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Body Corporate Funds

Two Different Types of Body Corporate Funds

Two types of body corporate funds are available according to the Sectional Title Schemes Management Act (STSMA) 8 of 2011 and the Prescribed Management Rules (PMR). These funds are referred to as the administrative and reserve funds and each have a separate purpose.

Two Body Corporate Funds

Body Corporate Reserve Fund

The STSMA stipulates that a body corporate is required to establish as well as maintain a reserve fund. The amount available in this fund must be sufficient to cover costs of future maintenance and repair of the estate’s common property. The minister will prescribe a minimum amount which may be available in the reserve fund.

In accordance with the PMR, the body corporate must use the reserve fund to carry out repair, maintenance and/or replacements which may be necessary.

Additionally, the PMR states that funds may be paid from the reserve fund according to trustee resolutions and approved repair, maintenance and replacement plan or for the purpose of urgent repair, maintenance or replacement expenses. These expenses include but are not limited to:

  • Compliance with a court order
  • Compliance with an order from an adjudicator
  • Maintain, repair and/or replace any communal property for with the body corporate is responsible. This takes place on the condition that immediate expenditure is necessary in order to avoid significant damage to persons or property
  • To repair any communal property where unforeseen circumstances have caused the need for repair
  • For insurance of property that is required to be insured.

The members must be made aware as soon as possible of any expenditure that has been made. Expenditure used from the reserve fund must comply with any restrictions as stipulated by members and must not exceed the amount required for the expense nor any limitations set out by the body corporate.

What Goes into a Body Corporate Reserve Fund

In accordance with the PMR, amounts paid into a reserve fund must include:

  • Any portion of annual levies which serve as a contribution towards reserves
  • Any portion of annual levies which have been designated for repair, maintenance and replacement of communal property
  • Amounts paid out by insurance for the damage of communal property
  • Interest earned on the money in the reserve fund
  • Any other applicable amounts stipulated by the body corporate

All funds excluded the above mentioned must be paid into the administrative fund so as to keep the two incomes separate.

Body Corporate Administrative Fund

The STSMA indicates that a body corporate is required to establish and maintain an administrative fund which is sufficient enough to cover the annual costs of:

  • Maintenance, repair, administration and management of communal property
  • Payment of municipal costs for the supply of water, electricity, sanitary, gas as well as rates and taxes or any other services rendered to the building or land
  • Payment of building or land related insurance
  • Carrying out duties or any other obligation of the body corporate

According to the PMR, the operating expenses of the body corporate for a particular financial year must be funded by the administrative fund.

Additionally, the PMR states that money paid from the administrative fund is to be in accordance with the approved budget for the fund.

Van Deventer & Van Deventer Incorporated – Property Attorneys South Africa

Contact our property lawyers in Johannesburg and Cape Town for more information about body corporate funds or any other matters related to property law in South Africa.

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