Why do you need to scrutinize the finances and rules of a body corporate, before you buy into a complex in South Africa

Lake Properties                      Lake Properties

Lake Properties                     Lake Properties

Whenconsidering buying into a sectional title complex in South Africa, scrutinizing the finances and rules of the body corporate is crucial because they directly impact your financial obligations, property value, and quality of living. Here’s a more detailed breakdown:

1. Financial Health of the Body Corporate

The body corporate is responsible for managing the complex’s finances, which include maintaining common property, paying for utilities, and ensuring compliance with legal requirements. A financially stable body corporate ensures that these responsibilities are met efficiently.

• Check the Financial Statements: Review recent audited financial statements to determine if the body corporate is solvent.
• Look for Outstanding Debt: If owners have not been paying levies, it could mean a shortfall in funds, leading to financial instability.
• Reserve Fund & Maintenance Plan: The Sectional Titles Schemes Management Act (STSMA) requires a 10-year maintenance plan and a reserve fund to cover major repairs. A weak reserve fund could result in unexpected special levies.

2. Levies and Special Levies

Levies are regular contributions paid by unit owners to cover common expenses. If the body corporate is not financially stable, there may be sudden increases in levies or the introduction of special levies (one-time charges for urgent repairs or shortfalls).

• Compare levies to similar complexes: High levies may indicate mismanagement, while unusually low levies could mean the complex is underfunded.
• Check for pending special levies: If a large repair (e.g., roofing, painting) is needed but the reserve fund is insufficient, all owners might be asked to contribute large sums unexpectedly.

3. Maintenance and Upkeep of the Complex

A well-maintained complex retains its property value, while a neglected one deteriorates and decreases in value.

• Review the Maintenance Plan: The body corporate should have a structured 10-year plan for ongoing maintenance.
• Inspect the Complex: Look for signs of neglect, such as peeling paint, broken gates, or leaking roofs.
• Check Service Contracts: Ensure that service providers for security, cleaning, and gardening are being paid and are reliable.

4. Rules and Regulations

Each body corporate has a set of conduct and management rules that owners and tenants must follow. If you are not aware of them before purchasing, you may face restrictions that affect your lifestyle.

• Pet Policy: Some complexes do not allow pets or have strict rules about the type and number of pets.
• Short-term Rentals: If you plan to use your unit for Airbnb, check if this is allowed.
• Alterations & Renovations: Some body corporates have strict guidelines about making changes to your unit (e.g., exterior paint, balconies, satellite dishes).
• Parking & Visitors: Rules regarding visitor parking, designated spaces, and vehicle restrictions should be reviewed.

5. Legal and Compliance Issues

If a body corporate fails to comply with legal regulations, it could result in fines, legal disputes, or financial burdens for owners.

• Check for Ongoing Legal Disputes: If the body corporate is involved in lawsuits (e.g., disputes with developers, unpaid contractor fees), this could signal financial and governance issues.
• Ensure Compliance with the Sectional Titles Act & STSMA: The body corporate must hold annual general meetings (AGMs), maintain proper financial records, and follow legal procedures.

6. Impact on Property Value

A poorly managed body corporate can lead to declining property values due to:

• Lack of maintenance, making the complex less attractive to buyers.
• High levies discouraging potential investors.
• Legal and financial troubles making it difficult to sell a unit.

Conversely, a well-run body corporate enhances property value by ensuring good upkeep, financial stability, and a harmonious living environment.

Conclusion

Before purchasing in a sectional title scheme, request: 

✔️ The latest audited financial statements
✔️ AGM minutes (to see recent discussions           and concerns)
✔️ The rules and regulations document
✔️ The 10-year maintenance plan

By thoroughly reviewing these aspects, you protect yourself from unexpected costs, lifestyle restrictions, and potential losses

Lake Properties                      Lake Properties