Time to plan and pay for your sectional title upkeep
Levies in sectional title schemes will probably have to increase 10% to 20% if schemes are to meet the minimum amount they must stash away in their reserve funds for the long-term maintenance of their buildings.
This is the view of Andrew Schaefer, MD of national property managers Trafalgar, who estimates that less than 10% of buildings comply with the Sectional Title Schemes Management Act, which came into effect on October 7 2016.
The legislation, among other things, addresses the common practice of schemes delaying if the body corporate does not have the funds.
But owners of sectional title units are whingeing about the financial implications.
Anton Kelly, a sectional title specialist and teacher at sectional title specialist firm Paddocks, who also manages an online forum for the firm, says that all the issues raised by the members on the forum about the legislation concern money.
According to Kelly, prior to October last year, schemes operated their finances out of a single administrative fund into which all the levies were placed and expenses paid.
One of the key changes under the amended legislation is that schemes are required to set up a separate reserve fund and establish a 10-year maintenance plan for the complex. This fund must hold a specified sum.
When preparing the budget for the reserve fund, if the money in a reserve fund at the end of the previous financial year is less than 25% of the total contributions to the administrative fund for that previous year, the budgeted contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund.
But if the amount in the reserve fund at the end of the previous financial year is between 25% and 100% of the total contributions to the administration fund for the previous financial year, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for.
Kelly says there is nothing in the act that gives any period for achieving the required minimum amounts for the reserve fund, but it would be unreasonable to expect all schemes to acquire those funds immediately. However, the legislation has been in effect for more than a year, and schemes should have made a reasonable attempt to comply. The Community Schemes Ombud Service has indicated it will grant schemes this year to create their 10-year maintenance programme, he says.
John Croad, a director at ProjectLab, says delaying maintenance projects due to a lack of funding is commonplace among sectional title schemes, but can prove very costly in the long run.
The cost difference between repainting a building and having to perform substantial underlying brick and plaster repairs before painting can be up to 300%.
The act aside, there are compelling reasons for adopting a 10-year maintenance plan. Firstly, it maintains property values for owners, and, secondly, a long-term maintenance plan updated annually will promote consistency of the agreed maintenance strategy as well as continuity of expenditure on capital items, bearing in mind that turnover of trustees in some body corporates can be quite high.