Reuters
Reuters

What sectional title schemes may do to increase income

By Opinion Time of article published Dec 10, 2020

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The Covid-19 pandemic has had a negative impact on levy income cash flow in many Sectional Title schemes this year so it is no surprise that trustees are looking for other sources of revenue, including rentals for certain parts of the common property.

“Trustees are often approached to allow the erection of cell phone towers in the grounds of their schemes, or to allow companies to put up advertising signage on the perimeter walls or building roofs – and doing so can prove to be quite a lucrative source of additional income for their schemes,” says Andrew Schaefer, MD of national property management company Trafalgar.

“However, it is very important for them to remember that, in terms of Section 5 of the Sectional Title Schemes Management Act (STSMA) they cannot authorise the letting of any part of the common property to a non-owner or non-occupant in the scheme without a unanimous resolution of all owners.

“And the roofs and perimeter walls, as well as the scheme’s gardens and parking areas, are generally all part of the common property.”

However, he says, Section 4 of the STSMA does provide for the letting of common property to owners themselves as well as current tenants, under certain conditions.

“There is often a demand among occupants for additional parking spaces, garages and storerooms, for example, and renting these out can also provide the scheme with additional income. It only requires a special resolution for them to be let for a period of less than 10 years, although a lease period of more than 10 years will once again require a unanimous resolution.”

Schaefer says bodies corporate can also borrow money, if necessary, to bridge a temporary gap between income and expenses, but that trustees should be cautious about this option, because the loan will have to be paid back and that could necessitate higher-than-expected levies in future. A special resolution is required for a loan to be approved.

Meanwhile, it is also worth noting that the Prescribed Management Rules prohibit owners in ST schemes from using their individual sections and any exclusive use areas – or allowing these to be used – in any way or for any purpose that could put the reputation or the value of the scheme at risk.

“This means they may not unilaterally decide to rent their exclusive use garden area to a cell phone company, for example, or let their unit in a residential complex to a commercial tenant – even if they could earn a lot more rent by doing so and put themselves in a better position to catch up any levy arrears.”

And, he says, trustees need to enforce this rule, because the value of homes in a ST scheme is to a large degree dependent on the homogeneity of the scheme, as well as good maintenance and good financial management, and would quickly be eroded if every owner was allowed to use their unit in a different way.

PERSONAL FINANCE

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