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02 August 2022

The Sectional Title Levy Conundrum

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The Sectional Title Levy Conundrum

Are your Sectional Title levies too high?

While there is merit in questioning whether you’re getting value for money when dealing with Sectional Title levies, the old adage of “Goedkoop is duurkoop” certainly rings true: paying cheap levies can lead to cheap outcomes, which often costs you more in the long run. 

Naturally, exorbitant fees should be contested. However, when confronted with lower-than-average levies, you should consider whether you’re willing to not only compromise the value of your property but the safety and quality of life you and your loved ones deserve. 

Levies are an essential element of having a well-maintained and managed Sectional Title Estate that fundamentally adds value to a buyer’s property investment.

Levies cover all expenses involved in the running of the estate, including security, maintaining common property, major long-term maintenance (for instance, repainting or repaving), insurance premiums, auditors’ fees, rates, taxes, municipal bills such as water and refuse removal, as well as the managing agent’s fees. 

An accurate calculation of levies is key to an efficiently managed and valuable property, thereby guaranteeing satisfied homeowners. While high levies can cause skepticism in investors, cheap levies should be a red flag that overpromising and underdelivering is a possibility. 

A constructive exercise to judge the value you derive from your levy is to calculate the cost of living in a comparable freestanding property, where you would be required to foot the entire bill. You’ll soon discover that both the time and money required to manage the property accumulate all too quickly and that your seemingly “expensive” levy is, in fact, quite reasonable. Similarly, such calculations can serve as alarm bells to levies that are too low which, ironically, may cost you more in the long term. 

Why low levies could cost you more

Low levies could suggest that the Body Corporate hasn’t conducted thorough financial planning for the year ahead. This results in the Body Corporate having to raise funds for both the administrative fund (for the running of the estate) as well as the reserve fund (for unexpected costs of future maintenance and repairs). 

Minimum contributions to these funds are calculated using specific formulas prescribed in the Sectional Titles Schemes Management Act and cannot be avoided as they are written into law. 

As such, the Body Corporate could unexpectedly (and possibly repeatedly) call on residents to pay an additional special levy, thereby creating disgruntled owners who may not have the budget for this. 

Moreover, low levies could indicate a shirking of essential maintenance owing to a deficit of funds or the employment of cheap contractors delivering substandard products and services. This exposes the estate and its homeowners to the risk of failing systems, along with extensive and expensive problems which could have ultimately been avoided by implementing regular maintenance and employing credible, quality contractors. 

Some of the common issues that arise are as follows: 

  • Compromised security as maintenance has not been carried out on important security features like walls, gates, electric fencing, cameras, or biometric access systems.
  • Legal liabilities such as legal fees for court cases that arise over non-payment of workers or service providers such as security guards and garden services. 
  • Crumbling or inadequate infrastructure such as blocked drains due to lack of maintenance and cleaning, which may lead to overflow flooding and extensive damage to individual units or common facilities.
  • Electrical failings and compliance issues where cheap contractors are used.

When this transpires, a perpetual cycle often ensues: additional funds are required for repairs and maintenance as the condition of the estate deteriorates further, the bills pile up and so it continues… 

The Body Corporate simply will not be able to deliver what was promised to owners as there are just not enough funds to do so. 

The value of your property will subsequently depreciate, especially in older estates and complexes where maintenance is critical. Armed with this knowledge, the ‘bargain’ of exceptionally low levies may no longer appear quite as appealing as you once thought.  

For your information, levies are comprised of the items set out in the table below:

Table example of levies
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