The Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”) and the Prescribed Management Rules (“PMRs”) contained in Annexure 1 to the Regulations made thereunder provide for bodies corporate to have two separate funds. A “reserve fund” and an “administrative fund”. 
1. Reserve Fund (think big ticket maintenance expense items) 
In terms of section 3(1)(b) of the STSMA a body corporate must establish and maintain a reserve fund, in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of common property, but not less than such amounts as may be prescribed. 
In terms of PMR 24(2) the reserve fund must be used for the implementation of the maintenance, repair and replacement plan of the body corporate (also referred to as the 10-year-maintenance plan). 
In terms of PMR 24(5) money may be paid out of the reserve fund at any time in accordance with a trustee resolution that speaks to the approved maintenance, repair and replacement plan; or if the trustees resolve that such a payment is necessary for the purpose of an urgent maintenance, repair or replacement expense, which purpose includes, without limitation to: 
comply with an order of a court or an adjudicator; 
repair, maintain or replace any property for which the body corporate is responsible where there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage to persons or property; 
to repair any property for which the body corporate is responsible where the need for the repairs could not have been reasonably foreseen in preparing the maintenance, repair and replacement plan; or 
to enable the body corporate to obtain adequate insurance for property that the body corporate is required to insure 
If outside of the approved repair and replacement plan, the trustees must report to the owners on any such expenditure as soon as possible after it is made. Expenditure from the reserve fund must not exceed the amount necessary for the purpose for which it is expended; or any limitation imposed by the body corporate on expenditure; and must comply with any restrictions imposed or directions given by members. 
In terms of PMR 24(3) the following amounts must be paid into the reserve fund: 
any part of the annual levies designated as being for the purpose of reserves or the maintenance, repair and replacement plan; 
any amounts received under an insurance policy in respect of damage or destruction of property for which the body corporate is responsible; 
any interest earned on the investment of the money in the reserve fund; and 
any other amounts determined by the body corporate. 
All other body corporate income must be paid into the administrative fund. This provision is designed to keep reserve fund income separate from other income. 
2. Administrative Fund (think day-to-day expense items) 
In terms of section 3(1)(a) 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; 
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. 
In terms of PMR 24(1), the administrative fund must be used to fund the day-to-day/monthly operating expenses of the body corporate for a particular financial year. In terms of PMR 24(4), money may be paid out of the administrative fund in accordance with trustee resolutions, and in accordance with the approved budget for the administrative fund. The budget being that approved at the Annual General Meeting (AGM). Trustees often face the headache of how to deal with a significant expense that no one anticipated. The requirement for a repair and replacement plan has forced trustees to plan, however some expenses are unexpected and unforeseen.
Here is a classic example:  
After suddenly receiving a huge municipal utility bill, a scheme finds a massive water leak on the common property and subsequently employs a plumber to repair the leak, which costs the scheme R25 000 in repair costs. To further exacerbate matters, the municipal debt amounts to R75 000 which also needs to be settled but unfortunately there is no provision in the administrative fund budget reserves to cover these costs. The trustees resolve to use the funds available in the Maintenance Reserve Fund.  
Prescribed Management Rule 24(5)(b) provides the direction where trustees may utilise funds from the reserve fund for such an expense “If the trustees resolve that such a payment is necessary for the purpose of an urgent maintenance…”. The trustees may therefore utilise funds from the reserve fund to settle the plumbing bill for repairing the leak but may not use the reserve funds to settle the municipal debt! 
So what to do in this situation? The trustees have three options: 
The trustees may raise a special contribution in terms of section 3(3) of the Act and PMR 21(3)(a) to cover this necessary expense that was not, and could not reasonably have been budgeted for in the estimated expenditure approved at the last AGM.  
The trustees could enter into a repayment arrangement with the council and include the cost into the administrative budget for approval at the next AGM. 
The trustees could apply to the Community Schemes Ombud Service (CSOS) and ask for an order allowing them to use the funds from the reserve fund to pay for the water. They would need to motivate to the CSOS on how they intend to replenish the reserves.  
In all three, the trustees need to advise their owners of the actions taken.