By Prof Graham Paddock
In sectional title schemes and homeowners’ associations it is usual for owners who pay their levies after due date to be liable for interest at a rate set by the trustees and other penalties, such as the suspension of voting rights for ordinary resolutions. What is not usual, in South Africa, is for the scheme to offer owners a positive incentive to pay their levies before due date. If the interest and loss of voting rights is the “Stick”, then the offer of a discount for early payment would be the “Carrot”.
One of the first questions asked in this regard is how, from a financial perspective, the body corporate or homeowners’ association can afford to allow for discounts. The answer is that it must be budgeted for as a contingent expense, with the extent of the likely discounts being taken into account in setting the total amount the scheme needs to collect. If this sounds awfully complicated relax, it is not and in fact modern software used to manage sectional title bodies corporate and homeowners’ associations performs these calculations automatically.
If late levy payment is a problem in your scheme and you think that a positive incentive to prompt payment could reduce your levy arrears to acceptable proportions, give the issue of budgeting for early levy payment discounts serious consideration. It is certainly a very much more sensible commercial approach than having the body corporate or home owners’ association borrow money from a levy financier to make up the levy shortfall and cover its expenses.
Article reference: Volume 9, Issue 1, Page 1
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