Can body corporates and homeowners associations borrow money?
Good financial and cash flow management is crucial for well-run and efficiently operated community housing schemes, including Sectional Title Schemes and Home Owners’ Associations (HOAs). However, there will always be scenarios where community housing schemes would need to borrow money. Can body corporates and homeowners associations actually borrow money? Yes, they can! homeowners associations borrow money
Why would a community housing scheme need to borrow money?
To perform property upgrades and maintenance
Consistent property maintenance is essential for long term property management success and for increasing property value. Trustees of body corporates that fail to maintain communal areas are contravening their responsibilities in terms of the Sectional Title Schemes Management Act. The Section Title Schemes Management Act makes it clear that the body corporate is compelled to maintain the common property can to keep it in a good and serviceable condition.
Community housing schemes also require funds to complete projects like maintenance, upgrades, repairs, waterproofing, update security or implement energy-saving solutions. The National Building Regulations also have clearly stipulated health and safety rules that community housing schemes need to adhere too. For instance, body corporates are responsible for maintaining shared areas such as entrances, pools, recreational areas, and the owners are responsible for their own units. This collective responsibility is crucial to adhere to health and safety standards. Often, there aren’t enough reserve funds available for such tasks. When this happens, community schemes are forced to consider alternate funding solutions such as project loans. homeowners associations borrow money
So, how do Project Loans work? Project Loans are unsecured revolving loan facilities provided to Sectional Title Schemes and Homeowners Associations. Not only can these loans be used for maintenance or property improvements but also to settle municipal arrears or fund professional services such as legal fees and consulting fees. Read more about Project Loans here.
To cover levy shortfall
Community schemes rely on property homeowners to pay their levies every month. Levies are needed to perform necessary property maintenance, especially in communal areas, and settle bills from service providers. Most community schemes work on a tight budget, and without the levy income, it could fall into a vicious cycle that is hard to escape. When owners fall behind on their levy payments, the community scheme must rely on the contributions of the paying owners to cover all expenses. The legal cost for the collection of arrears, which is seldom adequately budgeted for, creates a further burden. The solution is Debtor Finance. Propell’s Debtor Finance provides community schemes with reliable and steady cash flow. This revolving line of credit allows community schemes to meet their budgets without requiring owners to cough up more or dipping into reserves meant for a rainy day. Read more about Debtor Finance here.
Reserve funds for property maintenance plans
The Community Schemes Ombud Service (CSOS) was established in terms of the Community Schemes Service Act 9 of 2011 to regulate the conduct of parties within community schemes and to ensure their good governance. Community Schemes are defined in the CSOS Act as “living arrangements where there is shared use of and responsibility for land/buildings such as sectional title, homeowners’ associations, retirement housing schemes, share block companies and housing cooperatives”. Within the CSOS Act, is the reserve fund provisions which all Sectional Title Schemes need to be compliant with.
According to national property management company, Trafalgar, the Community Schemes Ombud Service (CSOS) stipulates that every scheme must have a 10-year maintenance plan, preferably compiled by a professional, and a separate reserve fund to cover the estimated costs of the items listed in this plan. These could include painting the building exteriors at certain set intervals, for example, or waterproofing the roofs, or replacing certain equipment that is expected to wear out.
It is evident that all community schemes will encounter situations where they need to borrow money, for a number of reasons. If your community scheme is in this situation, Propell is here to help. Contact us for a quote for your community scheme today. homeowners associations borrow money
