Prior to the implementation of the Sectional Title Schemes Management Act, 2011 (Act No. 8 of 2011) (“STSMA”), the Body Corporate requirements in respect to provision for maintenance and repair was actually quite loose. In practice, maintenance that required large capital outlays, such as a full redecoration (repainting) were put off until the very latest and even then Special Levies (Contributions) often needed to be raised. The Trustees appointed at the time were empowered to raise the Special Levies (Contributions) and even to accept the Quotation for the redecoration (repainting).
The provisions of the STSM Act in regard to budgeting, properly applied, should mean that a Body Corporate is only
obliged to make unexpected demands for funds in circumstances that are unexpected and could not reasonably
have been foreseen.
Prescribed management rule 21(3)(a) provides that, “The Body Corporate may, on the authority of a written trustee resolution, levy members with a special contribution if additional income is required to meet a necessary expense that cannot reasonably be delayed until provided for in the budget for the next financial year”
So if Trustees do resolve to raise a Special Contribution for something that a redecoration project, they should be able to justify why such an expense was not foreseen. We think that this is unlikely to be able to be justified, unless their provisions in terms of their PMR22 plan were hopelessly under-costed, but then they would have to justify why is cannot reasonably be delayed until the next financial year.
Decisions on what redecoration quote to accept were largely made on price (the cheapest) and rarely was the total cost over ten years, or the real annual cost looked at. Well, that form of decision making has to be a thing of the past. CSOS wants Trustees to apply their minds to matters and to think longer-term. They also need to plan ahead for large maintenance expenses, the raising of Special Contributions is only intended to be for unforeseen emergency expenses, such as health and safety issues or something that could not have reasonably have been expected.
Prescribed Management Rule 22 of the Act, which came into effect on the 7th of October 2016, now requires that Sectional Title Schemes are required to produce “a written maintenance, repair and replacement plan” for the common property. Essentially the MRR Plan gets its life from the initial approval by the members at general meeting.
Also PMR24 requires the establishment of a reserve fund to cover the cost of future maintenance and repairs as included in the MRR Plan in terms of PMR22. Some Managing Agents have incorrectly suggested that the amount for the reserve fund should simply be 25% of the annual levy. However, the legislated rules related to 25% and 15% in the first year are to be regarded as minimum amounts to be provided for.
The fact is that Trustees cannot take the laid back approach with regard to predicting and providing for the cost of future maintenance, repair and replacement.
Prior to October 2016, Section 37 did give certain rights to Trustees to raised Special Contributions (or Levies if you prefer) in respect of major capital items in need of maintenance. This section has now been repealed. Trustees have to budget for this using their PMR22 Plan and provide for the funds available in the Reserve Fund (PMR24).
Although the plan comes to life by adoption at General Meeting, it will still need to be updated and reviewed annually (or bi-annually). An Executive Managing Agent is required to do an inspection of the property at least once every six months and needs to provide a report at least every four months to every member of the Body Corporate on the Administration of the Scheme. This report is to include the proposed maintenance and repairs for the next four months. Obviously these tri-annual reports will be derived from the PMR22 Plan and will be used as the basis for a final written report that is to presented at the the next General Meeting (AGM).
If you do not have an Executive Managing Agent, then the Trustees are still required to present a revision of the PMR22 Plan annually. The second version of the plan will take into account the maintenance, repairs and replacement costs that have already been undertaken and the lifespan of these. The costs that will now be forecast in year ten will also need to be added to the revised plan. This information needs to be presented to the members at each General Meeting.
It is clear that the Trustees will have to raise their game significantly and in practice they just might not have the skills or know-how to do this themselves with any degree of certainty. After-all, the process can hardly be done on a desktop basis. It will require getting onto the roof, and walking every inch, checking gutters, downpipes, existing waterproofing. It will involve using moisture meters, doing dry film testing and establishing corrossion-levels. PMR22 have already developed software that currently evaluates 168 touch points to ensure that nothing is missed when doing the assessment. This removes the chance of human error and subjectivity, especially with regard to life calculations, which are now done completely scientifically with life tables.
PMR22 Plans (Pty) Ltd are building a team of experts and equipping them with the necessary tools to make the drafting of a plan easy and affordable for Body Corporates. We believe that the the new legislation is not intended to get Body Corporates to pay extremely high prices for plans, but to rather use the money for maintenance. However, the plans need to be accurate and produced using a scientific, rather than a subjective approach that can be defended when challenged.
Our costs for doing a plan are 100% transparent and are really based on a recovery basis initially, so that we can build long-term relationships with the Body Corporate. There are four steps to completing the PMR22 Plan and Trustees may use our services for one, or all four steps. The total cost of a typical 20 unit plan can be as low as R5,871.00 or R9,091.50 for a 100 unit plan.
We encourage the Body Corporate to sign a Service Agreement for a minimum of 36 months with PMR22 Plans (Pty) Ltd in order to ensure that the plan is maintained at least annually and ready for presentation prior to General Meetings. As less work is involved in reproducing this plan annually, the costs for an Annual Review will be around 25% of the upfront costs, whereas a further discount applies should you sign a five year SLA (Service Level Agreement).