The two Body Corporate funds
The Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”) and the Prescribed Management Rules (“PMRs”) contained in Annexure 1 to the Regulations made thereunder provide for bodies corporate to have two separate funds, a reserve and administrative fund. This article will distinguish between these two funds, and set out what each fund must be used for.
1. Reserve fund
In terms of section 3(1)(b) of the STSMA a body corporate must 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.
In terms of PMR 24(2) the reserve fund must be used for the implementation of the maintenance, repair and replacement plan of the body corporate.
In terms of PMR 24(5) money may be paid out of the reserve fund at any time in accordance with trustee resolutions and the approved maintenance, repair and replacement plan; or if the trustees resolve that such a payment is necessary for the purpose of an urgent maintenance, repair or replacement expense, which purpose includes, without limitation to:
- comply with an order of a court or an adjudicator;
- repair, maintain or replace any property for which the body corporate is responsible where there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage to persons or property;
- to repair any property for which the body corporate is responsible where the need for the repairs could not have been reasonably foreseen in preparing the maintenance, repair and replacement plan; or
- to enable the body corporate to obtain adequate insurance for property that the body corporate is required to insure.
The trustees must report to the members on any such expenditure as soon as possible after it is made. Expenditure from the reserve fund must not exceed the amount necessary for the purpose for which it is expended; or any limitation imposed by the body corporate on expenditure; and must comply with any restrictions imposed or directions given by members.
In terms of PMR 24(3) the following amounts must be paid into the reserve fund:
- any part of the annual levies designated as being for the purpose of reserves or the maintenance, repair and replacement plan;
- any amounts received under an insurance policy in respect of damage or destruction of property for which the body corporate is responsible;
- any interest earned on the investment of the money in the reserve fund; and
- any other amounts determined by the body corporate.
All other body corporate income must be paid into the administrative fund. This provision is designed to keep reserve fund income separate from other income.
2. Administrative fund
In terms of section 3(1)(a) of the STSMA a body corporate must establish and maintain an administrative fund, which is reasonably sufficient to cover the estimated annual operating costs for:
- the repair, maintenance, management and administration of the common property (including reasonable provision for future maintenance and repairs);
- the payment of rates and taxes and other local municipality charges for the supply of electricity, gas, water, fuel and sanitary or other services to the building or land;
- the payment of any insurance premiums relating to the building or land; and
- the discharge of any duty or fulfilment of any other obligation of the body corporate.
In terms of PMR 24(1), the administrative fund must be used to fund the operating expenses of the body corporate for a particular financial year.
In terms of PMR 24(4), money may be paid out of the administrative fund in accordance with trustee resolutions, and the approved budget for the administrative fund.
Article reference: Paddocks Press: Volume 12, Issue 02, Page 01.
Dr Carryn Melissa Durham is one of the most highly qualified Sectional Title Attorneys in the country (BA, LLB, LLM and LLD), Carryn forms part of the Paddocks Private Consulting Division.