All too often, says Michael Bauer, general manager of IHFM, the property management company, when the trustees of sectional title schemes set the budgets for the new financial year, which now has to done prior to the financial year end of the body corporate, they bow to pressure from their members – who are almost invariably reluctant to see levies rise – and set the levies too low.
This, says Bauer, then results in expenditure on important maintenance, repairs, security and other matters being put on the back burner – with disastrous long term results.
“The reluctance to raise levies,” said Bauer, “is always strengthened by a lack of information on the true cost of managing and maintaining a sectional title scheme. For this reason at IHFM we have drawn up a database of levy figures for sectional title schemes. This is based on a levy per square meter benchmark – but takes into account such relevant facts as the area, the age of the building and the additional facilities (such as gardens, lifts, gymnasia, swimming pools and parking areas). It gives a good guide as to the actual cost of running a sectional title scheme.”
As managing agents involved with all types and sizes of sectional title schemes, IHFM, says Bauer, is amazed to find how great the differences in levies can be (e.g. from R15 per m² up to R30 per m² per month for schemes in the same area). Almost invariably, he says, the low paying schemes have the most immediate problems and in the long run these schemes hit serious maintenance problems.
“Schemes in financial difficulties will inevitably lose value – but it is surprising how often people buy into them without asking to see its accounts and a record of its meetings.”
This tendency, says Bauer, is exacerbated by estate agents who, while understanding the units that they are selling, remain in the dark on the overall situation of the scheme in which is the section situated. This, he warned, can now have repercussions for them in terms of the Consumer Protection Act.
“I have,” said Bauer, “actually been asked by a seller if legally he is obliged to reveal a maintenance backlog in his sectional title scheme to the buyer. In most cases, such facts are quietly overlooked.”
Banks, said Bauer, today will never grant a bond on a unit without carrying out a due diligence on the financial affairs of the body corporate. This, he says, is putting pressure on trustees to perform better and to fulfil their fiduciary responsibilities, but there are still often cases where a new buyer, having budgeted for a levy at a rate he can afford, is told a few months later that he has to find funds for a special levy.
Bauer said that the trustees of schemes with lifts have to accept that at some stage the usual maintenance costs will be inadequate: a total overhaul or a replacement is likely to be essential at some stage in any scheme over 25 years old. If the lift is regularly maintained, lifts can work for 50 years and more.
“Although special levies are unpopular, they should not be shirked where unforeseen expenditure has become essential,” said Bauer. “It is far better to cause a little pain now, than to see a sectional title scheme deteriorate because it is inadequately maintained, secured and insured.”
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Dear Michael
It is my understanding that it is not compulsory for Trustees to appoint a managing agent to handle its business.But then, the trustees need to do it or one of the residents I guess. But no normal person would do this without getting paid.
In this regard, it is also my understanding that in terms of the sectional titles act no owner can be paid by a complex for services rendered as a trustee or managing agent. (There is nothing to stop an owner from fulfilling a function and obtaining compensation if monies are paid to a separate legal entity eg. a CC or Pty Ltd of which the said owner of the unit is a member/shareholder).
After the CSTM debacle, our residents feel trustees/residents can do things better. I do not have a problem with this. My problem is what is stated in blue above.
I will appreciate your advice as the residents in our complex have different interpretations in this regard.
I thank you. Kind regards
Carel Joubert