Why are Sectional Title Complexes getting into financial difficulties??

Sectional Title Schemes are generally considered favourably by prospective buyers because they provide affordable access onto the property ownership ladder. Property ownership requirements such as maintenance, services, legal, fiduciary and financial management and oversight are thought to be less complex since these are typically managed by an entity such as a board of trustees/body corporate/managing agent on behalf of the owners covered by a simple levy or monthly fee. Prospective owners of Sectional Title Schemes often believe that so long as they pay the levy fee, their investment will be properly maintained and free from legal threat.

As a Smart Building and alternative energy services organisation we encounter, almost daily, several factors which cause Sectional Title Scheme owners' extreme hardship. We pride ourselves on delivering value to our clients and maximizing their return on investment and have therefore developed a solid base of expertise in identifying and resolving the issues we see in the space.

What are the potential threats to affordability for existing and prospective sectional title scheme owners?

1. The structure and vote allocation within Body Corporate entities under which owners may not have power to impact selection of 3rd party service providers or the ability to audit financial transactions- executed on their behalf.
2. Trustees/Body Corporate financial statements at owner AGMs are often taken at face value or simply ignored by owners – assuming owners even bother to attend the AGM resulting in owners potentially facing severe threats to their blissful home ownership.
3. Lack of transparency between owners, managing agents and service providers; non-disclosure of debt accrual or legal liabilities incurred by Body Corporates or managing agents is not mandated by law.
4. Accrual of debt by the Body Corporate or managing agent often results in sectional title schemes falling into severe financial hardship. Servicing the debt may cause the depletion of reserve funds and subsequent extortionate special levies falling on owners.
5. Debt and/or Legal liabilities carried by managing entities which may over time trap owners into a long cycle of expenditure and potential constraints when attempting to sell their property.

Owners within a Sectional Title Schemes may not have control over how municipalities and utility providers set rates for power, water, sewerage and gas supply, for example, but they can, however, assert control over the consumption of these services, the relationship with the providers and the evaluation of service provider performance as well as the safe and transparent management of all these services.

We believe that Sectional Title Scheme owners must be protected against:

• Mismanaged/unreconciled utility bills.
• Fraudulent meter readings resulting in under recovery of costs.
• Theft of service which may in turn invalidate owner insurance policies and put the complex at physical risk.
• Overcomplex and often obscure service provider appointments, T&Cs and performance monitoring.
• Use of multiple, disparate systems and processes to manage service delivery and costs.

Prospective owners must have absolute clarity of the financial and legal status of the Sectional Title Scheme and its management entities before they commit.

We encourage and support owners-to-be so that they understand how the Sectional Title Scheme plans to implement renewable energy systems, how services and consumption data is stored, protected, and used for optimized, cost-effective Sectional Title Scheme operations.

Existing owners have the right to transparent accounting and visibility into reserve funds, council liabilities and reconciliation of disparate and often outdated systems which inflate levies and deliver underwhelming results.

Ultimately the power to ensure affordability in a Sectional Title Scheme rests with the owners. By demanding transparency from management entities and ensuring these entities make use of an integrated platform that covers all utilities and service delivery, owners can protect themselves.

Let us help you maximise your property investment.