WHERE DOES MY LEVY GO TO AND WHY IS IT SO HIGH?
If I received a cent for each time, I was asked these two questions in my tenure of almost 19 years, I would not be here writing this article, but rather be on a beach somewhere in Thailand. In my effort to educate within my profession, I wish to breakdown the essence of levies a bit more to assist with this often misinterpreted but most important aspect of Sectional Title Living.
Bank accounts of Body Corporates or Sectional Title Schemes, whether it is a trust account or an individual account, are normally administrated by the managing agent and it is a normal and common misinterpretation that they (the managing agent) receive all the levies. When in fact, only a small percentage goes to them, and the rest of the levies are allocated as per the scheme expenses.
An owner in a scheme should be billed three different levies, an Administrative Fund Levy (to cover the operational expenses), a Reserve Fund Levy (to provide for a planned maintenance as detailed in my previous article, link here) and a CSOS levy (legislated levy due and payable to the Community Scheme Ombudsman Services).
In this article I would like to explain the Administrative Fund Levy in more detail and how it is calculated.
Section 3(1)(a) of the Sectional Title Scheme Management Act 08 of 2011(“the Act”) specifically mentions that the first function of a Body Corporate is to “establish and maintain an administrative fund which is reasonably sufficient to cover the estimated annual operating costs”.
But what are the operational costs of a Scheme? The main operating costs can be broken into the following sections:
- Municipal Expenses
- Security Contracts
- Minor Contracts i.e., Garden, Cleaning, Elevators and Pool
- Salaries & Wages
- Insurance
- Managing Agent Fees
- Administrative expenses such as auditor and banking fees, intercom charges, public officer fees and printing and stationery
- Adhoc Maintenance not provided for the 10 Year Maintenance Repair and Replacement Plan
To provide additional clarity on the apportionment of costs, please see below the graphical example of an average calculation of a R 2000 administrative fund levy for a typical sectional title scheme situated in the City of Joburg:
Another common misconception is that the managing agent, or even the trustees control the levies. But as you will note on the illustration above, is that majority of levies are allocated to entities not even controlled by the scheme.
An average of 47% is allocated to municipal expenses, which unfortunately, yet usually, is linked to high annual increases. This normally includes communal electricity, water, and domestic effluent and increases each July as per the tariffs published by the local City e.g., City of Joburg.
Lumineer is further of the opinion that all utility charges billed by the City or any other entity, should be billed separately to individual owners, irrespective of whether meters are installed or not – this is to ensure that the levies are not overstated, and the usage is controlled.
A further average of 27% is allocated to security costs. Security costs are controlled by a legal body called Psira (https://www.psira.co.za/). They dictate the minimal charge a security company can bill as well as the relevant guard salaries.
I am sure you will agree with me, that generally over 70% of administrative levies are not and cannot be linked to inflation (as they generally increase at a higher rate than CPI), neither is it controlled by the trustees nor the managing agent.
The remaining average of 26% is spread across items such as minor contracts or salaries and wages, insurance, administrative expenses, and finally the managing agent fee. These expenses are warranted for the services rendered in addition to the aforementioned costs.
All this being said, Lumineer will guide the trustees by advising and practising due diligence and negotiating on all services and contracts to ensure that the scheme benefits from appropriate costings.
All these aspects should be taken into consideration when the trustees compile the administrative fund budget, guided by a professional managing agent such as Lumineer.
Even more so, your managing agent, should be able to present and explain these different aspects of your administrative fund budget and the options available at the Annual General Meeting, before you as an owner vote on your levies.
Contact us at Lumineer on info@lumineer.co.za or 071 453 4453 should you need further guidance on your administrative fund budget or if you are looking for the services of a professional managing agent.
