With some sectional title schemes having reached or that are nearing the end of their financial year, the need arises for trustees ( and even owners in anticipation of the forthcoming AGM) to carefully go through the line items listed in their scheme’s budgeted estimate of income and expenditure for the administrative fund for the financial year ahead, and also the items listed in the reserve fund budget for the financial year ahead, in order to determine the estimated increase in contributions that will be due by members in the new financial year in order to meet the anticipated expenses, all of which must be done in accordance with the Sectional Title Schemes Management Act, which came into effect in October 2016.

All sectional title schemes must now have a reserve fund as well as their administrative fund – and provisions should have been made to budget for these two amounts.

The amount to be accumulated in a scheme’s reserve fund, per the STSM Act and its Regulations, must be used to fund anticipated expenses that are found in the 10 year maintenance, repair and replacement plan drawn up by the Body Corporate

In terms of the budgeted contributions to the reserve fund, the STSMA Regulations require that , in order for the budgeted contribution to the reserve fund to only be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for, there needs to be a balance in the reserve fund at the end of the financial year of more than 25%, but less than 100% of the total contributions to the scheme’s administrative fund for that previous financial year. If the balance in the reserve fund is 100% or more, then no minimum contributions need to be made to the reserve fund. In addition to these two funds, the monthly Community Schemes Ombud Service levy must also be budgeted for.

Another aspect of budgeting for the coming financial year should be to do an assessment as to how many of the scheme’s owners pay their levies on time and what percentage are in arrears, and to make the necessary contingency arrangements to help compensate for the non-payers. This is sometimes a mistake that trustees make in their budgets, in assuming that all the owners pay their levies in full and on time. A buffer % may be added to the annual levy budget as decided by the scheme executives as a separate line item, to compensate for non-payers. (Article by Michael Bauer)

In establishing an administrative budget for the new financial year, the trustees would evaluate all income and expenses of the previous financial year and use this figures to decide on their budgeted amounts for the new financial year, especially looking at the maintenance that was required to be carried out on the buildings, and what additional maintenance may be needed for the new financial year that is not covered in the 10 year maintenance repair and replacement plan. This will then assist in planning for upcoming maintenance expenses and track the income versus expenditure estimated for the coming year.

A body corporate needs a solid financial plan which meets more than just the expenses in order to ensure financially healthy scheme with the intention of building sufficient reserves to meet shortfalls in income that may arise from owners not paying their levies, legal costs to pursue owner’s in arrears, and unforeseen expenses that arise in the new financial year.