Tips on Collecting levies in Sectional Title Schemes

The question of levies – their setting and efficient collection – remains arguably the most contentious issue in sectional title living and yet is the very cornerstone of a scheme’s financial health and unit marketability, says Simone Sulcas of financial service provider Propell.

The frightening reality is that many of the more than 30 000 sectional title schemes registered in South Africa are experiencing financial difficulties; largely from inadequate budgeting and an inability to collect levies timeously.

“Uncollected levies equal poor cash flow,” says Sulcas. “Poor cash flows equal a myriad of potential problems including, a drop in maintenance levels, a deteriorating general environment, municipal payment arrears, declining interest from potential renters or buyers and ultimately diminished property values.”

Of increasing concern is the fact that financial institutions are less likely to grant mortgage bonds to units in schemes where there are general arrears – this last point renders units unsaleable.

She says there are concrete measures that can be implemented to ensure levies are available to meet the host of obligations applicable to well-run schemes, and they revolve around two basic steps.

First, make sure the collection of levies is watertight. There are experts who specialise in guaranteeing and collecting sectional title scheme levies and hence securing the all-important cash flow. If collection is a problem it may make sense to use their services.

Propell is an example of such a service provider. Once under contract, Propell guarantees the body corporate payment of all levies – less service charges – on the first day of the month. Propell assumes responsibility for the collection of all monthly levies and arrear levies. This enables the body corporate to operate efficiently and meet all financial commitments according to the approved budget.

Second, trustees must ensure that monies collected are deposited correctly and protected against fraud or theft. There have been several instances recently where managing agents have misappropriated levy funds held on behalf of bodies corporate. To avoid problems follow these steps:

It’s critical to ensure that if managing agents are involved in the administration of levies they are registered paid-up members of the Estate Agency Affairs Board.

Levies must be held in trust accounts properly opened in accordance with Estate Agents Board Act.

The scheme’s trust account must be audited annually. The act stipulates the account must be balanced monthly and is subject to an annual audit.

Ensure at least one trustee is a signatory to any bank account opened on behalf of the scheme. This will allow trustees direct access to and control of bank records for scrutiny.

It’s important to not that if these basic steps have been followed in the administration of managers trust accounts, trustees will have recourse for compensation against the Estate Agents’ Fidelity Fund in the event of fraud or theft.

Insurance is available to cover the risk of trustees themselves misappropriating funds.

“Unfortunately the recovery of misappropriated funds can be a costly and time consuming exercise – requiring money upfront to recoup that already lost,” says Sulcas. “Often special levies are introduced to cover these unexpected expenses, which in themselves place additional financial strain on already pressurised unit owners.”

If you’re a sectional title owner you should take an active interest in the administration of your scheme. Consider serving as a trustee and above all ensure that all monies are handled in line with sound and reliable systems. If in doubt, call in the services of an independent expert to offer advice and guidance.

“Responsibilities in operating a sectional title scheme are onerous and require each owner to be involved and take a proactive interest in the scheme’s affairs,” says Sulcas. “If you’re an owner make sure you play your part to protect your investment.”