The importance of good financial planning in Sectional Title

Martin Bester, Managing Director of Intersect Sectional Title Services.

One of the fundamental functions of a body corporate is to establish a fund to meet necessary expenses - such as administration, management, repairs and maintenance of the common property.

This fund should also include a reasonable provision for future repairs and maintenance.

This essential management task, if not handled correctly, can have far reaching effects, not only on the way a Sectional Title scheme functions but also ultimately on the saleability and value of the property.
 
According to Martin Bester, the Managing Director of Intersect Sectional Title Services, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is a committee member of NAMA and the Sectional Title Regulations Board, ensuring that such a fund is established and, very importantly, maintained, is the responsibility of the trustees, who do so with the assistance of the managing agent, if appointed.
 
“One goes about ensuring that an adequate fund is maintained by preparing realistic budgets every year for approval by the members at an AGM.  Reference to the actual costs from the prior year is a good starting point and trustees need to be cognisant of actual costs of running the scheme and should further provide for reasonable contingencies.  (Note that the City of Cape Town’s increases are implemented annually in July and this needs to be considered when budgeting as municipal costs often constitute a large percentage of the scheme’s running costs).”
 
“Repairs and maintenance costs are difficult to foresee, however if the Trustees are aware of upcoming projects, quotes can be obtained, and escalated if necessary, to assist with the budgeting process,” advises Bester.
 
“Members also need to be realistic when approving a budget at the AGM as any amendments made, specifically where proposed levies are reduced, could have long terms effects on the overall financial position of the scheme.”
 
According to Bester, the ramifications of not adequately establishing and maintaining such a fund could result in the scheme not being able to meet its expenses and may result in special levies having to be raised to cover same.
 
“Whilst special levies, specifically for major projects such as painting, waterproofing, roofing and improvements, are common place in sectional title, these should be raised for specific purposes only and not to compensate for a lack of funds.”
 
“One must also bear in mind that potential purchasers and bond holders view the financial statements of a sectional title scheme prior to purchase or granting a bond and that a poor set of financial statements are negatively viewed by both parties.”