WHY IS IT SO IMPORTANT?
“Although it is the law; 10 year maintenance plans should be seen as financial protection that looks after your invest. It’s the plan that ensures your scheme always stays relevant and increases in value year on year.”Frederik Nel
WHAT IS ESSENTIAL?
- Most important: It is the law – The Sectional Title Schemes Management Act No. 8 of 2011 (STSMA) View here.
- The Trustees are obliged to prepare The Maintenance, Repair & Replacement Plan (MRRP) for common property in writing. This should include the following:
- Major capital items: valuable items that are expected to require maintenance, repair and replacement within the next 10 years;
- Current state: The current state/condition of repair of major capital items;
- Time: The estimated time when those items or the items’ components will need to be repaired, repaired or replaced;
- Estimated cost: The estimated cost of the maintenance, repair and replacement of the items’ or its components;
- Life expectancy: The expected life or longevity of those items/components after maintenance, repairs or replacement;
- Other: Additional information the Body Corporate deems relevant.
- A reserve fund that is used to implement the MRRP
WHERE DOES THE BUDGET COME FROM?
The reserve fund must be used for the implementation of the plan.
Levies are considered the lifeblood of every sectional-title scheme as these are used to cover all the costs associated with the scheme. Levies are paid by the owners on a monthly basis and cover costs such as maintenance, admin, repairs, limited building insurance, rates and taxes, and other local municipality charges. It is important to note that when levies are collected it is allocated into two separate funds as prescribed by the Sectional Titles Schemes Management Act of 2011 (STSMA).
These funds are:
Administrative Fund: Covers the estimated annual operating costs for repairs, maintenance, and management and administration of common property. This also includes provisions for future costs.
Reserve Fund: This is an additional fund used to cover unforeseen maintenance and repair costs, which have not been budgeted for. Additionally, the Body Corporate is responsible for preparing a 10-year maintenance, repair and replacement plan and pay for its implementation from the reserve fund.
Both the administrative and reserve funds need to be set-up by the Body Corporate within a sectional-title – these are all the owners of specific units. Managing these funds is the task of the trustees (a select group of owners) who are entrusted by the Body Corporate to keep track of a sectional-title’s finances in good faith. Furthermore, levies are collected on a monthly basis by either the trustees or a designated managing agent/attorney.
WHO APPROVES THE PLAN?
The Prescribed Minimum Rules further states that the MRRP only takes effect upon approval by the Body Corporate at a general meeting. Additionally, when approved, the members can specify conditions for the payment of money from the reserve fund. And if required, the plan can be amended, keeping in mind that all contributions and expenditures need to be recorded and accounted for. Another point to note, is, at each Annual General Meeting (AGM), the trustees must provide a detailed report on how the approved MRRP has been implemented.
The ten-year maintenance, repair and replacement plan protects sectional-titles from difficult situations, such as not having sufficient funds to perform imperative maintenance projects. This could lead to further deterioration of the building or may require owners to fork out large amounts of money in a short space of time (special levy).
WHY IT HAS TO BE UPDATED REGULARLY…
Management rule 22 of the Sectional Titles Schemes Management (STSM) Act no. 8 of 2011 requires trustees to provide a comprehensive progress report of the 10-year plan to all members at the annual general meeting (AGM). This report should outline the extent to which the MRRP has been implemented over the past year.
Unfortunately, the STSM Act does not provide much guidance as to how the maintenance, repair and replacement plan (MRRP) should be outlined except for specifying that major capital items must be included.
Calculating capital expenditure contributions
The goal of the MRRP is to make provision for the future replacement costs of capital expenses. The STSM Act provides the following formula to calculate capital expenditure contributions:
Estimated cost is defined in the Act as the estimated cost to maintain, repair or replace a major capital item while expected life is defined as the estimated number of years before it is expected that the cost of maintenance, repair or replacement of a major capital item will be incurred.
In order to calculate future replacement cost, it is important to be aware of any past contributions to a specific capital item as well as the anticipated escalation of costs. This will complete the data required to do the calculation.
ADVANTAGES OF UPDATING 10-YEAR PLANS REGULARLY
By updating the maintenance plan regularly, the trustees can plan ahead and obtain competitive quotes for scheduled maintenance work, allowing them to plan more accurately for the subsequent financial years. Moreover, this ensures that trustees are compliant in their responsibilities pertaining to managing the scheme.
When the plan is kept updated regularly, maintenance works are less likely to fall through the cracks. If certain items have not been attended to during a financial year, it can be moved to the following year.
An updated plan also allows for the contributions to be recalculated so that all changes to the plan are always reflected in the members’ contributions.
Another natural advantage of an updated plan is that it will not be done in haste prior to the next AGM where details may be missed or mistakes may be made. A current plan allows body corporate members to make an informed and confident decisions for the following year, knowing that the base of their decision-making is concrete.
CONSEQUENCES OF NOT UPDATING A 10-YEAR PLAN
By failing to keep the 10-year plan updated, trustees and the body corporate will not be able to accurately keep track of the planned capital expenditure. This prevents them from correctly calculating the levy contributions, potentially placing them in a position where they do not have sufficient funds when planned maintenance work becomes urgent.
In addition, this may lead to an unexpected special levy being raised to cover the costs, putting undue financial pressure on both the body corporate and its members, with the latter finding themselves unable to fulfil their financial obligations to the scheme.
Sometimes planned maintenance can simply be moved on but oftentimes, a delay leads to escalated costs due to the deteriorating condition of the building.
Ultimately, by not keeping the 10-year plan updated, trustees are not compliant with their responsibilities of managing the scheme.
HOW WE CAN ASSIST BODIES CORPORATE
Curasure has actively promoted and completed 10-year plans for the sectional title community since 2006.
We provide a basic and affordable professional estimate of the maintenance costs that complies with Sectional Title legislation. Our unique offering is designed to assist the Sectional Title Industry to move towards compliance with legislation to the Sectional Title Act. Our services include life-cycle cost analysis, a 10-year forecast of maintenance, repair and replacement costs as well as a corresponding reserve fund forecast and contribution schedule.
We also offer building audits that reveal structural defects, rising damp, exposed asbestos, roofing and guttering problems, plumbing and electrical issues and the existence and damage of termites and borers.
Call our team of experts on 011 675 2595/6574 for an appointment, or click here for more information.