Keeping the city’s finger off the light switch

In a bold and decisive move, the City of Tshwane started a revenue-collection campaign disconnecting electricity to non-paying customers since early in February. They certainly followed through on their “no fear, no favour” drive, targeting approximately 533 government accounts and 528 business accounts.

Ordinary Tshwane residents had to scramble to ensure their municipal bills were up to date as the situation started hitting closer to home. After going after government departments, embassies and businesses, the municipality re-directed the campaign at community schemes owing them money.

Are you aware of the status of your community scheme’s financial health?

One of the most concerning issues that emerged from the situation was that many residents have been blissfully unaware of the status of their community scheme’s finances. With more municipalities expected to follow the City of Tshwane’s example, unit owners have been urged to verify the status of their community scheme’s municipal accounts.

Many unit owners were caught off-guard when learning that their bodies corporate had fallen into arrears with their schemes’ municipal accounts. Despite dutifully paying their levy accounts every month, they too were now faced with the imminent threat of having their power and services cut. This resulted in a host of complaints by unit owners on social media about unexpectedly being charged special levies to raise the funds to cover the arrears.

What contributed to community schemes being left in the dark?

Managing agents, trustees and/or executive committees have a fiduciary duty to apply sound financial management to ensure the financial stability and sustainability of the community scheme. However, as is the case with many businesses, several factors, including the impact of the pandemic on economies worldwide, are currently causing immense financial strain.

Prices for everything, including fuel, electricity and equipment seem to be on the increase. This is also causing an upward spiral of costs for services, repairs and maintenance that could not be budgeted for in the most well-considered 10-year maintenance plan.

While many schemes can maintain the health of their scheme’s finances, several scenarios may result in expenses exceeding levy income. Let’s look at a few of these:

Life happens

As writer, Allen Saunders said, “Life is what happens to us while we are making other plans”. Despite careful planning for regular expenses, schemes can often find themselves facing urgent ad-hoc costs that need to be taken care of. Should these not be taken care of immediately, perhaps due to a lack of available reserve funds, they can quickly add up and cause a snowball effect.

Should a scheme be faced with an overstated bill, municipalities expect it to be paid first and disputed later, resulting in the community scheme having to urgently raise the money to cover this amount. This places schemes in the unenviable position of having to impose special levies to cover the costs for the services or projects, placing undue financial pressure on unit owners.

Financial management

Let’s face it, managing a community scheme is not always child’s play. Many community schemes’ finances are in good health, but there are instances they need help to adopt the correct financial management processes to ensure the financial security and legislative compliance. This may be due to a lack of knowledge about constantly changing legislation, or simply problems inherited from previous managing agents, trustees and/or executive committees.

Arrear levies

We all know that levies are the lifeblood of community schemes, and when unit owners fall into arrears, it puts the entire community scheme at risk. Levies are needed to pay for municipal services, and when the levy accounts dry up, paying unit owners either need to subsidise the shortfall with special levies or services simply do not get paid.

How can STS help you keep the lights on?

No matter what step of the financial journey your scheme is in, we can help. If your scheme is financially sound, we offer solutions to help the scheme maximise the return on its reserve funds. Should your scheme be struggling financially, our solutions can not only help balance the budget, but also help maintain financial stability.

In the case of the City of Tshwane’s debt collection drive, several community schemes have consulted us on the best way to help keep the lights on. In our consultations, our primary goal is to understand the requirements of your body corporate and provide trustees and/or managing agents with the best possible advice and solution that is customised to the unique needs of the scheme.

After carefully assessing the situation, our solutions consultants advised some community schemes to simply use available reserve funds or raise a special levy to cover the municipal bill. (Click here to find out more about calling meetings for urgent resolutions in a community scheme). However, for some schemes, these options were simply not available or viable. In these cases, we guided scheme executives through our various funding options to find one best suited for the scheme’s needs, with the benefit of all unit owners being top of mind.

Those clients who already had a project funding, or combination funding facility in place, had immediate access to the necessary funds to pay their municipal bills. Dr Gerhard Jooste, one of our specialist Solutions Consultants, recommends having a facility in place to provide schemes with flexibility when negotiating repayment terms with the municipality.

We are currently assisting several schemes in Tshwane that are at risk of having their services disconnected. Here’s what some of our clients have to say:

“Sectional Title Solutions provided funding to pay an arrear municipal account for a Body Corporate we manage in Sunnyside, Pretoria.  The scheme had the risk of being disconnected if no solution was given.  The process was completed professionally and would we highly recommend them for future use.” — Fitzanne Estates

 “The loan we took out helped so much to sort out the municipal account that was in arrears. Everybody can breathe now and focus on the maintenance of the building because there is a bit of extra money that can be used. The trustees are very satisfied with the payment terms …, because the amount is affordable and could be incorporated in the budget, they hardly notice it.” — Infinity Asset Management

If, for whatever reason, your community scheme is finding itself in a similar situation, get in touch to see how we can assist. We offer a wide range of funding and treasury solutions to help your community scheme with:

• underlying levy debtor problems,
• municipal arrears,
• maintenance,
• and/or capital projects.

Our funding solutions include the following:

Arrear levy funding

Provides your community scheme with immediate and ongoing access to a bespoke funding facility that covers up to 100% of arrear levies.

Project funding

Don’t let your budget throw a spanner in the works. We offer community schemes with flexible project funding packages for property maintenance, repairs, improvements and efficient energy-related projects when required and without delay.

Bespoke and Combination funding

We have already assisted over 1 500 community schemes with our bespoke funding facilities, offering some of the lowest interest rates in the market. Our team offer specialist skills in both Sectional Title Law and funding structures, allowing us to construct unique funding packages for bodies corporate who require tailor-made solutions.

Credit control policy and funding

STS can help maintain the financial stability and legislative compliance of community schemes with assistance in financial management.

Let us help you keep the lights on with a customised funding solution. The application process is hassle-free and easy.