Corporate is unable to meet its financial obligations.
For example, repairs and maintenance to the common property falter because staff salaries or repair costs cannot be paid; upgrades and improvements are delayed; municipal accounts fall into arrears and the resulting debts may prompt Trustees to raise Special Levies to continue covering costs. The condition of the complex and the financial standing of the Scheme have a significant impact on the rental demand for it – unsurprisingly quality tenants prefer to rent units run by an efficient Body Corporate or Managing Agent – and in terms of sales, aspirant buyers are now more inclined than ever to assess whether a Scheme is financially sound before buying into it.
Therefore, tenant placement and resale value is adversely affected by a financially unstable Body Corporate. Not to mention, owners wishing to sell their unit need to obtain a levy clearance certificate from the Trustees stating that that they are up-to-date with their levy payments before the property can be legally transferred to the buyer. This certificate will not be issued if an owner is in arrears, resulting in lengthy delays in the sales and registration process. Failure to pay the full levy amount can have serious negative repercussions, especially to an individual’s credit rating.
What does the Arrears Collection Process entail?
The Trustees will hand the arrears account over to an attorney for collection, which will begin a damaging and lengthy collection process, whereby the objective is to minimise loss by collecting the outstanding amount as quickly as possible. The pre-legal notice is sent to the owner in arrears in the hope that the outstanding levies will be paid in full without the need for further legal action.
Should the owner continue to default on their levy payments, a letter of demand is issued, followed by a summons served against the debtor. This process can result in the owner being blacklisted for unpaid levies – the ensuing judgement remains on an individual’s credit report for up to 5 years. The success of the Body Corporate in efficiently managing a Sectional Title Scheme largely depends on each individual owner’s conscientious and committed approach to paying their levies. Levies play an essential role in ensuring that a Sectional Title Scheme is managed and maintained well and it is up to the individual owner to actively participate and contribute.