Every sectional title scheme in South Africa is legally required to maintain two separate funds: an administrative fund and a reserve fund. They're often lumped together in casual conversation about "the levy," but they serve completely different purposes, and understanding the distinction matters for every owner.
The Administrative Fund
This covers the scheme's ongoing, predictable running costs: things that happen every month or every year, without fail.
- Insurance premiums for the building
- Security, cleaning, and gardening services
- Utilities for common areas (electricity, water)
- Management fees
- Routine, minor maintenance
The administrative fund is essentially the scheme's operating budget. It should be sized to cover the coming year's known costs, with a modest buffer, not to accumulate a large surplus.
The Reserve Fund
This is savings for large, infrequent expenses: the kind of costs that would be painful to cover from a single year's levies. Think repainting the exterior, replacing a lift, resurfacing the parking area, or major roof repairs.
Under the Sectional Titles Schemes Management Act (STSMA), reserve fund contributions must be based on a proper 10-year maintenance plan, which projects when major items will need attention and what they'll cost. The reserve fund is then funded gradually through levies, rather than left until a large bill arrives with no savings to cover it.
Why the Separation Matters
Keeping these funds separate (both in the scheme's accounting and, ideally, in separate bank accounts) prevents two common problems: raiding future maintenance savings to cover this year's operating shortfall, and conflating a temporary cash surplus with genuine reserve fund health. A scheme can look financially fine on paper while its reserve fund is badly underfunded relative to its actual future maintenance needs.
What an Underfunded Reserve Fund Actually Costs Owners
The real-world consequence of an underfunded reserve fund is a special levy: an unplanned, often large, lump-sum charge when a major expense can no longer be delayed. Special levies are unpopular specifically because they arrive with little warning and hit everyone's pocket at once. Properly funding the reserve fund through steady, smaller contributions over time is the alternative to this.
What Owners Should Check
At the AGM, owners are entitled to see both fund balances and the reasoning behind reserve fund contribution levels. Worth asking: does the scheme have an up-to-date 10-year maintenance plan, and is the reserve fund contribution actually aligned with it, or is it just a token amount that hasn't been reviewed in years?
Not sure if your scheme's reserve fund is properly funded? We can help you find out.
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