Two of the key subjects of disputes in sectional title schemes are funding maintenance works in the scheme and exclusive use areas. In this article, I’ll take a closer look at the spot where these two intersect – namely the funding of maintenance to be done on these exclusive use areas. If you are thinking to yourself”: “I know who is responsible to foot that bill”, I encourage you to keep reading as that is only half the story told.
1. Who pays the contractor’s bill?
Let’s say that a contractor has been appointed to waterproof a balcony that is subject to exclusive use rights. The entity responsible to have this maintenance performed is the body corporate (remember common property that has been subjected to exclusive use rights is still common property). It is the body corporate that will obtain the relevant quotes, appoint a particular contractor, inspect the works and finally pay the bill.
2. Where does the money come from?
This bill will be paid from funds collected by the body corporate from the owners of sections entitled to exclusive use rights. In practice, this means that the cost is covered by what is commonly referred to as “exclusive use levies”.
3. How should the money be collected?
The most common misconception I have come across in this regard is that the body corporate is under the impression that they can simply collect the cost of the balcony’s waterproofing when it is time to pay the contractor. This is clearly at odds with the legislator’s intention. Here’s why:
The Sectional Titles Schemes Management Act requires that holders of exclusive use rights are to make such additional contributions as are “estimated necessary” to defray the cost of the maintenance to be performed on that particular area. If it were the legislator’s intention that the actual cost is simply to be recovered when or subsequent to the maintenance being done, the word “estimated” would not have been included in the wording used. In fact the word “estimated” here clearly shows that the contribution is to be made before the actual cost of the project is known. This is to be a contribution in advance. From context, in taking into account the two sections immediately preceding this one, it is clear that these contributions are to be dealt with similarly to those collected to fund the scheme’s administrative and reserve fund expenditure: contributions to be made continuously to cover future expenditure.
4. Why does this matter?
Six of one, half a dozen of the other as long as the body corporate is collecting the funds from the holder of the exclusive use right, right? Wrong. Imagine that the body corporate has adopted this “we will collect the funds when they become payable” approach. For 10 years Mr Original Owner enjoyed his exclusive use rights over his balcony. During this time he enjoys the space, but never pays exclusive use levies as the body corporate never asks him to and he finally sells his unit. Two months after Mrs New Owner takes transfer of the property, the body corporate presents her with a bill for R15 000.00 for waterproofing work to the balcony. Clearly, the funds to pay this waterproofing bill should have been gradually collected over the past 10 plus years, rather than simply collected in one go from the current owner. One could hardly conclude that this is a fair and reasonable application of the relevant legislation.
The common argument of course is “we have been doing it this way for years” – if that is you, I implore you to read section 3(1)(c) again carefully and to amend your modus operandi to be perfectly aligned with the relevant legislation. Unsure how to do this and concerned that you may also unknowingly be doing other things that are contrary to legislation? Consider registering for the next intake of the Paddocks UCT Scheme Manager Sectional Title online short course to grow your knowledge and obtain the know-how to tick all the right boxes.
Article reference: Paddocks Press: Volume 17, Issue 4.
This article is published under the Creative Commons Attribution license.