Many people might not be aware of that since November 2008, according to Annexure 8, Management Rule 31 (4A) of the Sectional Title Act, the trustees of bodies corporate have been allowed to implement a new budget and levies from the beginning of the financial year and not wait for the AGM to be held, says Michael Bauer, general manager of the property management company IHFM. The increase, however, must not exceed 10%.
PMR 31 (4A) states that “After the expiry of a financial year and until they become liable for contributions in respect of the ensuing financial year, owners are liable for contributions of the same amounts and payable in the same instalments as were due and payable by them during the expired financial year: provided that the trustees may, if they consider it necessary and by written notice to the owners, increase the contributions due by the owners by a maximum of 10 percent to take account of the anticipated increased liabilities of the body corporate.”
This said Bauer, is very useful for trustees to allow for increases and for trustees to avoid having to backdate the increases or raise special levies (very often the AGM is not held until later and the increase should have been implemented by then).
It is important to note, however, that this applies to bodies corporate only and not to homeowners’ associations.
In October 2011 PMR 36 (1) was amended to say that trustees must prepare the levy budget before the financial year end and to present this budget to the members at the AGM, which is a welcome change, said Bauer. In the past budgets were only prepared weeks before the AGM (usually four months after the financial year end) and the budget was approved by the members. This would cause financial strain for the scheme’s cash flow which can now be avoided.
On a related note, Bauer mentions that an important issue in sectional title schemes that managing agents and trustees need to keep in mind is when the levies are due.
Section 37 (2) in the Sectional Title Act says that the levy contributions are due and payable on the passing of a resolution by the trustees of the body corporate. The usual process is that the levy budget is approved at the AGM with or without amendments, but within 14 days after that resolution must be passed once the trustees have worked out the levies for each unit, how the levy is payable, i.e. monthly, quarterly, annually, what interest rate will be charged if the payments are late and what compound interest will be added and then, of course, when the payments are due.
Some schemes, said Bauer, ask for levies to be paid upfront for the year ahead, some split the amount into two payments and some schemes collect levies on a monthly basis.
There is a high percentage of sectional title owners though, who do not pay their levies on time and some not at all. In these cases in the past these defaulters were dealt with by attorneys once the account was handed over. Now, there is a growing trend towards mediation and arbitration to get these disputes sorted out because it is usually quicker and cheaper.
Once it is found that there is a levy default Prescribed Management Rule 71 states that arbitration can go ahead 14 days after a notice has been sent to the levy defaulter whereas using the older method of handing the account over to an attorney took months.
“There was a recent case in Johannesburg where the arbitrator took all of 20 minutes to come to a decision as to what was owed by a trustee, what interest should have been paid and when it needed to be paid. This is because all of the processes were done correctly; there were resolutions in place stating clearly what interest would be charged and when payments were due.”
The basis of efficient debt collection in all sectional title schemes, said Bauer, comes from clear communication to all owners what levies are due, what interest will be charged and what time frame they have to pay.
Readers may be interested in the fact that Propell, South Africa’s a leading levy funding and collections company has added an additional product offering to their existing levy financing products so as to position themselves as niche credit providers to all segments of the Bodies Corporates market. “Our product range and extensive experience in this industry allows us to offer effective service, ensuring financial sustainability to schemes and peace of mind to owners and trustees,” says Johann le Roux, Executive Director of Propell.
Their new Arrears Finance Product is aimed at assisting Bodies Corporate to successfully turn their arrears debtors into cash and alleviating the collections headaches associated with non-payers.
“Many schemes find themselves at the mercy of a select few owners who refuse to pay their levies. This places enormous pressure on the successful running of the scheme. In some cases, the scheme needs to take costly legal action against the defaulting owners, which adds to the already strained financial situation of the scheme,” says Johann le Roux, Executive Director of Propell. “Immediate access to funds previously locked-up in arrear levies allows trustees to quickly address a scheme’s pressing needs. By allowing the scheme to access future arrears as and when they occur, ensures that non-payers do not hold the scheme hostage and could even avoid the raising of unwanted future special levies.”
This new product safeguards a scheme’s cash flow as a facility is offered to access arrears. Trustees can simply access the cash locked up in the schemes debtors book as and when required. There is no cost to sign up and also no monthly or annual premiums. The full management function remains with the Managing Agent, so there is also no interruption to the day to day running of the scheme.
Efficient collection and access to funds permanently reverse the cycle of deterioration caused by default levy payers
