Sectional title property schemes have emerged as one of the top trends for 2023 with reports from bond originators showing that they have seen a “significant interest in sectional title properties in the past few years, accounting for between 37% and 44% of stock value” 1 and that almost a third of all property sales are now for sectional title properties with first-time buyers showing a lot of interest in new developments. Meanwhile, property data reflects that the volume of transfers for freehold homes has been steadily declining for the past five years.
When you buy into a sectional title scheme, one of the first things you need to understand is that levy payments are essential to maintaining the value of your property investment – and why guarding against non-payment is critical.
Levies – the lifeblood of your sectional title property
Levies are essential for maintaining the health and structure of your sectional title scheme. As an owner, you will be required to pay your levy (a specified monthly amount) to your body corporate which will then use the collected levies for the maintenance and day-to-day management of the scheme.
Although the owner is responsible for paying the funds, the body corporate or the appointed Property Management Agent, is responsible for the collection of the levies from all members in the scheme.
What do levies cover?
Any owner in a sectional title scheme is entitled to know what levies cover. Firstly, levies cover all the costs related to the common areas of the scheme. This includes:
- Repair, upkeep, management, and administration of the scheme’s common property.
- Salaries of staff (cleaners, gardeners, etc.) employed by the body corporate.
- Payment of contractors, etc.
- Complex security.
In addition, the funds collected can be used to cover administrative costs including management fees, refuse collection, and property insurance as well as charges for electricity and water of the common property. Trustees can also raise special levies to cover property maintenance projects that might fall outside of the normal levies – like emergency waterproofing or repairs. Essentially these special levies cover any costs relating to the improvement of the scheme that are not covered in the monthly levies
What is not covered in levies
Levies do not cover any maintenance or repairs that occur within an owner’s individual property like a leaking pipe, internal painting or damaged roof.
How are levies calculated
Levies can be calculated in three ways:
- On the basis of measured floor area (participation quota). This is the most common way levies are calculated. 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.”
This means the bigger your residential unit in the community, the higher your levy owed to the body corporate.
- Equal pro rata basis
This is where all owners pay the same levy, regardless of the size of their unit. This only makes sense, where the units are relatively the same size.
- Value of owner investment in the scheme
This is not a common method as over time, the investment value will change
Why levies can’t lag
If owners do not pay their levies, the necessary income needed to maintain the sectional property scheme is not obtained and upkeep is neglected. As a result the value of every property in the scheme is compromised. In the event of non-payment, under the South African Sectional Titles Act, the Property Management Agent or body corporate is entitled to hand the matter over to an attorney who will proceed with action to recover the unpaid levies.
Protect your property investment
An authorised Property Management Agent will ensure the collection of all monthly levies and manage the maintenance of the property in the best interests of all owners. For expert property management services, speak to our experienced EA Property Management team today.