There are several important maintenance requirements arising from the Sectional Title Schemes Management (STSM) Act which apply to Sectional Title buildings. The practical objectives are to promote more formalised, long-term and consistent maintenance planning and implementation, backed by commensurate budgeting and financial management. Estate agents will confirm that better-maintained buildings achieve a better first impression and sales price, also that the risk of special levies in poorly maintained buildings has been a disincentive for potential buyers, not to mention a serious concern for existing owners. This new legislation aims to address these issues which have a direct bearing on property value creation as well as living standards in the property.
The first important requirement of the new legislation is for a documented 10-year maintenance plan to be prepared and presented at the Annual General Meeting (AGM). The Act does not specify the format of the maintenance plan other than that it must include all major maintenance items (such as electrical, plumbing glazing, windows and waterproofing) and that the cost of repairing, replacing or maintaining these items over a 10-year period should be mapped out. Also at the AGM, the maintenance undertaken over the prior year and planned for the next year should be reported. In this way, maintenance planning in Sectional Title buildings will be better defined, more clearly explained and reported, and will thereby facilitate more effective maintenance budgeting (and saving).
Larger buildings with potentially more complex maintenance requirements may prefer a specialised maintenance planning service provider to survey the property and compile the necessary 10-year maintenance plan (at an estimated cost of around R6000 for an example building of 40 units). Smaller buildings or those with financial challenges may need to compile their own maintenance plan with the assistance of the Trustees or managing agent. Either way a written plan presented annually will facilitate better maintenance planning and implementation. In addition, the plan will assist the Trustees to account to the members at the AGM for maintenance expenditure.
There are two different provisions in the STSM Act – one in the regulations and one in Annexure 1 of the Prescribed Management Rules. Regulation 2 provides for a dedicated reserve fund (for maintenance) and the minimum amounts to be transferred to reserves. Where the reserve fund of a Sectional Title building at the end of the prior financial year is less than 25% of the annual levy income budget (termed the “administration fund” in the Act), 15% of the administration fund should be transferred to reserves for the year. Where the reserve fund is between 25% – 100% of the administration fund , an amount equivalent to the costs budgeted for all maintenance items in the financial year should be transferred to the reserve fund. When reserves equal more than 100% of the annual administration fund, no transfer to the reserve fund is necessary. It is noted that the fund should accumulate interest. The Act makes provision for the Body Corporate to invest the money with any registered bank or any other financial institution and the Prescribed Management Rule’s go further to state that the Body Corporate may invest any moneys in the reserve fund referred to in sections 3(1)(b) of the Act in a secure investment with any institution referred to in the definition of “financial institution” in section 1 of the Financial Services Board Act, 1990 (Act No. 97 of 1990).
The above should be interpreted in conjunction with Prescribed Management Rule 22, which allows for the reserve fund to be quantified based on the annualised maintenance costs reflected in the 10-year maintenance plan, which again emphasises the importance of this plan.
For more detailed information, to see frequently asked questions or to find links to the source legislation, please visit www.trafalgar.co.za/newlegislation