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Shared expenses

22 May 2014

Introduction
The common costs of running a sectional title scheme are legally required to be divided between all the owners in such scheme according to the owners’ respective participation quotas (“PQ”). However, it is possible to alter the ratio in which owners are charged. This article explores how, any why, this might be done.

Participation Quota
The Sectional Titles Act No. 95 of 1986 (as amended) (“the Act”) states that a participation quota is expressed as a percentage to four decimal places, and arrived at by dividing the floor area, correct to the nearest square metre, of the section (owned by the owner concerned), by the floor area, correct to the nearest square metre, of all the sections in the building or buildings comprised in the scheme. The schedule setting out each owners’ respective PQ, is attached to the sectional title plan of the scheme in question.

What is a PQ used for?
Participation quotas determine the following:

  • The value of the vote of the owner of the section;
  • The undivided share in the common property of the owner of the section; and
  • The proportion in which the owner of the section shall make contributions for purposes of the running costs of the body corporate (unless this is altered as explained below).

Why might it be necessary to depart from the PQ?
Every scheme is run differently, and so what works for one scheme, might not necessarily work for the next. Bearing this in mind, it sometimes happens that one or only a few owners in any particular scheme, carry a higher PQ than other owners, but do not necessarily enjoy more benefit from that higher PQ, than the other owners. This might occur where one owner (who carries, for example, 25% of the PQ where other owners carry, on average, 5% each) has a very large garden, which he maintains himself (by arrangement with the Body Corporate), because it is not accessible to anyone else. Imagine now that the Body Corporate uses a garden service that it pays to maintain the gardens of all other owners in the scheme.

The owner concerned would (in the absence of any agreement to the contrary) be charged for a portion of the costs to maintain everyone else’s garden, as per his PQ, which would mean that although he does not benefit from the garden service in question, he is paying a large chunk of the costs for that service. In situations like this, it becomes apparent that the splitting of the costs of running the scheme strictly per PQ, might not be equitable.

Another way to approach the issue is to ask where all owners derive the same benefit from the service, but certain owners are compelled to pay more for it, than others, as a result of PQ. Services that arguably fit this bill, would be those that all owners make use of equally, and which do not relate to the actual ownership in, and use of, the common property, such as auditor’s fees, banking fees, and other services that no one owner makes any more use of, than any of the others, even though that one owner may (legally speaking) be entitled to a greater interest in the common property. In situations like these, it is arguable that each owner should be required to pay an equal share of the costs instead of dividing them up based on PQ.

How can PQ’s be amended for the determination of certain expenses of the Body Corporate?
Section 32(4) of the Act make provision for this:

“ . . . the members of the body corporate may by special resolution, make rules under section 35 by which a different value is attached to the vote of the owner of any section, or the liability of the owner of any section to make contributions for the purposes of section 37(1)(a) or 47(1) is modified . . . “

What kinds of expenses should always be split per PQ?
Those that relate directly to the ownership of, maintenance of, and use and enjoyment of, the common property.

  • Maintenance of common areas;
  • Insurance premiums; and
  • Municipal charges.

What kinds of expenses might it be equitable to charge equally to all owners?

  • AGM costs;
  • Audit fees;
  • Bank charges;
  • Legal fees (for legal work that benefits all owners equally, not for legal work to recover unpaid levies);
  • Management fees;
  • Meter reader’s fees;
  • Stationery and postage and petties charges;
  • Security guards and associated costs (arguably).

How is a determination made to charge other than per PQ?
By way of special resolution, which requires a vote on a show of hands of 75% or more of the quorum present at a meeting of the owners and trustees of the body corporate, which meeting has been duly called and convened. Section 32(4) of the Act also states that:

“Provided that where an owner is adversely affected by such a decision of the body corporate, his written consent must be obtained: Provided further that no such change may be made by a special resolution of the body corporate until such time as there are owners, other than the developer, of at least 30 percent of the units in the scheme . . . “.

This means that the Body Corporate can’t decide to take such a resolution to change the way that the expenses are divided, until at least 30% of the scheme is owned by persons other than the developer. It also means that any owner who is adversely affected by the change, can stop it from happening, by simply refusing to agree to it in writing.

Contact Gabriel da Matta at damatta@schindlers.co.za for queries

Chantelle Gladwin, Partner and Gabriel da Matta, Associate
Schindlers

Reader Comments: 1
Les 03/06/2014:

Hi You have forgotten to add that the special resolution requires to be 75% of the owners in both votes AND by PQ. You also haven't informed what "disadvantaged" means - it does not mean they have to pay a higher levy, and this is what happens when PQs are changed - some of the owners have to pay more than they were paying.

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