Reserve Fund Minimums: What Every Body Corporate Must Budget For
Every sectional title scheme must keep a reserve fund, and the STSMA Regulations set a minimum. Many schemes are still below it.
The minimum rule
If your reserve fund is less than 25% of the total admin fund contributions for the previous financial year, the scheme must contribute to the reserve fund at least 15% of the admin fund contributions budgeted for the year. The rule is in Regulation 2 of the Sectional Titles Schemes Management Act Regulations.
The maintenance plan
The Prescribed Management Rules require trustees to prepare a written maintenance, repair and replacement plan covering at least the next 10 years. The plan should drive the reserve fund, not the other way round. If the plan shows a R600 000 roof in year four, 15% of admin contributions may not be enough.
Warning signs
The reserve fund is below 25% of the admin fund and has been for more than a year.
There is no written 10-year plan, or it has not been updated since it was first adopted.
Large projects are funded by special levies every few years.
The reserve fund is used to cover day-to-day shortfalls.
What trustees should do
Get the 10-year plan costed, set the reserve contribution to match it (never below the legal minimum), and present both to owners at the AGM for approval.
We check reserve fund compliance as part of our free compliance check for new schemes.
Questions about your scheme? Phone us on 010 448 0822 and you will speak to a person who knows your file, not a call centre.
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