Have you ever wondered “How do Maintenance Reserve Funds work?” or been confused about the nitty-gritty details of the Maintenance, Repair and Replacement Plan? If so, keep reading, because we spoke to Carl Smit, Sandak-Lewin Trust’s Managing Director, for more insight into the matter.
It is better to have the funds available to address the required maintenance than to run the risk of raising funds at a later stage and owners not being able to afford the large contributions. This is the aim of The Sectional Title Schemes Management Act (Act 8 of 2011) which forced Trustees to relook at how funds were accumulated for managing major capital maintenance.
Carl Smit, Managing Director of Sandak-Lewin Trust, explains that Prescribed Management Rule 22 of the Sectional Title Schemes Management Act required each Sectional Title Scheme to prepare a Ten-Year Maintenance Plan covering all major capital expenditure. The plan needs to provide a current condition for the specific type of maintenance, how often it must be maintained, and an estimated cost to attend to the maintenance.
This maintenance, repair and replacement plan then determines the annual contribution, to be included in the maintenance reserve budget once the plan has been adopted at the Annual General Meeting.
Smit advises that besides Management Rule 22, Trustees should also consider what the minimum annual contribution should be in terms of Regulation 2 of the same Act.
Trustees must remember that the plan must be updated each year to ensure that it covers a 10-year period when presented at the Annual General Meeting. This does not mean that member need to conduct a total review of the plan, but that they merely need to extend the current provisions in the plan to ensure that it covers a 10-year period.
Smit confirmed that in the same way that Trustees are obligated to have an insurance valuation done every three years to ensure that the reinstatement value for the property is in line with current building costs and inflation, it is the policy of Sandak-Lewin Trust to advise the trustees of the Sectional Title Schemes that they manage to have the Maintenance, Repair and Replacement plan revised to ensure the costs of the major capital items are revised to keep track with building costs and inflation.
In conclusion, Smit advised that schemes that do not have these plans or do not implement them are not only in contravention of the Schemes Management Act but also put the investment of all members at risk.