In July 2008 the Municipal Property Rates Act introduced separate rating of sectional title units.
Municipalities have been rolling out these changes for the past 18 months and, effectively, individual owners, rather than bodies corporate, are now liable for rates.
One would naturally assume that the monthly levy charged by the body corporate to individual owners would be reduced, especially as rates make up the biggest component of a levy, but many owners are complaining that their levies remain fixed.
David Warmback of Shepstone & Wylie Attorneys says that although theoretically the full rates component should come out of the levy account, in many cases it has not and certain bodies corporate have only partially reduced levies.
Timing of the AGM
One of the main reasons some owners might not have seen their levies reduced is that the annual general meeting of the body corporate may still have to take place to approve the new levy.
Until that time the trustees can continue to charge the levy as agreed in the last AGM. Unless a special meeting is convened to deal specifically with this matter it would need to be dealt with at the next AGM, when the relevant adjustments can be made.
Warmback says some trustees may also be using this opportunity to boost the finances of the complex by using the additional funds to provide for future maintenance and repairs.
Financial difficulty
Many bodies corporate are in financial difficulty. Warmback says there are many sectional title schemes that are failing.
Many bodies corporate have had court orders to appoint administrators to run and administer the buildings on behalf of the owners who, for various reasons, including lack of finances, have not been able to run and manage their complexes.
But the correct procedure for the body corporate would be to disclose the financial information during the AGM, at which a budget for the following year would be proposed and presented to members.
If it is felt that this opportunity should be used to replenish the body corporate reserves for emergencies and future maintenance and repairs, which the trustees are obliged to budget for in terms of the Sectional Titles Act, this can be put to the vote.
If 51% of the owners agree the new budget can be approved. If the trustees follow the correct procedures and 51% of residents vote for the higher levy, there is little you can do, even if you cannot afford to pay both the levy and your municipal rates.
As Warmback says, living in sectional schemes means that you are obliged to live by a set of rules and the voting decisions of the majority.
Revaluation
Another aspect to consider is that the Municipal Property Rates Act required a revaluation of all properties based on the principle of market value, and these new valuations have led to many people paying higher rates.
You may find you are paying a higher rates tax to the municipality than the pro-rata share of the rates you previously paid to the body corporate as part of your levy.
But Warmback says you are entitled to request your trustees to provide you with a breakdown of your levy account so you can identify the items that are included in the account.
You can also compare your levy account with one from when the body corporate paid all rates for the building, as well as your new rates account from the municipality, to establish the effect on your expenses, both before and after the separate rating of your unit.
Recourse
If the trustees have not followed due process you have recourse, but this system is far from ideal and can be time-consuming and costly.
The process requires that you write to the trustees raising your concerns, but if they ignore it, or do not deal with your query adequately, you will have to declare a dispute and proceed to arbitration in terms of the management rules.
Warmback says this can be a costly process, particularly if both parties are represented by attorneys. The costs of the arbitrator will also need to be covered.
SPECIAL LEVIES
Homeowners may find from time to time that a special levy has been implemented. According to the management rules applicable to sectional schemes, the trustees alone have the power to raise special levies for emergencies.
These often include necessary and unbudgeted expenses, such as a broken lift or burst water pipe. Ideally the body corporate would have accumulated a reserve for such expenses, but if not a special levy can be applied and trustees are under no obligation to consult owners in this regard and are entitled to raise special levies in accordance with the provisions of Management Rule 31(4).
But any improvements to the common property require a majority vote and, depending on the nature of the improvements, up to 80% of the vote is required.
Warmback says the owners are entitled at an AGM to agree on certain restrictions that are
applicable to the trustees — for example, that they cannot spend more than an agreed amount without authorisation from the members.
Should the trustees wish to effect non-luxurious improvements or remove any improvements to the common property, the trustees must issue a letter to all residents stipulating the nature of the improvement, why it is necessary and the costs and manner in which it will be financed, which may include a special levy.
Owners would have 30 days to respond. If there are no objections the trustees can move ahead and proceed with the improvements. If there are objections a meeting must be held, at which the matter is decided by way of special resolution — meaning that 75% of owners need to agree.
For luxury improvements — for example, establishing a recreational facility on the common property — a unanimous resolution needs to be achieved. A unanimous resolution involves at least 80% of homeowners present or represented by proxy at a meeting, and if there is even one negative vote the trustees may not proceed. But the problem is how one defines what a luxurious improvement is.
For some complexes installing DStv may be considered a non-luxury item, but for another that may be considered a luxury the owners cannot afford.
If the trustees do not follow due process you cannot merely refuse to pay the special levy, as this amount would show on your levy account and you would not be able to sell your unit, as a clearance certificate is required from the trustees to state that your levies are up to date before a transfer can take place.
You would have to resolve the matter by way of the disputeresolution arbitration process. David Warmback of Shepstone & Wylie Attorneys says in this case it is preferable to ensure that as many owners as possible support your proposal for an arbitration so as to share the costs of such a process.