The massive money double-blow that hit SA complex residents in 2017

In October 2016, the government passed two property-based pieces of legislation – the Community Schemes Ombudsman Act (CSOS) and the Sectional Titles Schemes Management Act (STSMA).

The effects of the new laws have been primarily felt by residents living in complexes and other sectional title units, most notably in the amount that these residents are expected to pay every month.

BusinessTech spoke to a number of legal and property experts to work out exactly how much more you are paying.

Community Schemes Ombudsman Act 

  • R0 – R40 a month
  • R0 – R480 a year

According to Justine Krige of legal firm Cliffe Dekker Hofmeyr, typical examples of community schemes include sectional title development schemes, share block companies, home or property owners’ associations and life right development schemes for retired persons.

“Shared responsibility for land and buildings can sometimes be fraught with conflict, and the Community Schemes Ombud Service (CSOS) aims to resolve disputes efficiently and cost-effectively,” she said.

“In terms of s29(1)(b) of the Act, certain levies are payable by schemes to the CSOS. Regulation 2(1) provides that schemes must collect the prescribed monthly levy from every unit within a community scheme and pay these levies to the CSOS on a quarterly basis.”

“Although not defined, a sensible interpretation of the Act is that units include, amongst others, a section in a sectional title scheme, a house in a housing development or a unit in a life right scheme,” she said.

The regulations set out a table and methodology (based on the levies charged by the relevant schemes) for the calculation of monthly CSOS levies, as follows:

“So, for example, if a monthly levy between R0 and R500 is payable in respect of a unit in a scheme, then no monthly CSOS levy is payable,” said Krige.

“If a monthly levy of R2,500 and above is payable, a monthly CSOS levy of R40 is payable. There is, therefore, a prescribed minimum of R0 and a maximum of R40 per unit, per month, with amounts ranging in between.”

Although these amounts are collected monthly from each unit by the scheme – they are payable quarterly by the scheme to the CSOS at the end of March, June, September and December each year.

Persons that are exempt from paying the CSOS levy are the aforementioned people with a levy of less than R500, while any persons whose monthly net household (gross income less PAYE) income is below R5,500 may apply for partial or full exemption.

In terms of s34 of the Act, any person who fails to comply with the Act is liable, on conviction, to a fine or imprisonment for a period not exceeding 5 years or to both a fine and such imprisonment. Where a person is convicted for a second or subsequent conviction for an offence, he or she is liable to a fine or imprisonment for a period not exceeding 10 years or to both a fine and such imprisonment.

There are also penalties and fines for non/late payment including a 2% attached interest rate on outstanding amounts.

Speaking to BusinessTech real estate lawyer at Norton Rose Fulbright, Lerothodi Mohale, further cautioned that the ombudsman now also has a relatively far reach and was at times just as binding as any other legal body.

He noted that this wasn’t simply an “added tax” and that in his practice he had already seen issues brought before the ombudsman and orders handed down.

“The ombudsman has adjudication powers, whether its down to a complaint received from a body corporate charging too much or failing to maintain, which means you need to ignore any notices you you receive from it at your own peril,” he said.

Sectional Titles Schemes Management Act

  • 15-25% increase of total monthly levy
  • Uncertainty as to whether increases will carry over to 2018

Speaking to BusinessTech in March, Paul French the commercial director for Coastal Property Group said that higher levies were necessary in 2017 to meet the new maintenance fund requirements that came into effect late last year when the Sectional Title Schemes Management Act (STSMA) was introduced.

As a result property experts warned that levies may increase by between 15% and 25% as a result of the STSMA.

Andrew Schaefer, MD at property management specialist Trafalgar, noted that the legislation introduced a compulsory requirement for all schemes to establish and/ or maintain a substantial reserve fund to cover the future cost of any major maintenance projects or emergency repairs to common property.

“The aim of this provision is to eliminate the need in due course for schemes to introduce onerous special levies to cover unexpected expenses, but in the short term it is likely to place an additional burden on most sectional title owners.”

Regulation 2 of the Act stipulated that this reserve fund must be equal to at least 25% of the scheme’s total annual levy budget, and that if it is less than that at the start of any new financial year, the owners in the scheme must add 15% to their total levy budget for the next year as a contribution to their reserve fund.

“And since the majority of schemes do not at this stage have a reserve fund at all, most owners will now be facing a levy increase of 15% a year until the reserve fund is properly established – on top of any annual increase required to cover the rising costs of running the scheme,” Schaefer said.

Provision has been made for lower contributions once the reserve fund has reached 25% of the annual levy budget, Schaefer said, but owners can still expect their levies to be higher until the reserve fund is at least equal to 100% of the scheme’s total levy budget.

However, Lerothodi Mohale real estate lawyer at Norton Rose Fulbright, pointed out that any increase of levies was still something that would be decided on at a sectional title’s annual general meeting.

“In reality the trustees delegate the day to day running of the property to a managing agent such as Trafalgar who then collect, pay and use levies,” he said.

“What has happened is that over the years these levies have been used in the day-to-day running of the sectional title with very few provisions for capital expenditure – i.e. big expenses such as re-tiling roofs.”

“This led to some body corporate introducing very high special levies. leading to government regulating and saying you must have reserve fund – leading to the above increase.”

Of course this increase in levies combined with the new CSOS fees means that sectional-title owners are starting to feel the additional pinch, he said.

Read: Cape Town parking bay on sale for R1.1 million

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The massive money double-blow that hit SA complex residents in 2017