By Jennifer Paddock


Levy stabilisation fund

Q1: Could you advise me where in the Sectional Titles Act or who could assist me regarding L.S.F. (Levy Stablisation Fund)? My Mom’s retirement village wish to go this route and I am not happy regarding this matter as 60% were not purchased this way and the cost implications are not very ‘friendly’ towards pensioners?

A1: Neither the Act nor the prescribed rules provide for a ‘levy stabalisation fund’ or anything similar. These arrangements are not uncommon in retirement housing schemes and generally require that a percentage of the value or profit made when an owner leaves is paid to the body corporate to supplement levies paid by other owners.

It is surprising that in your Mom’s scheme some units were sold subject to such a condition and some were not. The condition is onerous and I cannot see anyone agreeing to leave some of their equity behind if they never agreed to this condition in the first place.

I suggest that you first get your Mom to make enquiries. Which owners are bound to this arrangement; which are not? Was there a price difference that accounted for this distinction? And if your Mom is not currently obliged to make such a payment, on what basis are people suggesting she should subject herself (and you) to this burden?

Geyser insurance

Q2: From 2003 most insurance companies are not covering geyers in sectional title stating that the Act states the owners are responsible for the hot water pipes of a unit. Could you please clarify this matter and the ruling thereof for a body corporate and should this be placed/ re registered for the Conduct Rules? Where in the Act does this specific regarding geysers please?

A2: The issue of geysers is simple. They can be an exception to the principle that the body corporate must fund and carry out maintenance to common property which is not subject to exclusive use rights.

Prescribed Management Rule 68(1)(viii) provides that even if a ‘hot water installation’ is part of the common property, and insured by the body corporate, it must be maintained by those owners who benefit from it.

Each scheme needs to assess its own position in regard to geysers on the basis of their location and function in that scheme. But my guess is that it may be most efficient for owners to arrange for cover via the body corporate and then individually bear the portion of the premiums and any excess payments relevant to the geysers that serve their sections.

Onset of levy payments

Q3: Is there an agreed event that determines the onset of levy payments? We have a newly built unit that remains unoccupied. Is it on occupation or handover from the builder?

A3: Yes, the event that creates liability for levies (technically, contributions to the scheme’s administrative fund in terms of section 37(1) of the Act) is the creation of the body corporate, which occurs when the first unit in the scheme is transferred from the developer to another party, irrespective of when the units are first occupied.

From the time the body corporate comes into being it must charge levies in respect of all units in the scheme to cover the scheme’s ‘common expenses’, this being its most important function.

When an exising scheme is extended in terms of section 25 of the Act by the addition of further units, the owner of these units becomes liable for levies from the time they legally come into being, i.e. when the sectional plan of extension is registered and the PQ schedule adjusted.

Occupation and handover of a newly built unit from the builder/developer to a purchaser will affect their rights against one another in terms of their sale/building contract, but it does not create or affect the liability of the owner of the unit to pay levies to the body corporate. A building contract may provide for ‘occupational interest’ due by the purchaser/occupier to the owner/developer but this is a separate contractual issue.

Because the contracts sometimes talk of the purchaser paying ‘levies’ before taking transfer, the issue is easily confused. But what is in fact happening is that the purchaser is paying the seller an amount in terms of the contract to compensate the seller/owner for his liability to pay levies to the body corporate. Only the owner of the unit can be liable for levies.

Article reference: Volume 5, Issue 4, Page 7

This article is published under the Creative Commons Attribution license.