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Wednesday, February 12, 2025
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ARE YOU GAMBLING when YOU BUY YOUR HOME in SECTIONAL TITLE?

ARE YOU GAMBLING when YOU BUY YOUR HOME in SECTIONAL TITLE?

Compiled by Shirley Baillie of S Baillie and Associates, author, and publisher of Keyword Access to the Sectional Title Legislation. www.keywordaccess.co.za

WHY I ASK THIS?

Owners buy into Bodies Corporate (BC) without having the slightest idea of what they are investing in, what their duties, powers and rights are, probably without knowing what the Conduct Rules say, or understanding the parameters that come with living in a community scheme.

By then you have committed yourself to monthly payments, comprising a large portion of your monthly income, every month for 20 or 30 years.  

WHAT YOU SHOULD DO BEFORE BUYING

A due diligence (e.g. obtain the last AGM Pack, the current certified Conduct Rules, a full disclosure of what levies and contributions you will be paying, the current 10-year Maintenance Plan and the building/site plans of the complex).  You are entitled, as a potential buyer, to ask for anything which would enable you to make an informed decision before making this investment.

Invest in having a ST consultant or specialized ST attorney look them over (not someone who has a vested interest in the sale taking place), or a seasoned ST owner who could give some insights. The relatively small amount could save you making a financial mistake.

Outcome of not doing this

It will be akin to playing poker or blackjack without knowing the rules, or the “theories” of how to win.

 GOING FORWARD

It is in your best interests to obtain sufficient knowledge and understanding of how ST legislation works.  Become empowered. It enables you to ask the right questions and know what steps to take when things don’t seem right.

There is no qualifying criteria or entrance exam for a person to become a Trustee.  In addition, the reasons for people becoming Trustees are not always above board, and pure ignorance on their part could affect your investment negatively.

Effect of not being involved/or understanding the basics of ST

You are giving carte blanche to people whose track record and skills you do not know, to run your investment as they deem fit.  They may be the correct people with the right knowledge and skills, but maybe not.

TWO EXAMPLES 

  1. THE AUDITED ANNUAL FINANCIAL STATEMENTS (AFS)

Purpose:

To give assurance to the owners that an independent knowledgeable person has reviewed the financial situation, particularly as the income belongs to ALL owners. With their experience and knowledge, they can red flag issues they are then obliged by the Regulatory Authorities to report. This is in addition to ensuring that the BC complies with the Sectional Title statutory requirements. Aspects that need to be reported on, include a correct 10-year maintenance plan per the STSMA, detailed age analysis of debtors, confirmation of registration of new Conduct Rules and correct insurance policy in place.

Non-compliance will result in the BC getting a “qualified report”. Not good to have ever and should be a warning to owners, will also be a negative to those needing bonds.

Action

If the AFS are not included in the AGM pack, to be considered by the owners, and/or not signed by both the auditor and the trustees, you should investigate the reasons for it.

  1. THE 10-YEAR MAINTENANCE PLAN (MP)

Purpose:

To keep the B C buildings and C P properly maintained (as per the STSMA) and to minimize the need for special levies.

To ensure that there is correct and accurate budgeting so that the right amount of maintenance reserves can be built timeously.

How much do you really need?

The ST legislation gives guidance on how to calculate the Maintenance Reserve. This is not always sufficient, it depends on the state of the CP and buildings, their age, or how well passed repairs have been carried out.

Getting professional input

To pay a professional building evaluator will be a good investment as he is trained, unemotional, objective and often has years of experience working with many different kinds of buildings. He can then create an accurate and detailed MP which can then be costed and provide the figures for accurate budgets and future cashflows.

He will identify the potential areas which may require current or future maintenance, especially those which people can’t easily see. (e.g. the pipes in the walls which rust and disintegrate over time, asbestos roofing, which is illegal, blocked storm water drains, failing gutters, roof tiles and damp proofing etc.)

Effect of not doing this professionally

Often the building manager and/or the trustees will put together “something.” Is their MP objective and informed?   How accurate will it be? How much do the trustees know about buildings and what goes into a professional assessment? Are the trustees trying to keep everyone happy, and keep costs and levies, to a minimum?

The legislation requires that the Trustees report back annually to the owners, on what has been achieved and what is expected, and plan for the future. But if it is an “inside” job, how sure can you be that it is providing the best for your investment?

Capital Expenditure must be a proactive approach and not a reactive one and professional input should be obtained at least every two years.

Spin off from having a professional MP

 The accurate figures provided by a professional for a MP will indicate the realistic amounts should be raised for the maintenance reserve so that there is sufficient money accumulated to undertake the necessary Capital Expenditure which will ensure that your investment stays in good shape.

It could lead to an improved insurance claims ratio giving your BC negotiation leverage with the premiums at renewal time.

Minimize the chances of trustees having to raise a Special Levy which is uncomfortable for everyone’s cash flow

STOP PLAYING RUSSIAN ROULETTE WITH YOUR INVESTMENT!

Become better educated, more knowledgeable and empowered, and then get involved with the running of the BC. You have only yourself to blame if you leave the running of your BC and your investment, to others who may, or may not, know what they are doing.

I am happy to share a useful information on approaching /understanding the 10-year maintenance plan in terms of the ST Legislation, the calculations and provide a sample MP so that you can see what a comprehensive one should look like (not to do one!!).

Please email and I will forward with pleasure.

Providing Sectional Title Education and enlightenment is my passion in life, and if you would like to know more about my training options, or products, please email me on shirley@keywordaccess.co.za or visit www.keywordaccess.co.za

The direct link to my training offering is: https://www.sectionaltitlesact.co.za/training.html

 

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