Sectional title owner? This is how the new regulations affect you.
New legislation came into effect late last year with regards to sectional title schemes, CSOS and the new Sectional Title Regulations. This is what these mean to you as a Sectional Title owner.
Sectional Title regulations – there is a new Sectional Title Schemes Management Act (STSMA), this was brought into effect on 7 October 2016. There are many similarities between this new piece of legislation and the Sectional Title Act of 1986.
CSOS – this refers to the Community Schemes Ombud Services Act, this is brand new and is a regulatory body to assist. We encourage you to look at their website.
Who are they? CSOS provide an alternative, impartial and transparent service for the resolution of unresolved disputes in community schemes. Established in terms of the Community Scheme Ombud Service Act, 2011 [Act 9 of 2011) the CSOS regulates the conduct of parties within community schemes and ensures their good governance. www.csos.org.za
It is important to note that as there was no transition period provided for in the implementation of the STSMA and CSOS, there are a number of requirements that have to be met within the next 90 days and these have both a financial and administrative impact on members and managing agents. Therefore, members are encouraged to read carefully below as these changes will have an impact on everyone.
What needs to be done from an administration perspective:
- Within 30 days of coming into effect, i.e. from 7 October 2016, each body corporate has to be registered with CSOS.
- Within 90 days, CSOS will need to be provided with supporting documentation, Sectional Title plans, rules etc., specific to each body corporate.
- An annual return must be submitted to CSOS within 4 months of the scheme’s financial year end, including the annual financial statements
- A levy must be paid quarterly to CSOS - Refer below for levy amounts and calculation.
- A reserve fund must be established for maintenance.
- A maintenance plan must be prepared for 10 years.
What is the financial impact on members?
1). Each scheme is required to collect a CSOS levy from each unit owner monthly and pay CSOS on a quarterly basis the sum total of all units of the body corporate. The process will be:
- From 1 January 2017, a CSOS levy will be raised on your monthly levy statement.
- The CSOS levy is calculated as follows:
- (Your levy – R500) x 2%
- (e.g. if your levy is R1000 per month, the CSOS levy is R1000 – R500) x 2% = R10.
- The CSOS levy cannot be more than R40 per unit per month - Please note we will inform each scheme of their specific levy amount.
- The regulations in the CSOS Act allows for the following:
- 4(2) Any person or category of persons whose monthly net household (gross income less PAYE) income is below R5 500 are entitled to a 100% waiver of application and adjudication fees.
- Should you wish to apply for this the appropriate person may contact the local Ombud’s office and complete the application form. You are directed to the website www.csos.org.za for the relevant contact details and forms.
- The managing agent will pay the total CSOS levy to CSOS office on a quarterly basis.
2). Each scheme must maintain a certain level of reserves. This may require an additional levy obligation and depends on the amount of reserves per the latest annual financial statements. Each scheme will be notified separately. The following applies:
- Determine the percentage of reserves – i.e. accumulated surplus divided by the levy income (both amounts per your 2016 annual financial statements).
- If less than 25% then the body corporate will have to add 15% of the budgeted levy income to be kept in a reserve account.
- If between 25% and 100%, then the reserve amount to allocate to the separate account must be the amount of the maintenance budget.
- If 100% or more, then there is no need to build more reserve.
- The above could mean a much greater than normal levy increase. The normal levy increase should be sufficient to meet the normal day-to-day expenses but the reserves or total planned surplus, now needs to meet specific reserve requirements.
3). Fidelity cover – CSOS sets a minimum sum of fidelity insurance cover required. The insurance industry is still providing quotations on this type of cover, but this may result in an additional premium with the insurance policy for this new cover.
Other interesting changes or areas to note
- The quorum at meetings is standard now for schemes more than 4 units. Quorum needs to be 33.33% (1/3rd) of members in person or by proxy OR in terms of the voting rights (Participation Quota “PQ”). Previously for more than 10 but less than 50 units, the quorum was 35%, greater than 50 units it was 20%. The new legislation aims to encourage members to attend meetings.
- A member can hold a maximum of 2 proxies. Previously member could hold unlimited proxies. The proxy form is now more detailed and requires both the member and the person accepting proxy to sign. It also includes specific instructions for the proxy.
- A motion at a general meeting does not need to be seconded, except for special or unanimous resolutions. A motion must be adopted by the majority votes, calculated in value by PQ.
- Trustees have authority to raise a special levy for a necessary expense that cannot reasonably be delayed and they can increase the levies by a maximum of 10%.
- Interest can be charged on overdue amount payable by members.
- A body corporate must obtain a replacement valuation of all buildings and improvements that it must insure at least every three years and present the replacement valuation at the AGM.
- An annual statutory audit is required by an independent auditor.
- CSOS has many functions and obligations. As a body, they are there, amongst other functionalities, to assist in dispute resolutions and adjudications.
The above summary highlights just some of the changes. Members are encouraged to familiarise themselves with the new legislation.
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