Look out for hidden estate levies

MAIN IMAGE: Sarel Ueckermann, independent real estate professional; Andrew Schaefer, Managing Director of Trafalgar Property Management; Lauren Squier, Schindler’s Attorneys associate

Selling property in housing complexes or estates is what real estate sales are all about. A sale is accompanied by several different financial implications, of which a deposit and bond approval is probably  the most important.

But once the house has been sold, a variety of other expenses are incurred by the new owner – something the practitioner should be fully aware of, and which should be  conveyed to the buyer well in advance.

And the different property types require different monthly expenses. In the case of a freestanding property, municipal rate charges cover all services provided by the  local municipality. These services include sewerage, streetlight, and roads maintenance as well as the collection of refuse.

Calculations on property rates are valued according to the land as well as any buildings or improvements made. This value is determined by the market value of your property. The amount you pay in rates is determined by the different category of properties. Rates may vary according to different freestanding property types such as residential, industrial, commercial, agricultural, or business.

For sectional title homeowners, those owning townhouses, complexes or flats, the owner will be charged a levy instead, which covers all complex maintenance costs, limited building insurance cover, and general repairs.

A body corporate is put in place within a sectional title scheme to establish an administrative fund, which will be used to cover these expenses. However, homeowners don’t always know what their contributions cover. Levies cover everything on what is known as common property. Living in a housing complex or estate has many advantages, such as heightened security and well-maintained public spaces.

The expenses of a body corporate in more detail include: the repair, control, management upkeep as well as administration of all common property; payment of taxes; as well as water and lights, and sanitary costs.

What do levies cover?

Every homeowner in an estate or complex must pay this monthly levy to ensure the scheme is run efficiently and benefits everyone. Anything outside of your unit is part of that common property, unless you have exclusive usage of some part of it, like your garden, says independent real estate professional Sarel Ueckermann.

This means you pay for everything from water infrastructure and administration to garden services. Security is another major shared expense. Data per unit is another potential cost, and owners need to take all these charges into account when they purchase a unit in an estate or complex.

“Levies are a function of the costs, and the costs are fully mapped out in the budget for the complex, which is tabled at the annual general meeting (AGM),” said Andrew Schaefer, managing director of Trafalgar Property Management. “Costs are linked to services and maintenance, so if you want levies reduced, look at where costs can be reduced.”

Trustees may request that owners pay special levies to cover emergencies or extra work, for example, when a lift in a building must be replaced, or a swimming pool is resurfaced. Some owners feel they’re being overcharged, however, and may be reluctant to pay these fees over and above their monthly contributions.

Special levies can be raised under certain circumstances, but they can be limited in future, thanks to the Community Schemes Ombud Service Act 9 of 2011 (CSOSA).

This Act states schemes must set up a reserve fund to ensure there are enough savings to cover emergencies. Unfortunately, it takes time for schemes to build up reserves, which must be equal to the income earned by the scheme in the previous financial year.

“If you have a turnover of R1 million, you must have R1 million in your reserve fund, and keep that going,” said Ueckermann.

He added that the act should have been phased in over time to help owners, rather than implemented all at once, which has caused some financial distress to owners.

Controlling costs

Although trustees can approve a special levy regardless of how owners feel about it, there are ways to manage and control the finances of a scheme, said Schaefer.

“Owners should always attend AGMs so they can review the budget, make recommendations to reduce costs, and vote on important issues,” he said. “Always insist on obtaining quotes, choose reputable contractors, and consider installing cameras instead of having security personnel patrol the estate.”

According to Lauren Squier, an associate at Schindler’s Attorneys, trustees do not have absolute power.

Members can restrict the trustees’ approving expenses over R50,000, and require that the members approve these at a special general meeting or via round robin (a resolution passed in another format),” she said.

“There are ways to limit special levies and control your investment as a member, but it is important to be reasonable in doing so, as restricting the trustees severely will prejudice the running of the scheme.”

If you’re buying into a complex, ask your estate agent if you can examine the minutes of AGMs, levy statements, municipal accounts and complex rules, Schaefer advises.

This will give you a good idea of whether you can afford to buy into it. “There are free online courses that can walk you through estate living, with moderators who can answer any questions you may have,” Schaefer said.

“Do your homework, especially if you’re a first-time homeowner. You don’t want to lose your home because you haven’t factored in all possible costs.”

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