How to calculate your contributions to the reserve fund

In the past, many bodies corporate neglected to plan for unforeseen maintenance costs, leaving unit owners to foot the bill through special levies. However, since October 2016, bodies corporate are mandated to maintain a reserve fund, ensuring funds are available for common property upkeep.

Determining the reserve fund contribution has been a challenge for trustees. However, this requirement ensures the systematic collection of funds for future maintenance, reducing the reliance on special levies.

Section 3(1)(b) of the Sectional Titles Schemes Management Act 8 of 2011 (“STSMA”) and its Regulations mandates bodies corporate to establish and maintain a reserve fund to cover future maintenance costs adequately. The legislative aim is to encourage better planning and reduce the financial burden on owners from unexpected levies.

Regulation 2 of the STSMA Regulations provides guidelines for calculating the reserve fund contribution, which is tied to total contributions to the administrative fund. The calculation is as follows:

• If the reserve fund is less than 25% of the total contributions to the administrative fund, the budgeted reserve fund contribution must be at least 15% of the total budgeted administrative fund contribution.
• If the reserve fund is equal to or greater than 100% of the total contributions to the administrative fund, there is no minimum reserve fund contribution.
• If the reserve fund is between 25% and 100% of the total contributions to the administrative fund, the budgeted reserve fund contribution must be at least the amount budgeted for repairs and maintenance from the administrative fund.

The reserve fund is reserved for future maintenance and repairs of common property, such as major projects like painting, roof repairs, and road maintenance. In contrast, the administrative fund covers day-to-day operational expenses.

By adhering to the body corporate’s maintenance repair and replacement plan and STSMA regulations, special levies for unforeseen expenses can be minimised.

Bodies corporate often face urgent maintenance needs while building their reserve fund. Sectional Title Solutions (STS) offers bespoke Project Funding solutions, allowing schemes to commence capital improvement and maintenance projects when required. These solutions ensure financial sustainability and protect property investments.

For more information on our Project Funding solutions, download our brochure below.