ARTICLE: Levy Financing – How to stop the financial bleeding

The economic crunch in South Africa means many schemes, bodies corporate, share-block companies and homeowners’ associations, are under intense financial pressure.

Belt-tightening, especially after Covid-19, prompted specialist finance company ZDFIN to refine its levy product to help struggling schemes manage arrears.

The team at ZDFin has an in-depth practical and working knowledge of property management and recognises that cash flow is most often the biggest hurdle for schemes to budget for levy arrears and the associated collection costs to recoup expenses.

“Given that levies are a function of the scheme’s expenses, the non-collection of levies is very detrimental to the effective day-to-day running of a scheme,” says ZDFin managing director, Michael Schaefer.  “Rising indebtedness means schemes are often in need of financial assistance and legal expertise to remedy their cash flow constraints.  Collection of arrear levies is nigh impossible without the cash flow to do so.”

“There are various factors at play. Unfortunately, most scheme executives or trustees don’t have assistance in this regard, which can be counter-productive at best. They certainly aren’t prepared, nor do they necessarily understand, the lengthy delays associated with trying to recover levy arrears through an overloaded, costly and cumbersome legal system.”

The cash flow pressures and, in many cases, plummeting property values in affected schemes, is detrimental to all owners who often have invested their life savings into their properties. Cash flow constraints can directly affect a scheme’s ability to operate effectively, not to mention maintenance. If neglected, buildings quickly deteriorate and value erodes.

“We have seen it in practice,” Schaefer adds, “Buildings imploding due to spiraling levy arrears and in instances where some owners have stopped paying levies altogether.  Trustees often feel overwhelmed, unable to find a solution to a problem that cannot be ignored.  Ana Capri in Durban is one of our most successful turnaround projects and a great story in its own right.”

ZDFIN’s selection of smart financial products is an outsourced, specialised and focused arrear levy collection solution that can assist schemes from a cash flow and legal perspective.

“We provide immediate, and ongoing, cash flow to stop the “bleeding”. When we step in we focus on an initial and thorough audit of the arrears and assess the status of any legal collections. Often this involves engagement with the schemes’ collection attorneys to assess the collection files.”

“It is important to steer the ship before things are entirely rudderless. It needs a clear action plan, given the reality around court and delays in the legal system. Schemes cannot afford any avoidable delay on their side,” Schaefer emphasises.

“An all-encompassing solution means bodies corporate are guided by in-house attorneys and they can structure spending based on a budgeted levy income stream at preferential rates.”

ZDFIN’s in-house legal team manages all legal work and while being dependent on the legal system, are able to effect considerable savings in legal costs and the fastest possible debt collection – the cornerstones of the company’s offerings.