Check rules, finances and levies when buying Sectional Title
Category RealADVICE
If you are thinking of buying into an apartment building or other Sectional Title (ST) complex, it's vital that you read and understand the Conduct Rules of that complex before you sign any offer to purchase.
These rules are not standard for every complex. In terms of the Sectional Title Schemes Management Act (STSMA), the owners in a complex are able to change conduct rules or make new ones that, subject to approval by the Community Housing Schemes Ombud, will apply only to their complex.
It is well-known that some complexes do not permit pets, for example, but owners are also able to make complex-specific rules about the use of communal amenities such as swimming pools and car wash bays, for example, or about where and when residents may hang washing, dispose of refuse, or allow construction work to take place, even inside their own sections.
It is important for ST buyers to realise that they will not just be moving into a new home but also immediately becoming part of an established community which has over time come up with its own a specific "code of conduct" to help its members get along - and where they are likely to feel very uncomfortable if the rules clash with their own needs or lifestyle.
This is why any agent worth their salt will give you a copy of the Conduct Rules when you attend a show day or view a unit for sale in a ST complex - along with copies of the most important documents relating to the financial wellbeing of the complex as a whole, such as the most recent audited financial statements and the approved budget for the current year.
As a prospective buyer, it is also vital that you ascertain what your levy commitment would be as an owner in a particular complex. This is usually determined by the Participation Quota (PQ) schedule, which shows how big each section in the complex is in relation to the whole and thus what percentage of the common expenses each owner should pay each month.
These joint expenses include insurance premiums, maintenance costs, wages and salaries, gardening, cleaning and security costs, and any water and electricity consumed on the common property, and the PQ system generally ensures a fair apportionment, with the owners of bigger sections that consume more of the common resources paying higher levies.
However, buyers should be aware that the levies in a specific complex may be calculated differently if the owners have passed a special resolution to that effect and had it approved by the Ombud, or if the original developer of the complex assigned values to each section that differed from the actual PQs.
In addition, garages or storerooms that are registered as separate sections will mean additional levy payments, so you need to check on that as well.
And lastly, you must find out how big the complex's reserve fund is. The STSMA provides that every ST scheme must have a reserve fund equal to at least 25% of the scheme's total annual levy budget, and that if it does not, the owners in the scheme must add 15% to their total levy budget each year until it reaches this minimum, and preferably a higher level. Your share of a required reserve fund contribution could thus make quite a difference to your monthly budget.
Author: RealNet
