Christmas is a season of generosity, where we naturally desire to pamper our loved ones, treat our friends, and indulge ourselves after a year of hard work. However, it’s essential to pause and reflect on our financial stability during this festive time. This can help us avoid overspending and prevent starting 2026 with increased debt and added pressure.

Take a moment to consider the insightful advice from our CFO, Mark Friebus, regarding personal and scheme finances.

What is financial stability? A simple definition of financial stability is being able to live comfortably each month without worrying about money. You don’t overspend, but you still enjoy the things you love. You pay your bills on time, and you put away enough savings for rainy days. Having a secure job or an investment that keeps pace with your lifestyle is a prerequisite.

What does financial stability look like for a community scheme? As an owner in a sectional title (ST) or full-title development (HOA) there is a lot at play.

Levy Debtors

There are generally two types of debtors – those who genuinely fall on hard times, and those who simply choose not to pay. The latter can be particularly frustrating for scheme executives, especially when that owner arrives at the scheme in their brand-new BMW (and waves). In both situations, the scheme will need to take the necessary steps to recover the arrears, but the legal process is often long and fraught with potential challenges. We have seen situations where the entire scheme’s equity is tied up in a single debtor. Some measures to mitigate against a debtors problem include:

• Pre-paid meters can slow down escalating debt. Unpaid electricity, gas, and water added to the levy account, can reach tens of thousands whilst waiting for the legal action to conclude.
• Conduct rules allowing legal fees to be debited should be adopted into your rules to permit reasonable legal fees to be charged onto the defaulting owner’s levy account. Many HOAs already include this in their Memorandum of Incorporation (MOI).
• A culture of levy payment. It is easier to foster a positive community spirit when the common property is well managed, and owners can see their levies are being used responsibly. People should feel proud of where they live (or of the investment properties they own). A poorly managed scheme may result in owners paying their levies begrudgingly. By keeping your levy account up to date, you are doing your part.
  

Budgeting Correctly 

Gone are the days when all owners paid their levy accounts on time. Schemes should budget with the expectation that some owners will default, resulting in a negative impact on the cashflow. It is unfair on the good payers, yes – but the courts often show considerable empathy toward debtors (even the one with the new BMW). If a debtor defends the action taken against them, it can be a very long journey for the scheme. Some factors to consider:

• Avoid relying on interest income. If your scheme has large debtors, don’t rely on the interest charged to the debtor as part of the operating budget. Although it may appear on the annual budget, you do not have the cash until the debtor pays.
• Be realistic when setting the budget. Under-budgeting leads to shortfalls. No one likes the dreaded special levy, and Murphy’s Law will ensure it comes at the worst time.
• Remember your Reserve Fund/savings obligations. In a sectional titles scheme, Regulation 2 of the Sectional Titles Schemes Management Act (STSMA) requires a minimum Reserve Fund contribution. This is not an AGM approval item, it is law.
  

Scheme Executives and Financial Compliance

If you’re a scheme executive, THANK YOU. It is often a thankless and unnoticed role, but one with significant responsibility and potential liability. Scheme executives have a fiduciary duty to manage their scheme’s funds responsibly and within the confines of the law to ensure ongoing financial compliance. Some factors to consider:

• Never use the Reserve Fund to solve cashflow problems. In a sectional titles scheme, Reserve Fund money may only be used for major maintenance and repair items approved in terms of Reserve Fund budget. 
• Understand owner-imposed restrictions. Under Section 7(1) of the STSMA, owners may place restrictions on trustees at the AGM. For example: “Trustees may not spend any amount outside of the approved budget without first calling an SGM”. It is however advisable to allow the trustees a reasonable overspend margin.