Sectional title is a popular form of property ownership, especially in urban areas where gated community schemes are common. As of 2025, there were approximately 56,000 registered sectional title schemes in South Africa (over 1.9 million individual properties). Around 60% of first-time property ownership is sectional title.

In the sectional titles system of ownership, individual owners hold title to their sections while sharing the financial responsibility for common property such as gardens, insurance, lifts, roofs, parking areas, and security infrastructure. The financial management of these shared assets depends heavily on careful budgeting and, at times, special contributions from the owners. Understanding how budgets and special contributions work is essential for both trustees and owners.

The financial affairs of sectional title schemes are governed by the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and its accompanying Regulations. A scheme may also have its own set of management rules. All owners are members of what is referred to as the body corporate. The body corporate is a juristic entity which holds the right to manage the common property, enforce rules and initiate legal action to ensure the functionality and maintenance of the scheme. Owners elect trustees at each Annual General Meeting (AGM) to represent the body corporate in their best interests.

For the purpose of this article, we will refer to the body corporate as a community scheme or scheme (as defined under the Community Schemes Ombud Service Act, 2011).

The Role of the Budget

The powers and functions of a sectional title community scheme are laid out in sections 3 to 5 of the STSMA. Section 3 deals with the function and the need for levies. A budget is the financial plan that determines how much money the community scheme needs for the upcoming financial year. The trustees, with the assistance of WPM, prepare the proposed budgets. The budgets determine the monthly levies payable by each owner. Levies are usually calculated based on the participation quota (PQ), which reflects the size of each section relative to the total scheme.

There are two budgets:

Administrative Fund budget. These cover the routine operating costs of the scheme, such as:

• Security monthly services
• Cleaning and gardening
• Electricity and water for the common areas
• Insurance premiums
• Routine maintenance and repairs (ad hoc maintenance)

Reserve Fund budget. South African law requires sectional title schemes to maintain a reserve fund specifically for future maintenance and capital repairs of common property. This includes major items such as:

• Scheduled roof maintenance
• Lift refurbishment/replacement
• Painting
• Road and paving resurfacing
• Security system replacement

The proposed budgets are presented to the owners at the Annual General Meeting (AGM) for approval by majority vote. NOTE: Minimum contributions to the Reserve Fund must always be adhered to regardless of an approval.

When considering the budget, owners should review the financial statements from the previous year to see if the budget makes sense. Inflationary increases are normal whilst large variances up or down should be questioned. The budget must also be realistic – There is no point approving an increase that is lower than the cash flow requirements of the scheme.

What is a Special Contribution?

Despite careful budgeting, situations can arise where a community scheme requires additional funds that were not anticipated in the approved budgets. In such cases, the trustees may impose a special contribution, often referred to as a “special levy”.

Examples of such situations include:

• Emergency repairs to a collapsed wall which is not covered by insurance
• A structural defect
• Legal costs arising from disputes or litigation
• An urgent upgrade to the security for safety reasons

Under the STSMA, trustees have the authority to raise special contributions to meet expenses that cannot reasonably be delayed until the next budget cycle. Unlike the annual budget and the standard levies attached thereto, which must be approved at the AGM, trustees can impose special contributions by trustee resolution alone.

Special contributions are usually calculated using the same participation quota formula used for standard levies, unless the scheme’s management rules specify otherwise.

Unlike the old Management Rules of the Sectional Titles Act 95 of 1986, that placed the liability of the full special levy on the owner at the time of the passing of the trustees resolution, the STSMA apportions the special contribution between the buyer and seller based on the date of transfer (pro rata). In such an instance where the buyer feels the seller should pay the amount in full, the condition needs to be agreed to in writing between the parties (often in the offer to purchase). This can have implications for property transfers. In many cases, conveyancers ensure that any pending special contributions are disclosed and dealt with before transfer.

Well-managed schemes aim to minimise the need for special contributions through:

• Adequate reserve fund planning
• Long-term maintenance plans
• Regular building inspections
• Conservative and realistic budgeting

Transparency and Communication

Clear communication between the trustees and the owners is essential when it comes to budgets or special contributions. Owners are more likely to support financial decisions when they understand:

• Why the expense is necessary
• Why it was not included in the original budget (when special contributions are imposed)
• How the funds will be used

Providing detailed explanations helps to build trust and ensures smoother financial management within the scheme.

Conclusion

Proper budgets and special contributions are necessary to the financial sustainability of sectional title schemes. While the annual budget provides for routine operations, special contributions serve as a mechanism to address unforeseen and/or urgent expenses. Effective financial planning, strong governance by trustees, and transparent communication with owners all play a vital role in maintaining the financial health and the long-term value of sectional title communities.

Mark Friebus – CFO – WPM