Body Corporate Levies Explained: The Different Types and How They're Determined
Every sectional title owner pays levies, but many owners are unclear about what those levies actually pay for or how the amounts appearing on their monthly statements are calculated.
PPSP Team
Professional Property Solutions Provider
Levies are not arbitrary charges imposed by trustees or managing agents. They are the financial mechanism that enables a body corporate to fulfil its legal obligations, maintain common property, insure the scheme, build reserves for future maintenance and provide essential services for the benefit of all owners.
Understanding how levies are structured helps owners make sense of their monthly statements, understand annual levy increases and participate more effectively in Annual General Meetings (AGMs).
01
What Is a Levy?
A levy is a contribution collected from owners to fund the expenses of the body corporate.
In terms of Section 3 of the Sectional Titles Schemes Management Act (STSMA), every body corporate must establish and maintain:
Owners are required to contribute towards these funds to ensure that the body corporate can meet its operational, maintenance and financial obligations.
Levies are therefore not a fee charged by a managing agent or trustee. They represent each owner’s share of the costs associated with operating and maintaining the scheme.
02
The Different Types of Levies
Depending on the structure and requirements of a scheme, owners may see several different levy components on their monthly statement.
1. Administrative Fund Levy
The Administrative Fund Levy is generally the largest component of an owner’s monthly contribution.
It funds the day-to-day running costs of the scheme and covers recurring operational expenses.
Typical expenses include:
Property Management and Administration
- Managing agent fees
- Audit and accounting costs
- Bank charges
- Professional and compliance costs
Insurance
- Building insurance
- Fidelity insurance
- Risk management expenses
Property Services
- Security services
- Cleaning services
- Gardening and landscaping
- Waste management
Operational Costs
- Routine repairs
- General maintenance
Without an adequately funded Administrative Fund, the body corporate would struggle to maintain the basic operation of the scheme.
2. Reserve Fund Levy
The Reserve Fund Levy is designed to fund future maintenance, repair and replacement obligations.
Rather than addressing current expenses, the Reserve Fund focuses on preserving the long-term condition of the property.
Examples include:
- Roof replacement
- Waterproofing projects
- Exterior painting
- Lift refurbishment
- Major paving repairs
- Boundary wall reconstruction
- Infrastructure upgrades
In terms of PMR 22 and PMR 24, reserve funding should be guided by the scheme’s Maintenance, Repair and Replacement (MRR) Plan.
The purpose of the Reserve Fund is to ensure that foreseeable maintenance costs are funded progressively over time, reducing reliance on unexpected special levies.
Minimum Reserve Fund Requirements
The Prescribed Management Rules establish minimum reserve funding requirements.
Generally, where the reserve fund balance is less than 25% of the previous year’s administrative fund budget, the annual reserve fund contribution should be at least 15% of that administrative fund budget, subject to the applicable regulatory formula and circumstances.
Owners should always review reserve fund balances and funding levels when evaluating AGM budgets.
Read more: Reserve Fund Planning: Why Every Scheme Needs a 10-Year Maintenance Plan.
3. Special Levies
Special levies are additional contributions raised when existing budgets or available funds are insufficient to meet specific expenses.
Examples include:
- Emergency storm damage repairs
- Structural failures
- Major infrastructure breakdowns
- Funding shortfalls on significant maintenance projects
- Certain approved improvements to common property
Special levies are governed by the STSMA, the PMRs and the registered rules of the scheme.
Depending on the nature of the expenditure, owner approval may be required before certain projects proceed.
Special levies are intended for exceptional funding requirements rather than routine operational expenses.
Read more: Special Levies Explained: When and Why Trustees Can Raise Them.
4. Exclusive Use Area Contributions
Where owners enjoy exclusive use rights over portions of common property, additional contributions may be payable.
Examples include:
- Parking bays
- Carports
- Storerooms
- Private gardens
- Exclusive-use recreational facilities
The STSMA generally requires that the costs associated with maintaining and repairing these areas be recovered from the owners who enjoy the benefit of those rights rather than from all owners collectively.
This promotes fairness and prevents cross-subsidisation.
5. CSOS Levy
The Community Schemes Ombud Service (CSOS) Levy is a statutory charge imposed in terms of the Community Schemes Ombud Service Act.
The levy funds:
- Community scheme dispute resolution
- Governance oversight
- Educational programmes
- Regulatory functions
The body corporate collects the levy and pays it over to CSOS.
Importantly, the CSOS levy is not income belonging to the body corporate.
03
What Is Not a Levy? Utility Recoveries
One of the most common misconceptions concerns water and electricity charges.
Utility and municipal charges are recoveries, not levies, and are not part of the budget.
Levy
Funds a shared cost.
Recovery
Reimburses the body corporate for a cost directly attributable to a particular owner or section.
Examples include:
- Metered water consumption
- Metered electricity consumption
Where individual metering exists, recoveries are based on actual usage rather than Participation Quota.
The common property portion of the municipal account, such as lifts, gate motors and common area lighting, is also recovered rather than built into the levy, and is shared equally amongst all owners.
This promotes fairness and improves financial accuracy.
Read more: Levies vs Recoveries: Why Utilities Shouldn’t Be Split by PQ.
04
How Are Levies Determined?
Levies are not determined arbitrarily.
They are calculated directly from the budgets prepared by trustees and approved through the governance processes of the scheme.
Step 1
Budgets Are Prepared
Trustees prepare:
- An Administrative Fund Budget
- A Reserve Fund Budget
These budgets are informed by:
- Historical expenditure
- Insurance requirements
- Service provider costs
- Reserve funding requirements
- The MRR Plan
Step 2
Budgets Are Presented at the AGM
At the AGM, owners consider the proposed budgets. Owners may:
- Ask questions
- Request clarification
- Understand anticipated expenditure
- Participate in discussions regarding financial planning
The approved budgets form the financial basis for the coming year.
Step 3
Contributions Are Allocated
Once funding requirements have been determined, the total contribution requirement is allocated among owners.
In most residential schemes, this allocation is based on each section’s Participation Quota (PQ), unless a different lawful allocation method applies.
Step 4
Monthly Levies Are Raised
Each owner’s annual contribution is divided into monthly instalments.
A typical levy statement may therefore contain:
- Administrative Fund Levy
- Reserve Fund Levy
- Exclusive Use Area Contribution
- CSOS Levy
- Utility recoveries, shown as separate lines and not part of the levy
05
What Is a Participation Quota?
A Participation Quota (PQ) represents an owner’s proportionate share in the scheme.
For residential schemes, PQ is generally based on the floor area of the section relative to the total floor area of all sections in the scheme.
In practical terms:
- Larger sections usually have higher PQs
- Smaller sections usually have lower PQs
Participation Quotas are used for various governance and financial purposes, including the allocation of many levy contributions.
Owners can find their PQ recorded on the registered sectional plan and related sectional title documentation.
06
Worked Example
Assume a scheme approves the following budgets, and an owner holds a Participation Quota of 2.5%:
| Administrative Fund Budget | R1,200,000 |
| Reserve Fund Budget | R180,000 |
| Total Annual Funding Requirement | R1,380,000 |
| Owner’s share per year (R1,380,000 × 2.5%) | R34,500 |
| Monthly levy (R34,500 ÷ 12) | R2,875 |
Additional charges such as the following would be charged separately where applicable:
- Exclusive Use Area Contributions
- CSOS Levies
- Utility Recoveries
This example is for illustration purposes only.
07
Why Levies Change From Year to Year
Levy increases usually reflect changes in the underlying costs of operating and maintaining the scheme.
Common factors include:
Insurance Costs
- Rising replacement values
- Premium increases
- Additional cover requirements
Service Provider Increases
- Security contracts
- Cleaning services
- Gardening contracts
- Professional fees
Maintenance Requirements
- Increased reserve fund contributions
- Planned maintenance projects
- Capital replacement requirements
Levy Arrears
Significant owner arrears may place pressure on the finances of the body corporate and impact budgeting decisions.
What About Municipal Charges?
Increases in water, electricity, refuse removal and sewerage tariffs do not drive the levy. These charges are recovered on owners’ statements as they occur, so tariff increases show up in utility recoveries rather than in the levy.
Reviewing proposed budgets before the AGM helps owners understand exactly what is driving levy increases.
08
Questions Owners Should Ask at the AGM
When reviewing budgets and levies, owners should consider asking:
- What is driving the levy increase this year?
- Is the Reserve Fund aligned with the MRR Plan?
- Are reserve fund balances adequate?
- Are rising municipal tariffs reflected in recoveries as they occur?
- What is the current arrears position?
- Are any special levies anticipated?
- What major maintenance projects are planned?
Asking informed questions promotes accountability and strong financial governance.
09
Frequently Asked Questions
Why does my neighbour pay a different levy?
Levies are generally apportioned according to Participation Quotas. Owners with larger sections typically contribute more than owners with smaller sections. Additional charges relating to exclusive-use rights may also affect the amount payable.
Can trustees increase levies without an AGM?
Annual contributions are generally based on approved budgets. However, trustees may raise special levies in certain circumstances where additional funding is required and where they are acting within their legal authority and the scheme’s rules.
Are water and electricity charges part of my levy?
No. Utility and municipal charges are recoveries, not levies. Metered usage is billed to each section based on actual consumption rather than Participation Quotas, and the common property portion is shared equally amongst all owners.
Why do I pay both an Administrative Fund Levy and a Reserve Fund Levy?
The Administrative Fund covers current operating costs, while the Reserve Fund helps ensure that future maintenance, repair and replacement obligations can be funded without causing significant financial shocks.
10
Conclusion
Levies are the financial foundation of every sectional title scheme. They enable the body corporate to maintain common property, insure assets, build reserves and provide essential services that support the value and sustainability of the community.
Understanding the different levy components, how Participation Quotas work and how budgets translate into monthly contributions helps owners make informed decisions, ask better questions at AGMs and take a more active role in the governance of their scheme.
The more owners understand what they are paying for, the stronger and more financially sustainable their community becomes.
Questions About Your Levy?
PPSP prepares transparent budgets and clear levy statements, so owners always know what they’re paying for and why.
Share this article
Related Articles
Special Levies Explained: When and Why Trustees Can Raise Them
A special levy notice can catch owners off guard, but it's rarely arbitrary. Here's when trustees are entitled to raise one…
FinanceReserve Fund Planning: Why Every Scheme Needs a 10-Year Maintenance Plan
The STSM Act requires body corporates to plan for the future, not just the next financial year…
FinanceLevies vs Recoveries: Why Utilities Shouldn't Be Split by PQ
Levies and recoveries fund different things and should be charged differently. Here's why water and electric…