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Understanding levies in sectional title property schemes

levies in sectional title property schemeLevy payments are essential in maintaining the financial health of any sectional title scheme and those with property investments should understand how these are calculated and why guarding against non-payment is vital.

Part of your strategy when deciding how to buy investment properties would likely include acquiring a portfolio of sectional title properties, which means factoring into your calculations the monthly levy payments for these property investments. Levies are mandatory for owners, as stipulated in the Sectional Titles Act, which assigns the duty of collection to the body corporate for the purpose of ensuring the proper maintenance and running of the scheme.

Expenses funded by levies include administration and management of common property, taxes and services costs such as water, electricity and gas; as well as general maintenance, complex security, insurance, staff salaries, building projects, and service contractor fees, etc.

Levies for the year ahead are set down by the body corporate at the AGM (Annual General Meeting) taking into account expenses in the budget. A special levy may be required for a big project such as adding a new gatehouse and paved driveway or for unexpected repairs to common property.

Calculating levy payments

There are three ways to calculate levies:

1. Participation quota

This is the most common way to determine complex levies. The Sectional Titles Act stipulates that “the participation quota of a section shall be a percentage expressed to four decimal places, and arrived at by dividing the floor area, correct to the nearest square metre, of the section by the floor area, correct to the nearest square metre, of all the sections in the building or buildings comprised in the scheme.”

Occasionally the body corporate may deviate from this formula. The developer can apply for the opening of a sectional title register or the body corporate members can bring a special resolution to set rules using a different method for determining the owner vote.

2. Equal pro rata

Here all owners pay the same monthly levy regardless of the size of their unit. This may apply to all scheme expenses or only certain expenses. The method can work where units are alike but not where they differ vastly in size.

3. Value of owner investment in the scheme

This is not a common method as the investment value changes over time and as units are sold.

Why pay levies?

Levies provide the scheme with financial means to run daily operations, which affects the value of every property. If the common property is not maintained it will deteriorate and the scheme’s overall value will be compromised.

The Act stipulates that when an owner sells, the conveyance attorney must supply proof that the body corporate has collected all monies due for that unit. If the seller owes money to the body corporate, he’ll need to get a levy clearance certificate from the managing agent or trustees before transfer can take place. All arrear amounts will have to be settled for the sale to go ahead.

If an owner doesn’t pay, the trustees can and must take action against him, starting with a demand and ending with a sale in execution to recover outstanding levies.

IGrow Wealth guides investors through the entire process of acquiring distressed properties and below market value properties and ensures you understand how to build a property investment portfolio by making the right decisions right from the start. Investors can also use the full rental administration and management service, which takes all the hassle out of the day to day administration of your rental portfolio, including collection of levies, rates and taxes.

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