Ownership within a Community Scheme is an efficient and popular form of property ownership, especially amongst entry level and lower income owners, as it provides a very effective cost sharing mechanism for many of the essential expenses associated with property ownership. There are an estimated 200 000 Community Schemes registered in South Africa, with an average of 10-15 units per scheme. The estimated funding requirement of Community Schemes national is in the region of R15bn.
Whilst many Community Schemes are efficiently managed and are financially sound, many of them have levy defaulting unit owners and as a result struggle to function operationally, often leading to general decay of the building complex and therefore unit value. This is mainly as a result of the Community Scheme only being able to afford basic necessities whilst limiting maintenance and other common property services.
In the event that some owners do not pay their contributions / levies timeously, all unit owners in the Community Scheme are put at risk as the Community Scheme may not be able to continue funding essential services, such as:
It is due to the non-payment of levies that a Community Scheme will need to borrow, in order to stabilise their cash flow and enable them to continue their required service delivery to the common property, the Community Scheme is either protected by legislation (in the case of Sectional Title Bodies Corporate) and / or by contract and case law (in the case of Homeowners Associations), at various levels, to ensure that any risk of loss to levy income recovery and / or loan creditor (capital or interest) repayment, especially where the levies have been ceded as security to the loan, is extremely remote.
To the extent any member of a Sectional Title Body Corporate is in default of, or in arrears with, their obligations in this regard, the Trustees are entitled, on behalf of the Body Corporate, to “charge interest on any overdue amount payable to the body corporate” (Rule 21(3)(c) of the Management Rules prescribed in terms of the Regulations to the Sectional Titles Schemes Management Act 8 of 2011).