Understanding Year-End Levy Adjustments/Increases in Sectional Title Schemes
By Prof. Graham Paddock
As we approach the end of the financial year for our complexes, it’s important to address the process of implementing levy increases as outlined in the Sectional Titles Schemes Management Act (STSMA) and the Prescribed Management Rules. The key provision to consider is PMR 21(3)(b), which allows the body corporate, in practice the trustees, to increase member contributions by up to 10% to accommodate anticipated increased body corporate liabilities that cannot wait to be included in the levies raised on the basis of the budget approved at the forthcoming AGM. It reads:
21(3)(b) The body corporate may, on the authority of a written trustee resolution — increase the contributions due by the members by a maximum of 10 per cent at the end of a financial year to take account of the anticipated increased liabilities of the body corporate, which increase will remain effective until members receive notice of the contributions due by them for the next financial year; provided that the trustees must give members notice of such increased contributions by notice in terms of rule 25, with such changes as are required by the context;
The other important provision is PMR 25(1) which regulates the notice requirements for this levy increase, which provides:
25(1) The body corporate must, as soon as possible but not later than 14 days after the approval of the budgets referred to in rule 17(6)(j)(iv) by a general meeting, give each member written notice of the contributions and charges due and payable by that member to the body corporate, which notice must—
(a) state that the member has an obligation to pay the specified contributions and charges; and
(b) specify the due date for each payment; and
(c) if applicable, state that interest at a rate specified in the notice will be payable on any overdue contributions and charges; and
(d) include details of the dispute resolution process that applies in respect of disputed contributions and charges.
The Process
According to PMR 21(3)(b), a levy increase can be authorised by a written trustee resolution at the end of a financial year. However, the legal cause of the levy increase is not the approval of the AGM budget or any automatic provision of the rules, a formal written resolution taken by the trustees and based on the financial needs of the body corporate is necessary. Without the resolution, any increase will be invalid.
Notice Requirements
The notice of the trustee meeting called to take the authorising resolution should include sufficient detail and explanation, so that all trustees know the levy increase is necessary, not just desirable, and notice of the trustee resolution to owners must comply with the timing and content requirements outlined in PMR 25(1).
Timing Considerations
PMR 25(1) stipulates that the body corporate must provide each member with written notice of the contributions and charges due and payable. This notice must be issued as soon as possible, but no later than 14 days after the resolution approving the increase. In practical terms, if the financial year ends at the end of February 2024, trustees should try to give members notice immediately after taking the resolution.
According to PMR 25(1), the body corporate must promptly issue written notice to each member regarding the contributions and charges due and payable. Managing agents and trustees must carefully manage the notice requirements for the trustee meeting and the owner notice.
Effect of the Notice
It’s important to note that once the notice has been issued, the levy increase cannot be backdated. While the date for monthly levy payments may remain the same, revised invoices reflecting the increased contributions can only be issued after the notice has been sent out.
Transparency and Communication:
In addition to meeting the legal requirements for notice, trustees should give owners the facts and figures that make the interim levy increase necessary. Explaining the factors driving the decision, such as specifying the operating costs that have increased and explaining why the body corporate is not able to ensure adequate funding pending the forthcoming AGM, can help foster understanding and support among owners.
In conclusion, navigating levy increases in sectional title schemes involves careful adherence to the provisions of the STSMA and effective communication with stakeholders. By following the prescribed rules and keeping members informed, trustees can ensure a smooth transition while fulfilling their fiduciary duties to the body corporate.
Article reference: Paddocks Press: Volume 19, Issue 3.
This article is published under the Creative Commons Attribution license.
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