Understanding special levies and their impact on owners in Sectional Title Schemes

Owning property in a sectional title scheme, such as a townhouse complex or an apartment building, comes with its own set of rules and financial obligations. One key aspect of managing these properties involves levies, which are regular payments owners contribute to the body corporate for the maintenance and management of the common property. However, sometimes the body corporate may face unforeseen expenses that cannot be covered by the normal levy budget. In such cases, a special levy may be raised. This article will explore what special levies are, how they work, and their impact on property owners in sectional title schemes.

What is a Special Levy?

A special levy is an additional charge imposed on sectional title owners to cover unexpected costs or large expenses that fall outside the normal budget of the body corporate. These expenses can include major repairs, urgent maintenance work, or upgrades to common property that were not anticipated when the regular levies were set.

Unlike normal levies, which are budgeted and collected periodically (usually monthly or annually), special levies are raised when a specific need arises. They are typically payable over a set period or as a lump sum, depending on the body corporate's decision and the urgency of the situation.

When are Special Levies Raised?

Special levies can be raised in a number of scenarios, including:

1. Emergency Repairs: If there is unexpected damage to the building's infrastructure, such as a roof collapse or plumbing failure, the body corporate may not have enough funds in the reserve to cover the immediate repair costs. A special levy might be required to address the issue without delay.
2. Upgrades and Improvements: Occasionally, the body corporate may need to upgrade facilities like security systems, elevators, or fire safety equipment to comply with legal standards or improve the property's overall safety and value.
3. Legal or Regulatory Requirements: Changes in local government laws or building codes can sometimes require buildings to undergo certain upgrades or installations (like water conservation systems or energy efficiency improvements), which might not be covered by the existing budget.
4. Deficit in Reserve Funds: If the reserve fund, which is intended for long-term maintenance, is insufficient to cover major repairs or maintenance costs, the body corporate may impose a special levy to ensure the property remains in good condition.

Who Decides on Special Levies?

The decision to impose a special levy is made by the body corporate, which is the collective group of all property owners in the scheme. In practice, the body corporate's trustees typically propose the special levy, explaining the reason for the additional funds and providing a detailed breakdown of the costs involved.

The trustees' proposal is then put to a vote, often at a general meeting of the body corporate. Depending on the scheme's rules and local laws, a special levy may require a majority vote or a special resolution, which may need a higher threshold of approval from owners. Owners should be aware that once a special levy has been passed, all owners are obligated to contribute based on their participation quota (PQ), which is usually proportional to the size of their unit.

Impact of Special Levies on Property Owners

Special levies can have both financial and practical implications for property owners in a sectional title scheme.

1. Financial Burden: Special levies often represent significant additional costs that owners may not have budgeted for. Depending on the size of the scheme and the nature of the expense, special levies can be substantial and paying them may strain an owner's finances. This can be particularly challenging if the levy must be paid in a lump sum within a short time frame.
2. Resale Value: In some cases, special levies can affect the resale value of a unit within the scheme. Potential buyers may be hesitant to purchase a property in a scheme with outstanding or upcoming special levies, especially if the costs are high. Buyers may see this as a sign of poor financial management or high future costs.
3. Owner Dissatisfaction: Special levies can cause friction among owners, especially if they feel the levy is unnecessary or if there was insufficient consultation before the decision was made. Disputes about the fairness of the levy or concerns about transparency in the decision-making process may arise. In some cases, this can lead to tensions within the body corporate or even legal challenges.
4. Maintenance and Value Protection: While special levies can be a financial burden, they are often necessary to protect the long-term value of the property. By funding essential repairs or improvements, a special levy helps ensure that the sectional title scheme remains well-maintained, which can protect or even enhance the value of individual units over time. Owners who are reluctant to contribute may face greater expenses if maintenance is delayed, as neglected property typically requires more costly repairs later on.

Special levies are an important aspect of managing sectional title schemes, ensuring that unexpected expenses are covered, and that the property remains in good condition. While these levies can create financial challenges for owners, they are often necessary to maintain the long-term value of the property. As a property owner, it's essential to stay informed about the body corporate's financial management and to understand your responsibilities when it comes to special levies. By doing so, you can avoid unexpected financial burdens and contribute to the smooth running of your sectional title scheme.