Can trustees authorise the use of reserve funds to pay municipal bills during a cash flow shortage, with the intention of returning the money when levy payments come in?

Question

Answer 1

Under the legislation, the two funds of a body corporate are clearly separated:

📊 Administrative Fund

The administrative fund must be used for the operating expenses of the scheme in a particular financial year (for example, paying rates, municipal charges, and day-to-day services) — see Management Rule 24(1), Annexure 1.

💰 Reserve Fund

The reserve fund must be used for the implementation of the maintenance, repair and replacement plan of the body corporate — see Management Rule 24(2), Annexure 1.

This means that reserve fund money is ring-fenced for long-term maintenance and capital items, not short-term operating cash flow. Using it to pay municipal bills would be outside its legislated purpose.

⚠️ What If the Body Corporate Has Cash Flow Problems?

If the body corporate is in financial distress and cannot meet operating expenses from the administrative fund, the legislation provides mechanisms such as:

Increasing or calling up special contributions from owners (STSMA section 3(1)(c)).
Borrowing money, but only if authorised by a special resolution of members (STSMA section 4(e)).

The trustees acting alone (by trustee resolution) do not have the authority to authorise the managing agent to "borrow" from the reserve fund for operating expenses. Doing so would be contrary to Management Rule 24.

If the scheme genuinely needs to use reserve funds in this way, the correct legal path would be to seek a special resolution of owners to borrow funds or restructure contributions, not to reallocate reserve monies without authority.

In Short

Trustees cannot, on their own, approve use of the reserve fund for cash-flow problems.
Owner approval (via special resolution) is required to lawfully access funding alternatives.
The proper source for paying municipal bills is the administrative fund, not the reserve fund.

Disclaimer: The information provided here is for general guidance on sectional title legislation and does not constitute formal legal advice. For specific legal interpretation, disputes, or official rulings, consult with qualified legal professionals or the Community Schemes Ombud Service. ELA can make mistakes. Double-check responses.

Answer 2

📘 Legislative References

Management Rule 24(1) (Annexure 1)

The administrative fund referred to in section 3(1)(a) of the Act must be used to fund the operating expenses of the body corporate for a particular financial year.

Management Rule 24(2) (Annexure 1)

The reserve fund maintained in terms of section 3(1)(b) of the Act must be used for the implementation of the maintenance, repair and replacement plan of the body corporate referred to in rule 22.

Disclaimer: ELL provides official legislative text and estate rules (such as the Code of Conduct) for information purposes only. It does not constitute legal advice. For assistance with legal interpretation or application, please consult a qualified professional.