How many bank accounts does a Body Corporate need?

5 March 2021 | Bruce Wademan

According to Prescribed Management Rule 24, of the Regulations to the Sectional Titles Schemes Management Act 8 of 2011 (“the Act”), the body corporate requires a minimum of two funds, namely one for the administrative fund, as set out in section 3(1)(a) of the Act, and the second a reserve fund in terms of section 3(1)(b) of the Act. The administrative fund is used to fund the operating expenses of the body corporate for a particular year, and the reserve fund for the implementation of the maintenance, repair and replacement plan of the body corporate.

Practically speaking, this implies that there should be two separate bank accounts, one for each fund. The administrative fund is generally a current account and the reserve fund is ideally a call account. The latter account would attract a better interest, rate and over time, would hopefully grow as more contributions are set aside towards the reserve fund, combined with the compound interest that accumulates on the funds.

In the event that the administrative fund is well-managed, regular maintenance can prevent the usage of the reserve fund, which should be applied only for planned maintenance, urgent maintenance, compliance with court order, to ensure safety, unforeseen maintenance or to obtain adequate insurance, all on the proviso the expenditure is accurately reported.

The bank account for the administrative fund would operate from month to month to pay the monthly expenses, receive levies and include a reserve fund contribution which would then be transferred to the bank account for the reserve fund. Body corporate funds may not be paid out of the reserve fund for general administrative expenses, such as bank charges, refreshments, printing and stationery. These expenses are part of the administrative budget, and if the body corporate administrative fund runs out of money, a special levy would be needed to ensure that the body corporate remains solvent until the next month.

But, what if the trustees of the body corporate have been conservative with their budget, managing their funds wisely, contributing to the body corporate accumulating a surplus? In this instance, the trustees have the option of transferring the excess to the reserve fund or leaving it in the administrative fund in case there is any unforeseen expenditure. Another alternative would be to use the surplus to do extra maintenance in order to ensure the longevity of the body corporate’s infrastructure. It must be noted however, that any funds transferred to the reserve fund cannot be transferred back to the administrative fund.

Leaving the surplus funds in the administrative fund also won’t earn any interest which, if material, would not be beneficial to the body corporate. The recommendation would be for the body corporate to open a third account to which the surplus funds can be transferred and still be available at short notice without contravening the Regulations, whilst earning a higher rate of interest.

A recent enquiry at popular South African Bank indicated that additional 24-hour notice call accounts do not attract a monthly fee and can earn a body corporate 3.25+% interest (which is competitive at the time of writing this article) with the reassurance that the body corporate will still have funds should it have any unforeseen expenditure.

The astute trustee will always be applying their mind to maximising the available funds of the body corporate to minimise the levies and ensure that the body corporate’s long-term outlook is provided for.

Should you wish to find out more about a specific point made and/or require our assistance, please contact us on 061 536 3138 or email info@tvdmconsultants.com.

About the Author: Bruce Wademan is the General Manager Percipient Property Solutions.