If you grew up as a kid in South Africa, you know about Chappies chewing gum and the phrase “did you know”. The wrappers of the chewing gum contain encyclopedia-like information about random facts. As a kid at heart, I still appreciate the simplicity of a Chappie wrapper and their marketing tactic. 
The Sectional Titles Schemes Management Act (STSMA) and its Regulations that govern the management of all sectional title schemes, came into effect on 7 October 2016. The topic of the then new Reserve Fund requirement was one that stood out and caused much confusion at the time. This article aims to break it down and is the “Chappie paper” version 🤓.
Regulation 2 of the STSMA
Did you know? 
Despite not having a 10-year maintenance, repair and replacement plan (MRRP), a scheme is compelled by law to contribute to the Reserve Fund on an annual basis.
The legislators thought to protect your investment when it comes to planned long- term maintenance. Despite not having a MRRP, a scheme must still contribute to the Reserve Fund for items such as painting, electric fences, drainage, damp proofing, security camaras etc. I draw a parallel between these maintenance items and the tires on your car. Not a monthly expense, but a large expense when it comes. It’s wise to save up for these eventualities.  
Regulations 2 of the Act states what the minimum contribution to the Reserve Fund must be in 3 scenarios. In the simplest of understanding, and when looking at your financial statements for the past year in your AGM pack:
Scenario 1: If the amount of money in the Reserve Fund is less than 25% of the total contributions to the Administrative Fund (your standard levy income), the budgeted contribution to the Reserve Fund must be at least 15% of the total budgeted contribution to the Administrative Fund (your standard levy annual budget).
Example: If your scheme raised standard levies of R1m in the past financial year, your Reserve Fund bank account should have a balance of at least R250K. If it does not, and your standard levy is R1,000 per month, the easiest way to comply is to raise a “Reserve Levy” of R150 per month. This is the minimum, but it may be more given the individual scheme’s budget requirements in terms of the MRRP. In the absence of the MRRP, you must raise the 15% and it is not a voting item. 
Scenario 2: If the amount of money in the Reserve Fund is equal to or greater than 100% of the total contributions to the Administrative Fund (your standard levy income), there is no minimum contribution to the Reserve Fund.
Example: If your scheme raised standard levies of R1million in the past financial year, and your Reserve Fund bank account has a balance of R1million or more, you don’t need to contribute to the Reserve Fund. NOTE: Your scheme may still decide to contribute depending on its own budget requirements. 
Scenario 3: If the amount of money in the Reserve Fund is more than 25%, but less than 100% of the total contributions to the Administrative Fund (your standard levy income), the budgeted contribution to the Reserve Fund must at least be the budgeted amount of the annual ad hoc repairs and maintenance spend (Administrative Fund budget).
Example: If your scheme raised standard levies of R1million in the past financial year, and your Reserve Fund bank account has a balance of R500K, your “Reserve Levy” should be equal to, or greater than your participation share of the annual ad hoc repairs and maintenance budget (Administrative Fund budget) divided by 12. Again, it may be more given your individual scheme’s budget requirements in terms of the MRRP.  
Now that the non-negotiable contribution to the fund in terms of compliance is out the way, let’s look at the two remaining facets of the Reserve Fund topic:
Maintenance, Repair and Replacement Plan (MRRP)
Did you know? 
Every Body Corporate must present for approval at the AGM a written maintenance, repair and replacement plan (MRRP) for the common property, setting out the major repair items to be concluded in the next 10 years.
WPMs advice to any scheme is to try keep this as simple as possible without missing something important. I have stated some of the obvious ones above being painting, electric fences, drainage, damp proofing, security camaras, but each scheme will have its own specific requirements. Take for example a scheme with a lift. This is a huge amount of money one day when it needs to be completely overhauled or replaced. Lifts may only need to be replaced every 25 years, and the Trustees need to know the age and start planning. Apart from listing the items and their conditions, the MRRP lays out the envisaged future costs. 
Reserve Fund Budget 
Did you know?
You are supposed to approve two budgets at every AGM. One for the Administration Fund and one for the Reserve Fund. 
The Administrative Fund budget speaks to the day-to-day running costs of the complex and covers items such as gardens, water, common property electricity, ad hoc maintenance, security etc. This is how your standard levy is made up (Administrative Levy). The Reserve Fund budget is the one that speaks to the needs of the approved MRRP. NOTE: It does not override Regulation 2, and in the absence thereof, you still need to contribute to the Reserve Fund. Your Trustees are then mandated to spend from the Reserve Fund based on the approval of this budget.
Although there is no requirement for a Homeowners Association (HOA) to have a Reserve Fund by law, the principles for large maintenance items remain the same. It is far better to build up provisions over time, than go to the owners with an unexpected special levy. 
Article by Mark Friebus