Has sectional title ownership become too expensive?
Category Newsletter: Article
With the 3rd tier sectional title laws and regulations now firmly in place, it seems apt to cast a critical eye on them and review the pros and cons that have manifested since they came into operation on 7th October last year. This article will focus on costs and specifically the concern raised by many – has sectional title ownership become too expensive?
Other than the new regulations regarding the disclosure of private information, the most common concern that has been raised by owners are the additional costs which are a natural consequence of the implementation of the new laws and regulations.
Purportedly the new laws and regulations stem from sectional title regulations in Singapore and New South Wales in Australia. Therein itself lies a problem as these two countries are considered first world countries. South Africa most certainly is not. The costs of living in most first world countries are a lot lower in my experience. You can afford a lot more on a basic salary. In South Africa we are already faced with excessive charges relating to day to day living expenditure, such as telephone and cellphone charges, internet costs, bank fees, high interest rates, municipal charges, etc. It begs the question - Can we afford additional costs relating to sectional title administration bearing in mind that most persons buying sectional units fall in the middle to lower income category?
An underlying recurring theme in the new sectional title laws and regulations is additional costs which will ultimately be borne by the sectional title unit owner. Herewith follows a brief synopsis of potential additional costs such owners can expect:
- Community Schemes Ombud Service (CSOS) levies (maximum R40 per unit) – Owners are required to contribute monthly. The trustees or managing agent must collect these levies and pay them over to CSOS quarterly.
- Additional insurance – In terms of the new CSOS regulations additional insurance must be taken out to insure against the risk of loss of money belonging to the community scheme, sustained as a result of any act of fraud or dishonesty committed by any insurable person.
- Ten year maintenance plans – most trustees and managing agents are not qualified to prepare these plans. Professional are required and there are many of them popping up all over the place.
- Audit fees – there are additional requirements pertaining to auditors, such as that the person preparing the financial statements must be independent from the one doing the audit.
- Managing agent fees – under the new laws and regulations managing agents have more duties and responsibilities. General meetings will become substantially longer in duration (all voting must be calculated in accordance with quotas), dealing with a higher number of disputes, attending conciliation and adjudication matters at CSOS, compiling and submission of annual returns and the collection and payment of CSOS levies, to name but a few. It is inevitable that managing agents will have to increase their fees.
- Professional trustees and executive managing agents – as a higher and more professional level of management and administration is required, the scope is there to appoint professional trustees or executive managing agents, at a cost that is.
- Compulsory reserve fund – the idea behind a compulsory reserve fund is a good one in principle. However, in the short term, many schemes will be compelled to impose significant increases so as to ensure that proper and sufficient reserves are built up.
All schemes will be affected by the above which ultimately may result in substantial increases in the monthly levies due to the body corporate. Some increases will only apply in the short term, others not. The fact of the matter remains that these additional costs are now a reality and there is nothing much that can be done about them.
Some of the additional expenses are aimed at saving costs in future, such as the compulsory reserve fund. It will be cheaper in the long run to focus on doing preventative maintenance rather than ‘fixing something only when it breaks’. It will require a mind shift, but it will have positive results. As regards to some of the other expenses which, however small, all add up, one needs to ask the question – are they really necessary seen in the context of the South African environment? Was there really so much wrong with the previous laws and regulations that may have, perhaps, only required a little fine tuning?
Author: Jacques Maree Attorneys
