How to ensure the financial stability and sustainability of your community scheme

Credit control policy

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Category: Funding and Treasury

How to ensure the financial stability and sustainability of your community scheme

The defaulting of monthly levies by unit owners leads to some community schemes (bodies corporate and homeowners’ associations) in South Africa struggling to operate functionally. It often results in paying unit owners either having to subsidise non-paying unit owners’ levy amounts via special levies or doing without essential day-to-day running services and maintenance to the common property. In some severe cases, even necessity expenditure, such as basic utilities, cannot be paid and thus impact property value and daily living conditions, and strains individual financial obligations.

It is the executive committee’s (body corporate, managing agent and/or trustees) obligation, by law, to ensure the financial stability and sustainability of their community scheme. This protects both the paying unit owners’ rights and the value of the entire community scheme.

A healthy cash flow for the body corporate ensures efficient management and prompt attention to all maintenance issues. A robust and efficient Credit Control Policy stipulates all the functions and terms relating to the collection of monies owed to the community scheme as well as the implications (legal process) of non-payment. By introducing a Credit Control Policy, the executive committee will achieve the objectives outlined in the policy whilst also satisfying their legislative obligations.

What is in a Credit Control Policy?

An example of some of the terms that can found in a Credit Control Policy includes:

  • Establishing the period of default before handing a default unit owner over to the levy collection attorneys or CSOS
  • The default interest rate applicable to its members who fall into arrears with their levies
  • As well as liability for legal costs

So, how would the executive committee introduce such a policy?

In terms of the community scheme’s legislation and depending on the rules set out in the homeowners’ association’s constitution, memorandum of incorporation or other founding documentation, a Credit Control Policy need not be approved at the Annual General Meeting (AGM)/Special General Meeting (SGM). Executive committees can resolve to adopt new Credit Control Policy terms, if and when required. The executive committee can introduce a Credit Control Policy at an AGM or SGM in one of two ways:

  • If the executive committee merely wish to inform/educate the members, without the option to vote thereon, then there are no additional formal requirements
  • If the executive committee require the members to vote on the Credit Control Policy then the formalities noted below will apply

The latter requires the following formalities;

  1. The agenda for the general meeting should include the proposal for the adoption of the Credit Control Policy. Both the agenda, as well as the proposed Credit Control Policy, must accompany the notice of the meeting that is sent to the members
  2. The powers and functions of the community scheme should be explained to the membership, specifically concerning the effect of the Credit Control Policy on the community scheme, if adopted
  3. There is also the potential of incorporating the Credit Control Policy into the Management or Conduct Rules of the body corporate, or into the Rules of the homeowners’ association. (This process will however require compliance with various other provisions of the STSMA for bodies corporate or the constitution, MOI, or other founding documents for homeowners’ associations)

By adopting, adapting and improving how the community scheme manages its Credit Control Policies, whilst being cognisant of the roles and responsibilities that have been legislatively and contractually imposed upon them, the executive committees of the community scheme can ensure the financial stability and sustainability of the scheme.

With us, your community scheme can take a proactive approach to financial integrity and sustainability. We would like to offer you a free Credit Control Policy template in the hopes of taking your community scheme from surviving to thriving.