The payment of levies is the backbone of any sectional title scheme making the management of levies and awareness of how levies can be charged vital to the managers and owners of sectional title units, including what can happen if levies are not paid.

What are levies?

When you buy a sectional title unit in a sectional title scheme, as owner you will be required to pay a certain monthly amount, in the form of levies, to the body corporate of the sectional title scheme which must be used for the maintenance and day-to-day management of the scheme. According to the Sectional Titles Act (“the Act”) the owners have to pay levies and the body corporate is required to collect such.

What are levies for?

Levies can be applied for a number of purposes, most prominently being:

• Repair, upkeep, management and administration of the scheme’s common property.
• Payment of taxes (if units are not taxed separately) and other local authority charges for electricity, gas, water, etc. of the common property.
• Fulfilment of an obligation incurred by the body corporate.
• Complex security
• Maintenance.
• Insurance.
• Capital projects.
• Salaries of staff (cleaners, gardeners etc.) employed by the body corporate.
• Payment of contractors, etc.

The body corporate will at its annual general meeting determine the levies for the year based on the budgeted expenditure of the scheme for the following year. Owners may sometimes also be required to pay a special levy to cover a certain project such as the instalment of an electric gate or swimming pool for the complex or to cover unseen expenses such as essential repairs and maintenance.

How are levies calculated?

Levies can be calculated:

• on the basis of measured floor area (participation quota);
• on an equal pro rata basis;  or
• on the value of each owner’s investment in the scheme.

Participation quota basis:

This is generally the most common basis for determining the levy contribution of an owner. According to the Act, in the case of a scheme for residential purposes, the participation quota of a section shall be a percentage expressed to 4 decimal places, and arrived at by dividing the floor area of the section by the floor area of all the sections of the buildings comprised in the scheme.

The body corporate is in some instances allowed to move away from this prescribed expense-sharing formula, and a developer can, when submitting an application for the opening of a sectional title register, or the members of the body corporate by special resolution, make rules in terms of which a different value is attached to the vote of the owner of any section, or the liability of the owner of any section to make contributions, is modified. In practice all common expenses, whether special or not, will under this basis of allocation be paid by the owners according to their participation quotas based on floor area, unless amended by special resolution of the body corporate.

Equal pro rata basis:

The equal pro rata payment of levies is where each owner pays the same amount each month. It does not matter what the size of the owner’s unit is or which unit is responsible for the most expenses, as all units are treated exactly the same. This approach can be used for all the expenses of the scheme or only for certain specified expenses. This can be appropriate where the units are broadly similar, but can likewise be very unfair where units differ dramatically in size and contribution to expenses.

Each owner’s investment in scheme basis:

In this instance levies are calculated based on what each owner’s investment in the scheme was. This formula is not frequently used and is not very popular as the investment value can become dated and can differ from unit to unit as units are resold.

Non-payment of levies

The Act makes the payment of levies by owners in a sectional title scheme compulsory. If an owner thus does not pay levies, he is in breach of the Act and steps can be taken against the owner by the trustees of the Scheme. These steps can involve a basic demand to pay, to eventual repossession of the unit and ultimately sale in execution of the property to recover arrear levies. Importantly, non-payment is actionable and steps can be taken to recover arrear levies.

The importance of paying levies

If owners do not pay their levies, necessary income required to operate the scheme is not obtained, ultimately affecting the value of each owner in the scheme due to necessary maintenance and upkeep not being done, security being compromised and the overall respectability of the complex being tarnished.

Additionally, the Act determines that if you wish to sell your sectional unit, the transferring conveyancer is required to certify that the body corporate has confirmed that all monies due to it in respect of that particular unit have been paid or has been secured to the satisfaction of the body corporate. Accordingly, if an owner in arrears wishes to sells his unit, he will first have to obtain a ‘levy clearance certificate’ from the managing agent or trustees before the unit can be legally transferred to the buyer. If levy payments have fallen behind, this can become a major cash flow concern for an intending seller as the trustees or managing agent will refuse to issue such a levy clearance certificate until all arrear amounts owing to the body corporate have been paid.

Whether your levy is large or small or based on your participation quota or another method of calculation, the continued payment of your levy is essential to the continued success of the scheme. This does not require you to pay blindly, and is the involvement of a sectional title owner in the annual budgeting and levy allocation of the scheme, encouraged. In this regard, the assistance of a property specialist can be obtained to help clarify any uncertainties that may arise.

Sectional title living has grown in popularity over the last decade for reasons which include heightened security and a more communal way of living. Sectional titles tend to be more affordable which makes it easier for young people to own their own property. However buying into a sectional scheme has its advantages and disadvantages.

What is a sectional title?

The concept ‘sectional title’ describes the separate ownership of units or sections within a complex or development. When you buy into a sectional title complex, you purchase a section or sections together with an undivided share of the common property, which are known as units. A sectional title unit may refer to anything from a mini subtype house, a semi-detached house, a townhouse, a flat or apartment to a duet house.

Ownership of sectional title property involves a number of elements, bearing in mind that the unit consists of a section plus an undivided share in the common property.

The first element is the section, which is exclusively owned by the owner thereof. The second element is the common property, which is owned by all the owners in undivided shares, meaning that you become a joint owner of the common property of the sectional title scheme. The third possible element is the right to exclusively use certain parts of the common property for example a garage, a garden or a storeroom. Even though the owner does not own the exclusive use area, he is the only person that has the right of use thereof.

Advantages of sectional title ownership

Living in a sectional title has its advantages. An owner of a unit in a sectional title scheme automatically becomes a member of the scheme’s body corporate. The body corporate is the legal entity that owns and controls the common property in the sectional title scheme. The body corporate is responsible for laying down the rules that have to be adhered to by all the owners.

The body corporate receives funds from all the owners by means of levies, which are used to pay for the expenses of the sectional title scheme. Unlike freehold properties, where the owners have to pay for their own home insurance and for the upkeep of the pavement, garden and exterior of their homes, owners of sectional title units pay a monthly levy instead. The levy usually includes the insurance premiums, maintenance of the common property, wages and salaries of cleaners, security and other staff involved in maintaining the common property, as well as any water and electricity required for the common property. Owners of sectional schemes usually only need to pay for their rates and taxes, insurance for the contents of their home, their own private gardens and for their monthly electricity and water consumption. The specifics may differ slightly from complex to complex.

As the different units are within close proximity to one another, as compared to freehold properties, sectional titles have a greater sense of communal life. This allows for greater interaction which means that close knit communities can be and usually are formed. It is also perceived to be more secure. Sectional title developments generally have good perimeter and entrance security, which is usually included in the monthly levies.

Buying into a sectional title scheme may be more affordable than buying into freehold property. The cost of living in a sectional title is often lower because the cost of maintaining the common property is shared by all the owners. Sectional title units are also very popular in the rental market and are usually leased out easily.

Disadvantages of sectional title ownership

Living in a sectional title complex can also have its disadvantages. Unlike full-title ownership, where the owner is in complete control and is financially responsible for the property in its entirety, a person who invests in a sectional title scheme will own part of the scheme, meaning that the owner has invested in and is part of a small community. As a result, they will need to comply with the management rules and conduct rules as determined by the body corporate. The body corporate may adopt rules relating to the keeping of pets, play areas and access to communal areas.

The rules and regulations of any particular complex may change, and even though all sectional title investors or owners may not necessarily agree with the changes, they would not have the power to change them individually.

Owners of sectional title units also do not have the freedom to alter, renovate or expand their sections without the approval of the body corporate. In addition, all the owners are jointly and separately liable for the debt of the body corporate, which means that if an owner does not pay his/her share, it may become the other owners’ problem as well.

Conclusion

As sectional title ownership has many advantages but also disadvantages and a person should carefully weigh these up when considering whether to invest in a sectional title scheme. It is advisable to not only consider the legal implications of sectional title ownership, but to also investigate whether the sectional title scheme is financially sound and well managed prior to investing and establish beforehand what the rules of the body corporate are. If necessary, the advice of your attorney may assist in ensuring that you are fully aware of your legal rights under the sectional title.

When you register a bond over property and the Title Deed has a condition prohibiting alienation of the property without the written consent of the relevant Homeowners Association, a document containing consent to register the bond and waiving the Title Deed condition, must be obtained from the Homeowners Association and lodged at the Deeds Office.

Should this consent not be obtained and lodged with your bond at the Deeds Office, the Registrar of Deeds will not allow for registration to be effected.

Can a sectional title owner act against the managing agent.

What can a registered owner of a unit in a sectional title scheme do, should he be of the opinion that the scheme is mismanaged or that the Body Corporate has suffered damages but failed to do anything about it?

In terms of Section 41 of the Sectional Titles Act, the owner must serve written notice on the Body Corporate calling on it to institute proceedings within 1 month of such notice. If the Body Corporate fails to do so, the owner can then bring an application to Court for an order appointing a curator ad litem for the Body Corporate. The curator will then institute and conduct proceedings on behalf of the Body Corporate.

Did you know that in terms of the Sectional Titles Act, where a real right to extend a scheme has been reserved in favour of a developer, such right must be disclosed to the purchaser in the agreement of sale?

Where that real right has not been disclosed in the agreement of sale it is voidable at the instance of the purchaser.

In a Sectional Title Scheme, a unanimous resolution can be passed without convening a meeting. Any such proposal must be sent to all the individual owners calling for all members of the Body Corporate to agree in writing to the suggested proposal. Should all the owners consent in writing, a valid unanimous resolution has been taken.