The great divide: Why separating administrative and reserve funds is essential for body corporate management
20 January 2026 | Sarah Sydenham
For many trustees and owners, the body corporate’s bank account is seen as one collective pot of money. However, for the managing agent, navigating the financial line between day-to-day operations and long-term capital protection is a high-stakes balancing act. The Sectional Titles Schemes Management Act 8 of 2011 ("the STSMA") is clear that schemes must establish and maintain two distinct funds, namely the administrative fund and the reserve fund.
This "great divide" isn’t just a matter of good accounting; it is a statutory mandate designed to protect the long-term viability of the scheme. But what happens when the lights need to stay on and the administrative account is empty? This article explores the legislative boundaries of these funds, the strict limitations on how they are used, and the strategies managing agents can use to explain these separate levies to disgruntled owners who may feel that they are being up charged.
What are the legislative boundaries?
Section 3(1)(a) of the STSMA mandates the establishment of an administrative fund for operational expenses, specifically the repair maintenance, management, and administration of the common property and payment of rates, taxes, insurance premiums and any other financial obligations of the body corporate. This is further confirmed by Prescribed Management Rule (“PMR”) 24(1) of Annexure 1 of the Regulations to the STSMA.
Section 3(1)(b) of the STSMA mandates the establishment of a reserve fund for future capital expenditure and maintenance in relation to the common property. PMR 24(2) further limits the use of the reserve fund to the implementation of the Maintenance, Repair and Replacement Plan (“the MRRP”).
Under regulation 2 of the Sectional Title Schemes Management Regulations, the annual minimum contribution to a scheme’s reserve fund must be calculated in accordance with a three-tier sliding scale based on the closing balance of the preceding financial year:
Reserve fund balance at the end of the financial year
Less than 25% (twenty-five percent) of your previous year’s total administrative levies.
Between 25% (twenty-five percent) and 99% (ninety-nine percent) of the previous year’s total administrative levies.
Equal to or greater than 100% (one hundred percent) of the previous year’s total administrative levies.
Minimum contribution required for the following year:
At least 15% (fifteen percent) of the total administrative levy contribution for the incoming financial year.
At least equal to the amount that the scheme has budgeted for repairs and maintenance to common property in the administrative fund for the new year.
There is no required minimum contribution to the reserve fund, however it is recommended that the minimums required by the MRRP are met.
Can the admin fund "borrow" from the reserve fund to cover a short-term cash flow crisis?
No, money may be withdrawn from the reserve fund only in the following cases as outlined in PMR 24(5):
Following the 10-year maintenance plan
The primary purpose of the reserve fund is to pay for items listed in the body corporate's the MRRP. These are either major capital items or planned, maintenance expenses.
Urgent maintenance or "emergency" repairs
Trustees can use reserve funds for repairs that were not in the MRRP, but only if they are truly urgent. To qualify, the repair must be necessary to prevent danger where there is a legitimate risk to safety or prevent property damage such as in the case of a leaking roof which may cause water damage to units and their contents.
The reserve fund may not be used to cover ongoing operational expenses such as electricity bills or gardening services or any cash shortfalls caused by unpaid levies. If any major unforeseen operational arise within the year, a special levy must be raised in terms of PMR 21(3)(a).
The consequences of mislabelling administrative and reserve fund expenses.
Identifying which expenses fall into ongoing operational costs and which are long-term maintenance and repair costs becomes incredibly important when in light of the value of annual administrative contributions and its impact on the contributions due to the Community Schemes Ombud Service (“the CSOS”).
The CSOS levy is calculated at 2% (two percent) of the monthly administrative fund contributions which exceed R500.00 (five hundred Rand), capped at R40.00 (forty Rand) per unit.
The CSOS 2025 Consolidated Practice Directives have specifically warned against the practice of mislabelling or excluding items which should be budgeted for in the administrative fund whether it is an attempt to lower the required CSOS levy. Such an action would amount to an act of dishonesty under Section 34 of the CSOS Act, which may be referred to the National Prosecuting Authority by the CSOS.
How do you explain the necessity of two separate bank accounts to disgruntled owners?
Owners may feel "over-levied" or raise an eyebrow when they see two separate line items on their monthly invoices. Besides compliance with the STSMA, it may be helpful to explain the need for the two funds using these three arguments:
The "rainy day" vs. "every day" Analogy:
Explain that the administrative fund is the "wallet" for groceries and rent (electricity, security, gardening), while the reserve fund is the "savings account" for when the roof blows off or the building needs painting.
Preserving property value:
A well-funded Reserve fund ensures that the building doesn't fall into disrepair, which directly protects the resale value of every owner’s unit.
Avoiding special levies:
Remind owners that the reserve fund is a proactive tool. If the scheme doesn't save a little bit every month into a separate account, owners will be hit with a massive, unexpected special levy when a major repair is needed.
Conclusion | Navigating the great divide
At its core, the strict separation of administrative and reserve funds is about more than just following the law, it is about the long-term sustainability of a scheme. When these funds are managed correctly, the scheme remains well-maintained, property values are protected, and the threat of sudden, crippling special levies is minimised.
Need more clarity? While the day-to-day budgeting stays with the scheme's executives, legal questions often arise when interpreting how and where money should be spent. At TVDM Consultants, we provide expert legal guidance to help schemes navigate these complexities. If you are facing a dispute over expenditure or need assistance interpreting the statutory framework, contact us at info@tvdmconsultants.com or call 061 536 3138 for professional advice.
About the author
Sarah Sydenham is a Community Schemes Legal Consultant at TVDM Consultants.
Sarah is also an admitted attorney, brings a well-rounded legal background and a passion for community schemes to her role.
After completing her LLB at Stellenbosch University, Sarah pursued an LLM in Public Law at the same institution, where she was supervised by the former Public Protector, Professor Thuli Madonsela. During the final year of her master's degree, she worked at the Law Faculty's Social Justice Centre, understanding the practical influence of the law in everyday life.
Learn more about Sarah Sydenham.
