What's the difference between Special Levies and Reserve Fund Contributions?

TL;DR

Many sectional title owners confuse special levies and reserve fund contributions, but they serve very different purposes.

• Special levies are once-off, urgent charges for unforeseen or non-budgeted expenses.

• Reserve fund contributions are ongoing payments that build savings for future maintenance and repairs.

Both are governed by the Sectional Titles Schemes Management Act (STSMA), but differ in when, why, and how they are raised. Understanding these distinctions helps owners protect their rights and ensures schemes remain financially compliant and well-maintained.

Why So Much Confusion Around These Levies?

In sectional title schemes across South Africa, financial contributions are a shared responsibility. However, many owners struggle to understand the difference between special levies and reserve fund contributions, two critical components of a scheme’s financial structure.

The confusion often arises because both involve extra payments on top of monthly levies. Yet, their timing, purpose, and approval process differ significantly.

To maintain transparency and prevent disputes, trustees and managing agents must clearly explain these two categories to owners. Let’s break them down.

What Is a Special Levy?

A special levy is a once-off charge raised to cover an unexpected, urgent, or non-budgeted expense that cannot wait until the next annual budget cycle.

Common examples include:

• Emergency roof repairs after storm damage

• Urgent elevator replacement or security upgrades

• Structural or safety repairs required by law

Under Section 3(3) of the STSM Act, trustees have the authority to raise a special levy if an immediate expenditure arises and cannot be delayed until the next AGM.

When Are Special Levies Raised?

Special levies are raised only when necessary and should not be used for predictable, long-term expenses that belong in the operational or reserve budget. Special levies are a financial tool of last resort, not a substitute for proper financial planning.

Who Decides and Who Pays?

Trustees may approve a special levy on behalf of the body corporate, provided they act within their powers and record the decision in a formal resolution. All registered owners at the date the special levy is raised are responsible for payment, even if they sell the unit before it’s fully paid off.

What Is a Reserve Fund Contribution?

Reserve fund contributions are planned, ongoing payments that build a savings pool to cover future maintenance and major repairs. They are required under Section 2(2) of the STSM Act and guided by Prescribed Management Rule 24(2), which mandates every body corporate to maintain a reserve fund separate from the administrative fund.

The reserve fund ensures that the scheme can handle future projects such as:

• Painting or waterproofing the building

• Replacing lifts, security gates, or roofs

• Large-scale upgrades or refurbishments

Why the Reserve Fund Matters

Without a healthy reserve fund, bodies corporate may be forced to raise special levies for predictable maintenance, a red flag for mismanagement.

Reserve fund contributions promote long-term financial stability, protect property values, and prevent owners from being surprised by sudden, large expenses.

Can You Be Charged in Advance for Future Years?

Some managing agents or trustees attempt to raise multiple years’ worth of levies in advance. While pre-emptive planning is good, charging years ahead may contradict the intention of the STSM Act.

Body corporates should only raise funds that are reasonably necessary within the current financial year. If additional funds are required later, these should be introduced through the annual budgeting process or by adjusting the reserve fund contributions as guided by a maintenance plan.

Overcharging owners or holding excessive funds without justification could be legally challenged as unfair or inconsistent with the Act.

Any prepaid levies or contributions should be settled between the buyer and seller through the conveyancer during the property transfer process.

When should I challenge or seek clarity on a levy?

If you believe a levy was raised incorrectly or unfairly, you have the right to request detailed records and clarification from the trustees or managing agent. Unresolved disputes can be escalated to the Community Schemes Ombud Service (CSOS), which can investigate whether the levy was properly imposed under the law.

You should seek professional advice if:

• The levy seems disproportionate or unjustified,

• Trustees failed to follow proper procedure, or

• The same expense is being funded by multiple levy types (administrative, reserve, or special).

At Jonker Vorster Attorneys, we help body corporates and owners navigate these complexities to ensure levies are lawful, transparent, and fairly applied.

FAQs About Special Levies vs Reserve Fund Contributions

Can a body corporate raise both a special levy and a reserve fund contribution at the same time?

Yes, each serves a unique purpose. Reserve funds are for future needs, while special levies cover immediate, unplanned costs.

Who approves a special levy?

Trustees may approve it if urgent. If not time-sensitive, it should be included in the next AGM for owner approval.

Do special levies affect property value?

Yes. Large or frequent special levies can signal financial instability in a scheme, potentially deterring buyers.

What happens to reserve fund money when I sell my unit?

It stays with the scheme. The new owner benefits from the fund’s balance; the seller cannot claim a refund.

Can I dispute an unfair levy?

Absolutely. If procedures were not followed or the levy is unreasonable, you can approach the Community Schemes Ombud Service (CSOS) for relief.

Conclusion on special levies vs reserve fund contributions

Understanding the difference between special levies and reserve fund contributions is crucial for every sectional title owner in South Africa. Special levies are for emergencies; reserve funds are for planned maintenance. Both protect your investment, but when misused or misunderstood, they can lead to disputes and financial strain.

At Jonker Vorster Attorneys, we help trustees and owners stay compliant with the Sectional Titles Schemes Management Act, ensuring transparency, accountability, and fairness in all levy-related matters.

Need guidance on special levies or reserve fund contributions in your scheme? Contact Jonker Vorster Attorneys for expert property law advice and clear, compliant solutions.