What you need to know about levies on complexes and estates in South Africa


Understanding what life in a complex or gated community is like is more important than ever as more South Africans move away from detached homes to live behind a boom.

Lucia Erasmus, real estate law expert at Cliffe Dekker Hofmeyr, gave an overview of how legal entities, owners’ associations or mixed development funds levy taxes.

According to Erasmus, a levy is a contribution towards the common costs. The two most common types of charges are due to the legal entity of a section property scheme and charges that a homeowners association imposes on its members.

Charges due to a legal person

Under the law applicable to section titles in South Africa, the levy payable by a home owner is determined in terms of the “unit participation quota,” Erasmus said.

The Part Title Scheme Management Act states that the surface area of ​​a property as a percentage of all units in the community is used as the basis for determining the amount of the contribution, according to Erasmus.

The following applies to this calculation: the larger your housing unit in the municipality, the higher your levy on the legal person.

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Things get more complex when a legal entity is formed with a mix of commercial, office, retail or residential units. This organization is called a “mixed-use” scheme, Erasmus said.

Rules are often introduced in these schemes to protect the respective interests of owners of the different categories based on use to ensure that the owners of one category of units do not only subsidize expenditure related to another category, the expert said.

For example, if an elevator is intended for use only by residential owners, then all costs related to the maintenance and replacement of the elevator may only be allocated to and covered by the residential unit owners.

The real estate expert said costs related to a specific category, for example retail, can be allocated to be paid by the owners of the category of units.

When the amount is allocated, it will undergo the same calculation as housing units, where it is expressed in the size of the unit as a percentage of the total size of all (housing) units, according to Erasmus.

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She said the management structure should be carefully considered to ensure that the rules provide clear guidelines for spending allocation.

Charges imposed by a Homeowners Association

If the land on which a sub-plan is being developed is located in an estate or is part of an area that is subject to an association of owners, section owners must take note of the statutes of the association of main owners,

A main association of owners can be a non-profit organization, a voluntary association or an entirely different association. The association defines in its statutes the communal facilities of an estate that will be used by all members of the owners association, according to Erasmus.

Think of parks, golf courses, dams, roads, gate buildings and access control.

The articles of association determine whether the individual section owner or the legal entity is a member of the VvE and determine the method of allocation of levies, according to Erasmus.

“The levies will cover the costs associated with the communal facilities owned or managed by the association of owners, and these would also be included in a budget to be approved by the directors or members.”

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Stabilization Funds

Certain retirement plans and other lifestyle estates have introduced a separate tax stabilization fund to keep tax payments below inflation, Erasmus said.

“A member of a stabilization fund arrangement is normally required to make a one-time payment to the legal entity or owners association upon the sale of the member’s part or property.”

The one-time payment is normally a percentage of the difference between the selling price of the unit or property at the time the member disposes of the unit or property and the purchase price when the unit or property was acquired.

As long as the participant remains in the scheme, the participant enjoys the advantage of a lower and stable levy.

The problem arises, according to Erasmus, when the value has risen sharply before the unit or property is sold, and the member is dissatisfied with the contribution to the levy.

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