Whether you are an owner, a trustee, a managing agent or an attorney, you will agree that levies are essential to the efficient running of sectional title schemes. Levies are the 'lifeblood' of the body corporate; owners have to pay them, and trustees, managing agents and attorneys may have to collect them. Every person involved in a sectional scheme needs to understand how levies work, from the procedures to be followed when they are charged, to the consequences of non-payment.

Why are levies raised? 

Each body corporate is required in terms of the Sectional Titles Act of 1986 (herafter referred to as “the Act”) to establish an administrative fund sufficient, in the opinion of the body corporate, to cover its expenses. A body corporate's expenses include the following:

• the repairs, upkeep, control, management and administration of the common property (including reasonable provision for future maintenance and repairs)
• payment of taxes and other local authority charges for electricity, gas, water, fuel, sanitary and other services to the building/s and land
• insurance premiums
• the discharge of any duty or fulfillment of any other obligation of the body corporate. 

The process – from budget to levy

The trustees estimate the body corporate’s expenditure for the following financial year, and the budget is considered at the AGM (annual general meeting). Once approved by owners, the trustees meet distribute the estimated expenditure among the owners in order to work out what each owner will pay as an ordinary levy; in what instalments each levy will be paid; and what rate of interest will be charged on overdue payments. The trustees then notify each owner of the amounts due, and each owner is then liable to pay such levies, normally in monthly instalments. 

Ascertaining the owner's levy

The approved budget of estimated expenditure is normally divided among owners in accordance with each owner’s PQ (participation quota). The PQ is a fraction worked out by dividing the floor area of each owner's section (as shown on the sectional plan) by the total of all the floor areas of sections in the scheme.

However, the PQ formula for levy contributions is not absolute; it can be varied if the correct procedure is followed. The Act makes it possible for the owners’ levy contributions to be modified so as not to be based on the PQ formula. For example, the owners could resolve that those owning ground-floor sections should not have to contribute towards lift maintenance costs.

Special levies in special circumstances

The trustees may from time to time charge special levies for expenses which are necessary but were not budgeted for in the estimated expenditure approved at the previous AGM. Trustees do not have the power to charge a special levy when a budgeted expense exceeds the approved estimate. But they can raise a special levy for unexpected expenses which were not included in the budget. These special levies may be payable in one lump sum or by such instalments as the trustees deem fit.

It is important to note that the trustees alone have the power to charge special levies for genuinely necessary and unbudgeted expenses. Many owners think that if they were not consulted by the trustees or did not vote in favour of a special levy, it was invalidly raised. Not so – trustees are under no obligation to consult owners in this regard.