When a sectional title scheme is mismanaged it has widespread repercussions, typically manifesting as cash flow difficulties with levy income not meeting expenses, high levy arrears, outstanding maintenance, municipal service interruptions and rapidly declining property values.
Examples of major implications arising from property mismanagement are:
• The buildings can become run down and unsightly – even unsafe in some instances.
• Owners withholding their levies due to failing service delivery – amplifying the problem
• Can cause damage to sections and owners’ private property, that will not be recoverable by way of an insurance claim
• Accounts not paid in full and on time – leading to service suspensions – security, garden services etc, but also Municipal services – electricity, water etc
• The Body Corporate becomes insolvent and this can lead to owners having problems selling their units – due to the banks not being willing to grant bonds
• The general reputation of the scheme can suffer in the community
• Property values decline substantially
• Maintenance backlogs snowball
In cases where a body corporate is in financial or other distress, one of the owners or creditors may apply for the scheme to be placed under administration. An administrator will assume all the powers of the Body Corporate and Trustees and will be empowered to do whatever is necessary to rescue the buildings and the Body Corporate. This can include vigorous action against arrear levies and possibly implementing enormous special levies. This unfortunately places serious financial strain on owners who have been paying their levies all along – as well as those who have not.
An experienced Managing Agent, such as Trafalgar Property Management can play a very big role in turning around the situation. A proper plan of action must be set up and implemented.
What can be done to prevent mismanagement?
• Elect Trustees that are transparent, honest and willing to work towards what is in the best interest of the Body Corporate.
• Appoint a reputable, experienced Managing Agent with the required industry accreditations
• The Managing Agent should provide accurate and time efficient financial reporting that will report the financial state of the Body Corporate.
• An accurate budget should be compiled ensuring levy income exceeds all real expenses including maintenance costs together with a contribution to building reserves
• Have a proper levy debt collection procedure in place with emphasis on arrear levies and legal recoveries
• The Trustees must meet regularly – to discuss the operational management of the building –
• Manage creditor payments so that the accounts do not fall into arrears.
• Communicate with owners on a regular basis the financial situation of the Body Corporate (arrear levies, outstanding accounts with creditors, maintenance do be done).
• Define, implement and manage a comprehensive maintenance plan
Trafalgar offers specialist property management and financial solutions – visit www.trafalgar.co.za or contact us on 0861 66 44 44 for more information. Trafalgar Financial Services (TFS) have two products that can be of great help to Bodies Corporate that are insolvent or have cashflow issues. The first being “Levy Solutions” whereby TFS buys the debtors book from the Body Corporate – by paying the full amount of arrear levies over to the Body Corporate and then the debt belongs to TFS to collect from the relevant owners. TFS then continues by paying the monthly levies raised over to the Body Corporate – causing an immediate and ongoing cash flow injection.
Another product being “TFS refurbishment loans” – the Body Corporate can take a loan from TFS in order to undertake a maintenance project that they do not immediately the necessary funds to complete. The loan may then be serviced from monthly surpluses ahead or raising a special levy over a period of time.