Should you increase your levies or not?

Every estate homeowner is obliged to pay a monthly levy to ensure the scheme is run efficiently and benefits all.

But do levies have to be increased annually, and which factors inform decisions in this regard?

Why levies need levying

It is the responsibility of body corporates to establish reserve funds to cover expenses, as dictated by the Sectional Titles Schemes Management Act of 2011. Head of Gumtree Property Barrie Swart says before expounding on increases, it is necessary to revisit why levies exist at all.

‘This fund covers the repair, upkeep, maintenance, control and administration of the common property, payment of taxes, and local authority charges. Trustees will estimate expected expenditure in the next financial year and consider the budgets at their AGM.

‘Once approved by the owners, the trustees will divide the expenditure between owners and work out what should be paid annually, and what instalments will be.’

Swart says owners pay these levies monthly or yearly, in accordance with their participation quota, which is usually based on square footage of the property.

Nest-egg overseer

Marilyn Kamp is one of four Homeowners Association trustees at Kingswood Golf Estate in George. Along with husband Allan, she owns a home on the estate, as well as a residence in a smaller George estate.

She has served as principal officer and trustee on various retirement fund boards, so is acutely aware that pensions should be properly governed, and pulls these principals through when tasked with calculating levies as part of Kingswood HOA.

‘It is not the absolute norm to increase levies annually, and in today’s milieu of ever-rising living costs, careful consideration of all factors is essential. Main impacts informing our calculations are expenditures and eventualities,’ she explains.

‘At Kingswood, we have so far managed to increase levies in line with or close to the inflation rate.’

On inflation and floods

Yes, levies should be adjusted according to projected factors such as inflation. But what about those beyond-our-control incidences, like fires or floods?

‘For example, when George suffered extensive flood damage last year, it could also have been a financial disaster – if estates had not provided for sufficient reserves or had insufficient insurance cover,’ says Kamp.

‘One can plan as carefully as possible, but it can all become unstuck when disaster strikes. Special projects invariably necessitate the adjustment of levies accordingly or, in some instances, special levies are necessary. This could be a monthly amount in excess of the usual levy, or a once-off lump sum levy.’

Size ain’t everything, but…

Kamp says that, although the management of both estates in which she owns homes goes about their business in a frugal fashion, the HOAs of smaller estates have to be even more careful in their planning.

Compare the 80-odd units/homeowners of a concise estate to one where owners count over a thousand; then adapt estimations shared by a fraction of the pockets.

Keep kitty healthy

‘When considering financially well-off estates, there may be an argument for no increases in the levy. But then when it is necessary to increase the levies again, residents are often taken aback, so it’s best to increase the levy, even by a little, each year.

‘This also adds to the reserve account for when a large expense may be needed and, at that time, it may go a long way to not having to push a special levy onto homeowners.’

She concludes: ‘Every estate should have a 10-year forecast that accounts for road upgrades, security maintenance and the like. Only then can you can plan your spend and levies correctly.’

Cooperation key

Barry Swart reiterates the importance of trustees working alongside management to determine where costs can be cut – for example reducing the garden service for common areas from weekly to fortnightly, and postponing non-essential or cosmetic maintenance work.

‘To reduce levies, trustees could work with owners in arrears to catch up, without charging interest to avoid legal action, which add extra expenses. Also, payment holidays could apply during tough months such as December/January and levies from those payment holidays divided across the rest of the financial year.

‘Remember that levies are necessary to keep our most expensive investment, our properties, in top condition and that falling behind on essential maintenance to save in the short-term could affect resale value for everyone in the estate.

‘If you own property in an estate, be sure to remain an active participant. Attend AGMs, scrutinise budgets, and take an interest in the running of the estate. If you battle to meet obligations, speak to the trustees about alternative arrangements to avoid fines.’