Category Archives: Homeowners Associations

Pay your levies, or else…

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CM_06_02Dear Mr Lawyer

I am the owner of a sectional title, and I have paid my levies every month as required, until the water started seeping through the ceiling of my enclosed balcony into my section when it rains. The leak was clearly emanating from a defect in the common property. I asked the body corporate on numerous occasions to repair the defect, yet after four months of writing letters and sending emails the body corporate still has not done anything to honour this simple request. As a frustrated owner I resorted to desperate measures and employed a contractor to repair the property defect. I settled the bill myself.

May I withhold my levies for a period to set off the money that is owed to me by the body corporate?

Dear Mr Owner

Although this action may sound reasonable, the right to stop paying or to set off a debt against levies is not legally justified and owners are not, under any circumstances, entitled to simply withhold levies.

There is no provision in the Sectional Titles Act 95 of 1986 or the rules that gives an owner the right to withhold levy payments. Even if an owner incurs expense in performing an emergency repair to the common property, and believes that the body corporate owes him money, the owner may only set off the debt against the levies once it becomes liquid.

An amount can only be liquid once it has been agreed upon. An owner cannot set off the amount he believes he is entitled to deduct. The trustees, judge or arbitrator must have confirmed the amount.

If Mr Owner does withhold his levies without the amount being liquid, he is subject to the following sanctions in terms of the prescribed rules:

  • Firstly, the trustees are entitled to charge interest on arrear amounts at a rate determined by them, and so the defaulting owner may receive a larger account, due to the interest on his arrears, than if he had paid his levies.
  • What is more, The Sectional Titles Act imposes a positive obligation on trustees to recover levies from defaulting owners. Not only does the Act empower them to charge interest, the scheme attorneys will most likely issue summons against the defaulter for all costs that the Body Corporate may incur in recovering any arrears.
  • Secondly, the prescribed management rules provide that, except in the case of special and unanimous resolutions, an owner is not entitled to vote if any contributions payable by him in respect of his section have not been duly paid. Therefore, an owner who withholds his levies is unable to vote for ordinary resolutions in respect of the section that he is withholding levies on.

Mr Lawyer, how does an owner deal with a situation where he believes the body corporate is liable for payment?

A dispute must be declared with the Body Corporate by written notice of the dispute or query to the trustees. The trustees or Body Corporate then have 14 days from receipt to resolve the dispute. During this period, the parties should meet to try and resolve the dispute. If there is no resolution after the 14-day period, either party may demand that the dispute be referred to arbitration. The arbitrator must make his/her recommendations in settlement of the dispute within 7 days from the date of commencement of the dispute. The decision of the arbitrator shall be final and binding and may be made an order of the High Court.

It is clear that prescribed processes are in place according to which disputes and related issues can be settled. Not only will this ensure that you act within the legal guidelines, but it will also eliminate unnecessary frustration.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Disputes with body corporate: Homeowners’ remedies

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A1BOur office recently dealt with a matter where the trustees of the body corporate of a certain sectional title scheme clamped the wheel of the car of one of its homeowners because he did not park on his allocated parking bay.

Even though the homeowner did not park on his allocated parking bay, he could not understand why his vehicle got clamped for parking outside of his own front porch, when he was in and out of the house during the day. It seemed highly unfair and unreasonable to the homeowner.

It is a truism that every homeowner cannot do as he pleases as this would lead to total disorder in the sectional title scheme, and it is the duty of the trustees of the body corporate to enforce rules on owners and tenants alike. When one buys a property in a sectional title scheme one will more often than not find a provision in the agreement which states that homeowners, inter alia, will abide by the rules of the body corporate.

This begs the question whether or not the homeowner's hands are tied if the rules were amended by a special decision taken at a general meeting by the trustees of the body corporate.

Remedies available to homeowners and tenants

If there is reason to believe that the trustees of the body corporate of a sectional title scheme have acted ultra vires (outside their powers), homeowners have a choice of two remedies – either arbitration or an interdict.

  1. Arbitration step-by-step

The discontented homeowner could apply for arbitration, the duration of which should not exceed a maximum of 52 days.

In terms of Section 71 of Annexure 8 of the Sectional Title Act 95 of 1986, the purpose of arbitration is not, as some believe, to achieve compliance. The prescribed process requires the discontented homeowner to submit his dispute in writing to the trustees of the body corporate of the sectional title scheme within 14 days of the problem arising, whereafter the trustees will review and attempt to settle the matter. Should the problem still not be resolved, either the homeowner or the trustees of the body corporate can request that the matter be referred for arbitration.

The arbitrator has wide discretion in making a costs award. He may order payment by one party, by more than one jointly, or in specific proportions, depending on the outcome of the arbitration. The arbitrator’s decision may be made an order of the High Court upon application by either party, or a party affected by the arbitration.

  1. Alternative remedy

There is a further remedy available to the homeowner, namely an interdict or any form of urgent or other relief by a court with jurisdiction.

But this line of action has elicited the following warning:

Furthermore, the interdependence of the owners and occupants of units and the unavoidable requisite of harmonious co-existence render an interdict inadequate and indeed improper in the sectional title context. A successful application for an interdict can permanently ruin the harmony of a scheme (LAWSA aw para 238).

In essence, if the rules of your body corporate allow the trustees to clamp your wheel should you disobey the rules, and you have reason to believe that your Body Corporate is acting outside of its powers and/or the rules are unreasonable, you may follow the steps as set out above.

NOTE TO ATTORNEYS: See Section 71 of Annexure 8 of the Sectional Titles Act 95 of 1986.

REFERENCED WORK:

See the article “Managing the Unmanageable” by Tertius Maree, published in De Rebus, August 1999.

Also see the article “Arbitration in Sectional Title Disputes” by Tertius Maree, published in De Rebus, August 1998.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Homeowners’ Associations: Collect those outstanding levies

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A4BThe Registrar of Deeds’ Conference issued a resolution in 2010 ruling that, in the event of a forced sale, mostly in the event of insolvency, a clearance certificate is not obligatory in order to transfer the property into the name of the purchaser, despite a title deed requirement to the contrary. The resolution was met with severe opposition and the implementation thereof finally reversed.

Three recent matters brought before the court clearly indicated that the status quo will not go unopposed.

Homeowners’ associations have, by means of title deed conditions, ensured that membership requirements are compulsory and the fulfilment thereof obligatory. Generic requirements include the obligation to obtain a clearance certificate from the association, confirming that the provisions of the Memorandum of Incorporation or, where still applicable, the Articles of Incorporation and Association, have been complied with.

Most homeowners’ associations require that all amounts outstanding and levied shall be paid in full prior to the issuing of the clearance certificate. As the purchaser cannot be held liable for the arrears, the arrears are paid from the funds of the insolvent estate. The argument by those opposing the status quo is that by such title deed conditions, the homeowners’ associations have established themselves as preferential creditors of an insolvent estate.

Although an established business practice, the benefit created for the associations in terms of the title deed conditions, are being opposed and questioned.

Three recent matters have been challenging the status quo:

In the first matter, that of Cowin NO and Others vs Kyalami Estate Homeowners’ Association and Others (11377/12) [2013] ZAGPJHC 121, Judge BA Mashile ruled in the South Gauteng High court on 25 February 2013 that the conditions in the title deed should be upheld. The requirements of a clearance certificate have been found as a real right and can prevail against the whole world.

The court further held that by recognising the real right of the association, it does not confuse or change the status of the association in the concursus creditorum. The association will remain a concurrent creditor, but has a right to choose whether to lodge and prove its case or exercise the right afforded it in terms of the registered condition in the title deed regarding the property, to claim the outstanding amount from the cost of the sale of the property.

In the second matter, that of Koka NO and Others vs Willow Waters Homeowners’ Association (Pty) Ltd and Others (20361/12) [2013] ZAGPPHC 167, Acting Judge AJ Bam delivered his judgement on 13 June 2013 in the North Gauteng High Court.

The judgement considered whether the rights of the Homeowners’ Association as noted in the title deed, constitute real rights (rights enforceable as against the whole world) or personal rights (rights only enforceable against the other contracting party). The court dealt with two questions in order to establish the type of right that the association has.

  1. The first was the intention of the person who created the real right. Was it the intention of the person to bind the present owner of the property and also the successors in title?
  2. The second question was whether the nature of the right was such that the registration thereof resulted in a diminution of the ownership of the property (“subtraction from dominium”) against which it is registered.

The North Gauteng High Court ruled that the association does not have a real right. The court acknowledged the fact that the title deed conditions do bind the successors in title of the property. But the facts in this matter were that the association never had the intention to hold purchasers of the property liable for the outstanding levies and penalties of a previous owner. The conditions were thus a mere personal right against the insolvents.

It should be noted that the court ruled for this sale to be subject to the title deed conditions in that the purchaser of the property will be personally subject to the conditions and will have to abide by the rules of the association.

The applicant of the third matter, known as the South Downs HOA matter, withdrew the application before any judge could rule thereon.

The Willow Waters matter is currently under appeal and the Registrar issued a cautionary notice in terms thereof. Should the North Gauteng court ruling be upheld, it will have dire consequences for all homeowners’ associations.

It is therefore imperative that directors of homeowners’ associations carefully attend to timeous payment of levies due by their members. The delay in appointment of liquidators or curators, the time-consuming administration and winding-up of an insolvent estate, as well as the delay in selling the properties caused by delayed instructions from preferential creditors, can create an untenable situation for associations. The eviction of occupiers, bent on remaining on the property at all cost, also takes time.

Months can pass whilst the monthly levies accrue, with the association unable to recover from any other entity save the right to recover via the title deed conditions. As a non-profit company with the responsibility to render services to its members, the situation can easily become dire for associations. Insolvency of even a small portion of the members can financially upset a well-to-do estate and lead to financial chaos.

Prompt debt collection action taken against any and all owners immediately on default will be the best defense. Therefore the directors and members themselves should keep a keen eye on prompt monthly payments and ensure that defaulting owners are immediately contacted and, if they persist in the default, hand the matter over to competent attorneys for collection of the debt. Any delay can be costly to the association.

Whilst clarity is awaited from either the highest court of appeal or the Constitutional Court directors should, not only for the sake of their own property investment but also for that of the other members of the association, ensure that defaulters are speedily and effectively attended to.

This newsletter is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).