Keep Something in Reserve

A body corporate that keeps levies low by skipping the reserve fund is borrowing from future owners who have not yet been asked.

Say a complex of townhouses in Tzaneen has spent every rand of its levies on gardening, security and the managing agent's fee for years. Owners like the low levy, and nobody objects at the annual general meeting. Then the exterior paint starts flaking, the boundary wall cracks along one side and the paving at the gate lifts. The work cannot wait, and there is nothing in the bank to pay for it. The trustees are left with a special levy or a loan, and either way the cost lands on whoever owns a unit at that moment, including the owner who bought last month and never enjoyed a single year of cheap levies.

A reserve fund spreads that cost across time instead. Small amounts go aside every month, a maintenance plan sets out roughly what will need doing and when, and when the paint fails the money is already there. It is less exciting than a low levy. It also protects resale value, because an informed buyer asks to see the financial statements and the minutes, and an empty reserve sitting next to a list of overdue repairs is one of the first things a careful buyer notices.