Sectional Title – the need to keep two separate body corporate funds

Bodies Corporate must now keep 2 funds, a ‘reserve’ and an ‘administrative’ fund.

This is prescribed by the Sectional Titles Schemes Management Act 8 of 2011 [“the STSMA”) and the Prescribed Management Rules [“PMRs”] contained in Annexure 1 to the Regulations.

1.Reserve fund

In terms of the STSMA, a body corporate must establish and maintain a reserve fund that sets aside enough funds to provide for the cost of future maintenance and repair of common property. It also needs to submit a 10-year maintenance plan for maintenance, repair of common property.

The reserve fund will be used in accordance with trustee resolutions and the approved maintenance, repair and replacement plan. In an emergency, the trustees may resolve to make a payment that falls outside the plan, e.g. where an immediate expenditure is necessary to ensure safety or prevent significant loss or damage to persons or property. The trustees must report to the members on any such expenditure as soon as possible after it is made.

The trustees must see to it that the annual levies, designated in terms of maintenance, repair and replacement plan, are paid into the Reserve Fund. They must also pay any amounts received under an insurance policy in respect of damage or destruction of property for which the body corporate is responsible, and any other amounts determined by the body corporate.

2.Administrative fund

To keep Reserve Fund income separate from other income, all other body corporate income must be paid into the Administrative Fund.

In terms of the STSMA a body corporate must establish and maintain an Administrative Fund, which is reasonably sufficient to cover the estimated annual operating costs for:

• the repair, maintenance, management and administration of the common property (including reasonable provision for future maintenance and repairs);
• the payment of rates and taxes and other local municipality charges for the supply of electricity, gas, water, fuel and sanitary or other services to the building or land;
• the payment of any insurance premiums relating to the building or land; and
• the discharge of any duty or fulfilment of any other obligation of the body corporate.