Nobody wants a special levy! Bring in the 10 Year Maintenance Plan
Special Levies are raised for any event where a scheme requires a large sum of money to fund various unforeseen matters. In most instances however, a Special Levy is raised in lieu of maintenance or replacement of assets, i.e. painting or roof repairs.
A 10-year maintenance, repair and replacement plan for major assets owned by a scheme is an absolute must, over and above the fact that is a requirement as per the Sectional Title Schemes Management Act.
What is the real benefit of planning maintenance so far in advance?
In short, planned regular and routine maintenance allows for both time and finances to be managed more effectively. Carrying out maintenance regularly becomes less onerous and, by spreading out costs more evenly over time, preventative maintenance is more cost-effective in the long term than last-minute repairs.
The objective of planned maintenance is to favour the body corporate or home owners association’s financial position and reduce the need for special levies. This, in turn, means that a financially sound body corporate favours the value of your unit.
To ensure that your life investment is safeguarded at all times, the body corporate’s 10-year maintenance plan must be adjusted and updated regularly in accordance with actual income and expenditure. The plan needs to be presented at each AGM for approval by members of the scheme.
Reserve Fund Planning
The purpose behind the reserve fund is to set aside financial resources for the planned maintenance, repair and replacement of major capital assets.
If a cost item adds value to capital assets, extends their useful life or prevents their deterioration, such an expenditure will typically be allocated to the reserve fund. The following can be considered as reserve fund expenditure:
- exterior painting
- waterproofing
- roof replacement
- security maintenance and upgrades
- driveway renovations
- replacement of access gates and gate motors
- boundary wall or fence maintenance or upgrade
The reserve fund is replenished with monthly levy contributions and interest earned on the account. The minimum annual reserve fund contribution is determined by the ratio between the previous financial year’s reserve fund balance and total admin fund contribution.
If the funds available are insufficient for the required maintenance, they can be supplemented by either raising a special levy or obtaining a bridging loan. A concise cashflow forecast will help the body corporate avoid these undesirable supplementary contributions – this is achieved by actively utilising the 10-year maintenance plan.
Administration Fund Planning
The administrative fund is used to pay for operational expenses and routine maintenance activities that keep assets in good working order.
Routine maintenance, required on a frequent or ongoing basis, includes the following examples:
- replacing a light bulb
- fixing a leaking tap
- unblocking a storm water drain
- cleaning the gutters
- garden service
- lift maintenance
Budgeting for the admin fund is an essential step towards maintaining control of a body corporate’s day to day operating expenses. By combining the 10-year cashflow forecasts of both the reserve fund and the admin fund, a body corporate will be in complete control of its financial wellbeing.
What Can LevyTate Do For You?
LevyTate Managing Agents has the expertise and systems to assist you with all your Scheme’s financial, administrative and legislative requirements.
Contact us on info@levytate.co.za or 031 940 1207 for more information on our Managing Agent Services and our Fault Logging App.
