The sectional title reserve fund: a South African guide

What the reserve fund is — and how it differs from the admin fund

A sectional title body corporate runs on two funds. The administrative fund pays for the ordinary, recurring cost of running the scheme: insurance, security, cleaning, garden services, the managing agent's fee, electricity for common areas, minor repairs and the like. The reserve fund, by contrast, exists to pay for the future maintenance, repair and replacement of the common property — the work that arrives in large, irregular lumps rather than every month.

Think of the reserve fund as the scheme's long-term savings account for major capital items: repainting the building, replacing a roof, resurfacing roads and parking, refurbishing lifts, replacing pumps and pool plant, or rebuilding a boundary wall. Because these items wear out predictably over years, the STSMA framework is designed to make owners contribute steadily over time, rather than facing a sudden special levy when something fails.

The two funds are not interchangeable. Reserve money is generally restricted to the purposes set out in the scheme's maintenance, repair and replacement plan and may not be used to plug ordinary operating shortfalls. That separation is the whole point of the reform the STSMA introduced.

Why the STSMA ring-fences the reserve fund

Before the STSMA came into force, many South African schemes carried little or no reserve. Major repairs were funded by emergency special levies, which fell hardest on owners least able to absorb them and often arrived when buildings were already deteriorating. The STSMA (Act 8 of 2011) and its prescribed management rules changed this by requiring a dedicated reserve fund and by ring-fencing it.

Ring-fencing means the reserve fund is held and accounted for separately from the administrative fund, and is protected from being raided for everyday expenses. The money belongs to the body corporate and is earmarked for the common-property work identified in the maintenance plan. This protects current and future owners alike: it smooths the cost of inevitable repairs and helps preserve the value of every unit in the scheme.

The framework sits alongside the Community Schemes Ombud Service Act (CSOS Act 9 of 2011), which gives owners and the regulator oversight of how schemes are governed and how disputes — including disputes about finances — are resolved. Together these Acts push schemes toward proper, forward-looking financial management.

How the prescribed minimum contribution works

The STSMA regulations set a prescribed minimum amount that a body corporate must budget for its reserve fund each financial year. Rather than being a fixed rand figure, the minimum is calculated by reference to two things: the size of the administrative-fund budget for the coming year, and how much is already sitting in the reserve fund at the start of the year.

The mechanism is tiered. Broadly, a scheme that already holds a healthy reserve relative to its admin budget may be permitted to contribute less, while a scheme whose reserve is small relative to its admin budget is required to contribute more to catch up. The intention is to move every scheme toward an adequate reserve over time without imposing an identical burden on schemes that are already well funded.

Because the exact thresholds and percentages are set in regulation and can be amended, this guide deliberately describes the mechanism qualitatively. Before adopting a budget, confirm the current prescribed-minimum formula and any percentage bands directly against the STSMA regulations, and have your managing agent or auditor apply them to your specific numbers.

• The minimum is a function of the administrative budget, not an arbitrary fixed amount.
• The required contribution scales with how well or poorly funded the reserve already is.
• The maintenance plan can justify contributing more than the minimum where the plan shows it is needed.
• Treat any specific percentage you read anywhere as something to verify against the current regulation.

The 10-year maintenance, repair and replacement plan

The STSMA framework requires the body corporate to prepare and maintain a written plan for the maintenance, repair and replacement of major capital items on the common property, typically projected over a 10-year horizon. This plan is the backbone of responsible reserve-fund management: it turns vague worries about ageing infrastructure into a costed, dated schedule.

A good plan lists each major item, its expected useful life, the estimated cost of repair or replacement, and the year the work is anticipated. From that, you can calculate how much the reserve fund needs to hold in any given year and therefore how much owners should contribute now. The plan should be reviewed and updated regularly — at least annually in practice — so that estimates stay realistic as costs and conditions change.

Trustees usually present the plan, and the funding it implies, to owners at the annual general meeting. While trustees prepare and propose the plan, owners have a legitimate interest in scrutinising it, because it directly drives their reserve-fund levies for years to come.

Who is responsible, and how the money must be held

Day-to-day responsibility for the reserve fund sits with the trustees, supported by the managing agent. The body corporate must keep the reserve fund in an account in its own name, separate from administrative funds, and account for it transparently in the annual financial statements. Where a managing agent holds scheme money, that agent operates within the trust-account and conduct obligations that apply to property practitioners under the Property Practitioners Act (Act 22 of 2019).

Practically, ring-fencing means the reserve should be visible as a distinct balance, with its own income (contributions and any interest earned) and its own expenditure (only the maintenance-plan items). Mixing reserve and administrative money, or quietly using reserves to cover an operating deficit, undermines the protection the STSMA was designed to provide and can expose trustees and agents to challenge through CSOS.

Robust record-keeping is essential: minutes of trustee decisions, the current maintenance plan, the reconciliations of the reserve account, and a clear audit trail for every withdrawal. This is exactly the kind of financial separation that purpose-built scheme accounting is meant to enforce.

Good practice for trustees and managing agents

Beyond meeting the prescribed minimum, well-run schemes treat the reserve fund as a tool for long-term value. The aim is to avoid both extremes: an under-funded reserve that forces emergency special levies, and an unnecessarily bloated one that ties up owners' money without purpose.

The following habits help keep a scheme on the right side of the STSMA and out of CSOS disputes.

• Commission a professional condition assessment of major common-property items to ground the maintenance plan in reality rather than guesswork.
• Review and re-cost the 10-year plan every year, adjusting reserve contributions as estimates move.
• Keep the reserve in a clearly separate, interest-bearing account in the body corporate's name and reconcile it monthly.
• Never use reserve money for administrative shortfalls; if the admin fund is short, raise it through the admin levy or a properly resolved special levy.
• Document every reserve-fund decision in trustee minutes and present the plan and funding clearly at the AGM.
• Have the figures and the prescribed-minimum calculation independently checked by your auditor or managing agent each year.