What you need to know about levies in complexes and estates in South Africa

It is more important than ever to understand what living in a complex or gated community entails as more South Africans move away from standalone houses to live behind a boom.

Lucia Erasmus, a real estate law expert at Cliffe Dekker Hofmeyr, provided a breakdown of how body corporates, owners’ associations or mixed-use developments fund levies.

According to Erasmus, a levy is a contribution to common expenses. The two most common types of levies are due to the body corporate of a sectional title scheme and levies imposed by an owners’ association on its members.

Levies due to a body corporate

Under the law that governs sectional titles in South Africa, the levy that an owner of a residential property owes is determined in terms of the ‘participation quota of a unit,’ said Erasmus.

The Sectional Title Scheme Management Act states that the area of a property in terms of a percentage of all units in the community is used as a basis to determine the level of contribution, said Erasmus.

In this calculation, the bigger your residential unit in the community, the higher your levy owed to the body corporate.

Things become more complex when a body corporate is formed with a mixture of commercial, office, retail or residential units. This organisation is called a ‘mixed-use’ scheme, said Erasmus.

In these schemes, rules are often introduced to safeguard the respective interest of owners of the various categories based on use to ensure that the owners of one category of units do not subsidise expenses relating solely to a different category, the expert said.

For example, if a lift is dedicated for the use of residential owners only, then any expense relating to the maintenance and replacement of the lift should be allocated to and covered by the owners of residential units only.

The real estate expert said that a cost relating to a specific category, for example, retail, can be allocated to be paid by the owners of the category of units.

When the amount is allocated, it will undergo the same calculation as residential units, where it is expressed in terms of the size of the unit as a percentage of the aggregate size of all the (residential) units, said Erasmus.

She said the management structure must be carefully considered to ensure that the rules give clear guidelines on the allocation of expenses.

Levies imposed by an owners’ association

If the land on which a sectional scheme is developed is situated in an estate or forms part of a precinct which is subject to a master owner’s association, sectional owners should familiarise themselves with the constitutional documents of the master owners’ association,

A master owner’s association could be a non-profit company, a voluntary association or a different association entirely. The association, in terms of its constitution, defines the communal facilities of an estate that will be used by all members of the owners’ association, said Erasmus.

These can include parks, golf courses, dams, roads, gatehouses and access control.

The constitution will determine whether the individual sectional owner or the body corporate is a member of the owners’ association and will determine the method of allocation of levies, said Erasmus.

“The levies will cover the expenses relating to the common facilities owned or managed by the owners’ association, and these would similarly be incorporated in a budget to be approved by the directors or the members.”

Stabilisation funds

Certain retirement schemes and other lifestyle estates have introduced a separate levy stabilisation fund aimed at keeping the payment of levies below the inflation rate, said Erasmus.

“A member of a scheme with a stabilisation fund is normally required to make a once-off payment to the body corporate or owners’ association on the sale of the member’s unit or property.”

The once-off payment is normally a percentage of the difference between the selling price of the unit or property at the time the member disposes of the unit or property and the purchase price when the unit or property was acquired.

While the member resides in the scheme, the member will enjoy the benefit of a lower and stable levy.

According to Erasmus, the problem occurs when there has been substantial growth in the value before the unit or property is sold, and the member feels disgruntled about contributing to the levy.

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