Hidden Costs of Sectional Title Complexes Ownership
When considering the purchase of a unit within a sectional title complex, it is crucial to look beyond the advertised levies and conduct thorough research to avoid unexpected financial burdens.
The structure of sectional title schemes.
In sectional title schemes, you own your unit but share ownership of the property’s common areas with other unit owners. This collective ownership, known as the body corporate, is responsible for the maintenance of exteriors, gardens, security, and the overall upkeep of the complex. These responsibilities are funded through monthly levies, which can be more complex than they first appear.
The administrative levy is the primary fee in sectional title schemes, varying based on your unit’s size, which means that larger units contribute more. This levy covers not just the utilities—such as electricity and water, billed collectively to the scheme and then apportioned to units based on usage—but also the maintenance of common areas, operational expenses, and building insurance.
Reserve funds and special levies.
Since 2016, a law has mandated that a portion of levies be allocated to reserve funds for long-term maintenance, guided by a 10-year capital expenditure plan. This fund, typically no less than 15% of the administrative levy, is designed to prevent the sudden imposition of special levies for major maintenance projects.
Despite the reserve fund’s intent to cover large expenses, unforeseen costs like significant repairs or utility billing errors can necessitate special levies. These are decided by the trustees and can represent a significant additional cost.
CSOS levy.
The Community Scheme Ombud Service (CSOS) levy is another cost. It's the lower of R40 or 2% of an owner's levy exceeding R500, with no charge for levies under R500. Managing agents collect this levy quarterly.
The risk of non-paying owners.
Non-paying owners in sectional title schemes pose a significant risk, which can strain the scheme’s finances. Trustees can address late levies by seeking an adjudication order from the Community Schemes Ombud Service (CSOS) or taking legal action through an attorney to enforce payments. However, these steps can take time, and in the interim, compliant owners may face unexpected special levies as the scheme manages these financial shortfalls, directly impacting your budget and financial planning.
Make an informed decision.
Before committing to a purchase, prospective buyers should request the latest levy statement to fully understand monthly charges, particularly since utilities are included in sectional titles. The actual cost, including utilities, can far exceed initial quotes. It’s also vital to review the most recent AGM pack, current budget, and financial statements to understand the financial health of the scheme and avoid investing in a poorly managed, financially unstable scheme.
Author ESI Attorneys