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Sectional title properties series (Part 5) – The Reserve Fund Requirement

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Sectional title properties series (Part 5) – The Reserve Fund Requirement

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Previous: Sectional title properties series (Part 4) – Annual General Meetings

Historically, body corporates were not forced to have reserve funding. Most body corporates would tend to manage expenses closely and not have formal maintenance plans in place nor finances to carry out such maintenance. Consequently, special levies would often get introduced for purposes of doing any maintenance within the body corporate.

However, since 2016 the legislation now compels body corporates to have a reserve fund in place. The reserve fund allocation forms part an owners monthly levies payable to the body corporate. That money is then ring-fenced for the purposes of carrying out any maintenance work that needs to be done in the complex.  With this in mind, the intention is that it will take away the need for special levies having to be introduced.

This now means that a body corporate, in essence, will have two budgets. One considered to be an administrative budget and another being the reserve fund budget.

The reserve fund is calculated in three ways:

If the body corporate reserve fund at the end of the financial year

  • is less than 25% of the levy income generated during that year, the body corporate must provide for a reserve amount equal to 15% of the levy income for the new financial year
  • is equal to or more than the levy income generated during that year, the body corporate is not obliged to make provision for a reserve amount in the new budget
  • is more than 25% but less than 100% of the levy income in that year, the body corporate must make provision for a reserve amount equal to the repairs and maintenance items provided for in the new budget

It is always important to see if your body corporate is in fact collecting a reserve fund levy. Secondly, it is very important to ensure that the levy is appropriate and that the reserve fund is actually being used for its correct purpose.

Check your monthly invoice to determine what your reserve fund levy is.

Next: Sectional title properties series (Part 6) – The 10 Year Maintenance Plan

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Shameer Chothia is currently an Employee Benefits Consultant at Momentum Consultant and Actuaries. He is the chairman of the Rhine Stone Body Corporate and the Founder and Head Financial Coach at LMS Financial Coaching. Shameer is deeply passionate about financial literacy and education. He truly believes that there is duty to empower people with education, which makes a difference in their everyday lives. To achieve this, he founded LMS, actively changing lives by empowering people with financial knowledge

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