What are levies?
When you buy a sectional title unit in a sectional title scheme, as owner you will be required to pay a certain monthly amount, in the form of levies, to the body corporate of the sectional title scheme which must be used for the maintenance and day-to-day management of the scheme. According to the Sectional Titles Act (“the Act”) the owners have to pay levies and the body corporate is required to collect such.
What are levies for?
Levies can be applied for a number of purposes, most prominently being:
- Repair, upkeep, management and administration of the scheme’s common property.
- Payment of taxes (if units are not taxed separately) and other local authority charges for electricity, gas, water, etc. of the common property.
- Fulfilment of an obligation incurred by the body corporate.
- Complex security
- Capital projects.
- Salaries of staff (cleaners, gardeners etc.) employed by the body corporate.
- Payment of contractors, etc.
The body corporate will at its annual general meeting determine the levies for the year based on the budgeted expenditure of the scheme for the following year. Owners may sometimes also be required to pay a special levy to cover a certain project such as the instalment of an electric gate or swimming pool for the complex or to cover unseen expenses such as essential repairs and maintenance.
How are levies calculated?
Levies can be calculated:
- on the basis of measured floor area (participation quota);
- on an equal pro rata basis; or
- on the value of each owner’s investment in the scheme.
Participation quota basis:
This is generally the most common basis for determining the levy contribution of an owner. According to the Act, in the case of a scheme for residential purposes, the participation quota of a section shall be a percentage expressed to 4 decimal places, and arrived at by dividing the floor area of the section by the floor area of all the sections of the buildings comprised in the scheme.
The body corporate is in some instances allowed to move away from this prescribed expense-sharing formula, and a developer can, when submitting an application for the opening of a sectional title register, or the members of the body corporate by special resolution, make rules in terms of which a different value is attached to the vote of the owner of any section, or the liability of the owner of any section to make contributions, is modified. In practice all common expenses, whether special or not, will under this basis of allocation be paid by the owners according to their participation quotas based on floor area, unless amended by special resolution of the body corporate.
Equal pro rata basis:
The equal pro rata payment of levies is where each owner pays the same amount each month. It does not matter what the size of the owner’s unit is or which unit is responsible for the most expenses, as all units are treated exactly the same. This approach can be used for all the expenses of the scheme or only for certain specified expenses. This can be appropriate where the units are broadly similar, but can likewise be very unfair where units differ dramatically in size and contribution to expenses.
Each owner’s investment in scheme basis:
In this instance levies are calculated based on what each owner’s investment in the scheme was. This formula is not frequently used and is not very popular as the investment value can become dated and can differ from unit to unit as units are resold.
Non-payment of levies
The Act makes the payment of levies by owners in a sectional title scheme compulsory. If an owner thus does not pay levies, he is in breach of the Act and steps can be taken against the owner by the trustees of the Scheme. These steps can involve a basic demand to pay, to eventual repossession of the unit and ultimately sale in execution of the property to recover arrear levies. Importantly, non-payment is actionable and steps can be taken to recover arrear levies.
The importance of paying levies
If owners do not pay their levies, necessary income required to operate the scheme is not obtained, ultimately affecting the value of each owner in the scheme due to necessary maintenance and upkeep not being done, security being compromised and the overall respectability of the complex being tarnished.
Additionally, the Act determines that if you wish to sell your sectional unit, the transferring conveyancer is required to certify that the body corporate has confirmed that all monies due to it in respect of that particular unit have been paid or has been secured to the satisfaction of the body corporate. Accordingly, if an owner in arrears wishes to sells his unit, he will first have to obtain a ‘levy clearance certificate’ from the managing agent or trustees before the unit can be legally transferred to the buyer. If levy payments have fallen behind, this can become a major cash flow concern for an intending seller as the trustees or managing agent will refuse to issue such a levy clearance certificate until all arrear amounts owing to the body corporate have been paid.
Whether your levy is large or small or based on your participation quota or another method of calculation, the continued payment of your levy is essential to the continued success of the scheme. This does not require you to pay blindly, and is the involvement of a sectional title owner in the annual budgeting and levy allocation of the scheme, encouraged. In this regard, the assistance of a property specialist can be obtained to help clarify any uncertainties that may arise.