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Picture: Andrew Schaefer, MD of property management company Trafalgar.
It has been almost five years since the Sectional Title Schemes Management Act (STSMA) came into effect, and most schemes now seem to be complying with one of the biggest changes it introduced, which was the requirement for every Sectional Title scheme to have a Reserve Fund – and to keep building up this fund in accordance with a contribution formula also contained in the Act.
However, says Andrew Schaefer, MD of leading property management company Trafalgar, it seems there is still a widespread lack of understanding about how the Reserve Fund may be spent.
“Many trustees still seem to be under the impression that this fund is ‘rainy day money’ that is only to be used for major unexpected expenses, or that is it a sort of savings account to accumulate funds for major improvements to the common property.
“But actually, according to Prescribed Management Rule 22, every scheme is also supposed to have a professionally-prepared, 10-year maintenance, repair and replacement plan (MRRP) that goes hand-in-hand with the Reserve Fund and contains the details of how it will be spent to keep the common property maintained and in a state of good repair.*
“In addition, the trustees are supposed to report back to owners every year on the work that has been done and money that has been spent on items listed in this MRRP and also present an updated version of the plan to be approved at the AGM.”
Before compiling the MRRP, he says, the trustees need to make the distinction between day-to-day “running repairs” and bigger maintenance projects that nevertheless need to be undertaken regularly.
The former might include:
- the replacement of lightbulbs
- cleaning of gutters
- fixing of leaking taps
- removal of refuse and weeds from the gardens
- repairs to security gates, fences and access systems
- repairs to electrical and plumbing systems.
These expenses and planning for execution should be provided for in the scheme’s ordinary annual budget.
“The latter, however, are tasks that should be part of the 10-year MRRP and might include waterproofing and exterior painting, repairs to boundary walls, carports and stairs, the servicing of lifts and firefighting equipment and the replacement of certain equipment such as lawnmowers and pool cleaners.
“This type of planned maintenance is essential to keep up the overall appearance of the complex, enhance the lifestyle of the residents and ensure property asset value growth.”
According to Miltons Matsemela Law firm the requirements of the 10-year plan and reserve fund management, is of the utmost importance for sectional title properties.
“Bodies Corporate and Trustees need to know about their new responsibilities and liabilities, amongst which is the well-publicised new requirement to prepare a 10-year plan for maintenance, repair and replacement of capital items. They must support this with a reserve fund enough to cover the cost of future maintenance and repair of common property.
“The minimum level for this reserve fund has been set at 25% of the previous financial year’s ‘administrative fund’ (the fund for operating costs) levies. If the scheme is short of this requirement, it will be if you have in the past relied on special levies to fund exceptional expenses as they arise, the levies will increase by at least 15%, in addition to any normal annual increase, until you catch up.”
The second step, says Schaefer, is for the trustees to appoint building maintenance professional to undertake a proper maintenance ‘survey’ of the scheme and draw up the first MRRP. This should contain:
- A comprehensive list of all parts of the common property and any equipment used for maintenance that is expected to require maintenance, repair or replacement in the next 10 years
- The current condition of each of these (good, fair or poor)
- The expected time when each item will need to be maintained, repaired or replaced
- The service intervals for things like lifts and fire hydrants
- The estimated cost of this work, per item and
- The estimated further life of the item after maintenance, repair or replacement.
“And the MRRP does not have to be complicated. All this information can be entered into a relatively simple spreadsheet that enables owners to see briefly the total expected Reserve Fund expenditure each year – and can easily be updated as projects are completed or cost estimates and priorities change.
“This will also make it much easier for trustees to compile their annual progress report – and to calculate how much each owner’s monthly contributions to the Reserve Fund, using the PQ schedule.”
A further advantage of appointing a professional to conduct the Reserve Fund survey, he says, is that it can be combined with the insurance survey that every ST scheme is required to conduct every three years.
“However, it is important to note that the MRRP process does not end with the compilation of the 10-year plan. The trustees need to take ownership of it, together with their managing agent, to ensure that the listed projects are actually scheduled, managed and completed – and that the Reserve Fund remains properly financed.”
* The maintenance of the common property is the responsibility of the body corporate, in terms of Section 3 (1) of the STSMA, while individual owners remain responsible for maintaining their own sections.
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