Budgeting and Levy Management Under the Sectional Titles Schemes Management Act

Effective budgeting and levy management are critical components of running a successful sectional title scheme. Under the Sectional Titles Schemes Management Act (STSMA), trustees are tasked with ensuring financial compliance and managing the scheme's funds responsibly to maintain its financial health. This article explores the legal requirements and best practices for budgeting and levy management under the STSMA.

Legal Framework for Budgeting in Sectional Title Schemes

The STSMA requires sectional title schemes to prepare and approve a detailed annual budget at the annual general meeting (AGM). This budget must:

1. Provide for Administrative Fund Needs: Cover day-to-day operational costs, such as utility bills, cleaning, security, and insurance premiums.

2. Include a Reserve Fund Contribution: Allocate funds to a reserve account for future maintenance and repair work, ensuring compliance with the 10-year maintenance plan required by the Act.

3. Be Transparent and Detailed: Include clear, itemized expenses to provide owners with an accurate understanding of how their levies will be used.

   
   

Reserve Fund Requirements

A key element of the STSMA is the obligation to maintain a reserve fund. This fund must be adequate to cover planned maintenance, unexpected repairs, and replacements. Regulation 2 of the Act prescribes minimum reserve fund requirements based on the scheme’s annual administrative fund expenditure. Trustees should:

• Ensure the reserve fund balance is at least 25% of the annual administrative fund budget, or higher if prescribed in the scheme’s rules.

• Regularly review the 10-year maintenance plan to align it with reserve fund contributions.

Levy Management and Collection

Levies are the primary source of income for sectional title schemes, making effective collection essential. Trustees have a fiduciary duty to:

1. Determine Levy Contributions: Calculate fair and reasonable levies based on the approved budget and the participation quota (PQ) of each unit.

2. Issue Timely Notifications: Provide owners with detailed levy statements, including due dates and payment methods.

3. Enforce Arrears Collection: Implement a clear arrears management policy in compliance with the scheme’s rules and the STSMA.

   
   

Best Practices for Financial Compliance

To ensure compliance with the STSMA and maintain financial stability, trustees and managing agents should:

1. Plan Early: Begin budget preparation well before the AGM to allow for thorough review and discussion.

2. Engage Experts: Consult with accountants or financial advisors familiar with sectional title legislation to ensure accuracy and compliance.

3. Promote Transparency: Share financial reports and updates with owners regularly to build trust and encourage timely levy payments.

4. Monitor Spending: Track expenses against the budget to avoid over-expenditure and address discrepancies promptly.

5. Utilize Technology: Use sectional title management software to automate levy invoicing, monitor arrears, and generate financial reports.

   
   

Dealing with Levy Arrears

Levy arrears can place a significant financial strain on sectional title schemes. Trustees should:

• Act swiftly by issuing reminders and engaging with defaulting owners to establish payment arrangements.

• Apply interest on overdue levies as permitted by the scheme’s rules.

• Take legal action through the Community Schemes Ombud Service (CSOS) or other legal channels if necessary.

Conclusion

Budgeting and levy management under the STSMA require careful planning, transparency, and strict adherence to the Act’s provisions. By following best practices and leveraging available resources, trustees and managing agents can ensure their sectional title scheme remains financially sustainable while fostering trust and cooperation among owners.