CSOS, Levies and Fairness: What the Waterford Decision Tells Us About Reasonableness and Good Governance

When trustees, managing agents or homeowners hear about disputes over levies, it often stirs anxiety: “What can the Community Schemes Ombud Service actually do?”, “Can CSOS rewrite our levy schedule?” or “Are levy decisions final once they come out of CSOS?” The recent Waterford Estate judgment from the Supreme Court of Appeal provides clarity, for the moment, on all these questions and more. It affirms that CSOS has authority over levies but also sets out thoughtful guardrails on how that authority is to be exercised. Future judgments will outline to what extent CSOS can override the autonomy of decisions 

CSOS is here to stay

First, it’s important to understand why CSOS exists. Before 2016, levy disputes and other sectional title disagreements often had to be taken to the High Court or dealt with internally. That was time-consuming, expensive and stressful for all involved. The Community Schemes Ombud Service Act was introduced to provide a speedy, cost-effective forum where disputes could be resolved fairly and without the need for litigation. If the formation of CSOS has actually fulfilled the reason for its formation is a debate for another day.

In Waterford, the SCA was asked to consider whether a key part of the CSOS Act, namely, section 39(1)(c) was unconstitutional. Section 39(1)(c) allows an adjudicator to declare that a contribution, or the way it’s calculated, is “unreasonable” and order that it be adjusted. Waterford argued that this gave adjudicators unfettered power.

The court rejected that argument emphatically. It said that the concept of “reasonableness” is well-known in administrative law, it is not vague or unworkable. Instead, reasonableness must be assessed objectively, based on evidence, and in the context of how the scheme actually functions. More importantly, adjudicators are not acting in a vacuum. They must follow fair procedures, take relevant evidence into account and their decisions are subject to review by the courts. In short: CSOS has broad authority, but it is not a blank cheque.

Levies are not just numbers they must be fair and rational

One of the critical pillars in any scheme’s financial health is levies. Levies must cover the scheme’s expenses, provide for reserves, and reflect the true cost of shared living but they must also be reasonable in respect of the services required by owners.

In the Waterford matter, the CSOS adjudicator made serious procedural and analytical errors, according to the SCA. She ignored important evidence about the established formula for calculating contributions, misinterpreted key contractual terms, and applied a method for later years that was not supported by the record. Her decisions were ultimately set aside because they could not be shown to be rationally connected to the evidence before her.

What this tells us and what trustees should take to heart is that a determination of unfair levies must be grounded in actual facts and proper reasoning, not conjecture or broad statements of fairness. Where CSOS is asked to decide whether levies or a method of calculation is unreasonable, it must consider:

• The governing documents for example, the scheme’s MOI in the case of an HOA, participation quota, management and conduct rules, schedule and budgets.
• The evidence presented included budgets, financial records, expert reports, and member testimony.
• Whether the scheme followed its own processes when calculating and approving levies.
• Whether the levies reflect actual and necessary costs for services and maintenance as required by the members.
• Whether different methods of calculation reflect genuine fairness in the context of the scheme’s unique circumstances and requirements.

Levies are not unfair just because someone doesn’t like paying them or can’t afford them

The word “unreasonable” must be interpreted in context. Levies become unreasonable when they are disconnected from the documented costs of running the scheme, are not in relation to the services required by members, the improvements agreed by members, when they disproportionately burden a class of owners without justification, when they are apportioned outside the confines of the act, or when the approved process for calculating them was not followed. Simply disagreeing with the numbers is not enough; there must be a rational foundation for the claim. This aligns with the SCA’s insistence that adjudicator decisions must be rooted in evidence and logic, not subjective views.

Membership matters but its not the only factor in determining the liability

Another important clarification from Waterford concerns membership. In that case, the adjudicator initially held that sectional title owners were not members of the HOA, which threw into question their liability for levies. The SCA corrected that. It reminded us that where scheme documents, including township conditions or agreements, impose HOA membership automatically upon ownership, that membership stands. But the SCA took care to emphasise that the fact of membership does not in itself create the levy liability, it merely identifies to whom levies are payable. Levies have to be determined, taking into consideration evidence and logic.

In other words, an owner’s obligation to pay levies stems from the scheme’s legal structure and agreements, not just the label of “member”. This distinction is important when preparing or defending levy disputes at CSOS or on review.

Practical takeaways for trustees and managing agents

From the perspective of people on the ground, the trustees and managing agents are responsible for the day-to-day governance of schemes. Here is what Waterford decision emphasises:

1. Be meticulous with levy processes. Follow the MOI or Prescribed Management rules and the STSMA requirements when calculating, approving, and communicating levies.
2. Document everything. Keep clear records and evidence of how levies were determined and what they fund. This is essential if a levy challenge ends up at CSOS or in review.
3. Use reasoned arguments. If you need to defend levies at CSOS, ground your submissions in logic and evidence. Avoid emotional or subjective language.
4. Understand “reasonableness” as a legal standard. It’s not just about being fair in a general sense; it’s about being objectively rational in relation to the costs and processes involved.
5. When in doubt, seek expert support. Complex levy formulas, settlement agreements and financial disputes benefit from specialist input, whether legal, accounting, or scheme management. In this regard, speak to the experts at Stratafin or Confiance Administrative Solutions. We, as a team of experts, have over 100 years of collective experience in this regard and can definitely assist.

Conclusion regarding CSOS’s role in fair scheme governance

The Waterford judgment underscores a balanced approach. CSOS plays an important regulatory role in communal living environments where strict contractual autonomy might not always achieve fairness. But that role is exercised within a structured, evidence-based framework, one that requires adjudicators to think and act like rational administrators of schemes, not lay arbitrators of fairness. Practical experience is required when embarking on the journey of reasonableness in respect of a particular scheme and not only theoretical knowledge. What is regarded fair and essential for one scheme would not necessarily mean that it is fair and reasonable for another.

For trustees and managers, the message is clear. CSOS is a powerful forum to resolve disputes, but success there requires careful preparation, rigorous evidence, and an appreciation of the standards that the courts will apply when reviewing CSOS decisions. Reasonableness in levies isn’t a subjective notion, it’s a reasoned one.