The Maintenance Reserve Fund

By BCA | 17 Sep 2019 | Blog

Building up a reserve fund has always been a bit of a tricky game. On one hand, trustees could keep levies low and only implement a special levy when the time comes. On the other hand, they could charge a slightly higher levy which would always ensure a sufficient reserve fund and thus avoid implementing special levies.

On 7 October 2016, however, there was drastic change as to how the reserve fund was to be established and maintained. In terms of section 3(1)(b) of the Sectional Titles Schemes Management Act 8 of 2011 and Regulations, which came into operation on 7 October 2016, a body corporate is compelled to make provision for a reserve fund and it must do so on a continual basis.

The purpose of this fund is to make provision for unforeseen costs of maintenance and repairs, which was not included in the budget. Body corporates need to make provision for the long-term maintenance requirements of the scheme. This is carried out by forecasting what capital expenditure there may be over the next 10 years, and putting into place a 10-year maintenance plan.

This plan must be reviewed each year by looking at the costs in the past year and adjusting accordingly. In terms of “3 (1) (b) A body corporate must perform the functions entrusted to it by or under this Act or the rules, and such functions include— to establish and maintain a reserve fund in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of common property but not less than such amounts as may be prescribed by the Minister”.

With the new change in the act, it essentially results in two budgets or funds that are now required. The administrative budget and the maintenance reserve fund or budget. The administrative fund must still be maintained so as to provide for the day-to-day maintenance of the scheme. The maintenance reserve fund is also now required and needs to provide for a 10-year maintenance plan.

The calculation of the maintenance reserve fund is another tricky business. It’s not really a one size fits all. Each scheme will have different expenditures and 10-year plans. This is something really too complex to cover, but with a competent managing agent they should be able to put together a plan that will suit your scheme. This will most likely change each year as the expenditure and needs of the complex change, so it’s important to review this yearly and to have the right agents to help and advise you.

The Maintenance Reserve Fund

By BCA | 17 Sep 2019 | Blog

Building up a reserve fund has always been a bit of a tricky game. On one hand, trustees could keep levies low and only implement a special levy when the time comes. On the other hand, they could charge a slightly higher levy which would always ensure a sufficient reserve fund and thus avoid implementing special levies.

On 7 October 2016, however, there was drastic change as to how the reserve fund was to be established and maintained. In terms of section 3(1)(b) of the Sectional Titles Schemes Management Act 8 of 2011 and Regulations, which came into operation on 7 October 2016, a body corporate is compelled to make provision for a reserve fund and it must do so on a continual basis.

The purpose of this fund is to make provision for unforeseen costs of maintenance and repairs, which was not included in the budget. Body corporates need to make provision for the long-term maintenance requirements of the scheme. This is carried out by forecasting what capital expenditure there may be over the next 10 years, and putting into place a 10-year maintenance plan.

This plan must be reviewed each year by looking at the costs in the past year and adjusting accordingly. In terms of “3 (1) (b) A body corporate must perform the functions entrusted to it by or under this Act or the rules, and such functions include— to establish and maintain a reserve fund in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of common property but not less than such amounts as may be prescribed by the Minister”.

With the new change in the act, it essentially results in two budgets or funds that are now required. The administrative budget and the maintenance reserve fund or budget. The administrative fund must still be maintained so as to provide for the day-to-day maintenance of the scheme. The maintenance reserve fund is also now required and needs to provide for a 10-year maintenance plan.

The calculation of the maintenance reserve fund is another tricky business. It’s not really a one size fits all. Each scheme will have different expenditures and 10-year plans. This is something really too complex to cover, but with a competent managing agent they should be able to put together a plan that will suit your scheme. This will most likely change each year as the expenditure and needs of the complex change, so it’s important to review this yearly and to have the right agents to help and advise you.

The Maintenance Reserve Fund

By BCA | 17 Sep 2019 | Blog

Building up a reserve fund has always been a bit of a tricky game. On one hand, trustees could keep levies low and only implement a special levy when the time comes. On the other hand, they could charge a slightly higher levy which would always ensure a sufficient reserve fund and thus avoid implementing special levies.

On 7 October 2016, however, there was drastic change as to how the reserve fund was to be established and maintained. In terms of section 3(1)(b) of the Sectional Titles Schemes Management Act 8 of 2011 and Regulations, which came into operation on 7 October 2016, a body corporate is compelled to make provision for a reserve fund and it must do so on a continual basis.

The purpose of this fund is to make provision for unforeseen costs of maintenance and repairs, which was not included in the budget. Body corporates need to make provision for the long-term maintenance requirements of the scheme. This is carried out by forecasting what capital expenditure there may be over the next 10 years, and putting into place a 10-year maintenance plan.

This plan must be reviewed each year by looking at the costs in the past year and adjusting accordingly. In terms of “3 (1) (b) A body corporate must perform the functions entrusted to it by or under this Act or the rules, and such functions include— to establish and maintain a reserve fund in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of common property but not less than such amounts as may be prescribed by the Minister”.

With the new change in the act, it essentially results in two budgets or funds that are now required. The administrative budget and the maintenance reserve fund or budget. The administrative fund must still be maintained so as to provide for the day-to-day maintenance of the scheme. The maintenance reserve fund is also now required and needs to provide for a 10-year maintenance plan.

The calculation of the maintenance reserve fund is another tricky business. It’s not really a one size fits all. Each scheme will have different expenditures and 10-year plans. This is something really too complex to cover, but with a competent managing agent they should be able to put together a plan that will suit your scheme. This will most likely change each year as the expenditure and needs of the complex change, so it’s important to review this yearly and to have the right agents to help and advise you.