The continuing misinterpretation of this controversial and somewhat clumsy phrase in Management Rule 31(2) gives rise to consistent malpractice, erroneous budgeting, cash shortages, unnecessary special levies, and, as demonstrated by The Peaks decision, causes levies to be irrecoverable in law. The sub-rule reads as follows:
‘At every general meeting the body corporate shall approve, with or without amendment, the estimate of income and expenditure referred to in rule 36, and shall determine the amount estimated to be required to be levied upon the owners during the ensuing financial year.’
A popular but incorrect interpretation is that the owners determine the levies at the annual general meeting. There are very good reasons why the legislature wanted to keep this critical function from the hands of the owners, being the very individuals who will subsequently have to pay these levies. The owners’ function and their only power is to determine the amount which is required to be levied and they do this by approving the budget.
Of course, it is much harder to justify specific changes to budgetary items than to ‘blindly’ determine the levies without reference to budget items. This is what the legislature had intended, namely that in order to ‘manipulate’ the levies, the owners must introduce defensible amendments to the budget itself. By approving the budget, with or without amendments, which is the only function the owners are allowed, they have automatically determined the amount estimated to be required to be levied.
Subsequently, the trustees also have no discretion in determining the levies, and must simply apply the participation quotas (or other admissible formula) to the nett amount of the approved budget. To do this, a levy schedule must be prepared and formalised with a trustees’ resolution.
There is no contradiction between Section 37(2) which states that levies must be determined by a formal trustees’ resolution and Management Rule 31(2) which requires owners to approve the budget and no more.
Article by Tertius Maree – MCS Courier Issue No 43