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Withholding levy clearance

16 January 2014

An opinion has been expressed that a so-called levy clearance certificate may be withheld in circumstances where unauthorised alterations, affecting the common property, have been made to a section about to be transferred. I disagree and regard such refusal to be a wrongful and dangerous practice for reasons which I shall explain.

There are actually two documents known as a ‘levy clearance certificate.’ The first is a certificate by issued on behalf of the body corporate that –

‘all moneys due to the body corporate by the transferor in respect of the said unit have been paid, or that provision has been made to the satisfaction of the body corporate for the payment thereof.’

On the basis of the first certificate issued on behalf of the body corporate, the conveyancer attending to the transfer then issues a further certificate to the Registrar of Deeds, affirming that it has indeed been certified on behalf of the body corporate as quoted above.

Without the first certificate the conveyancer may not issue the second. Without the second the Registrar may not allow transfer to pass. The above requirements are stated in Section 15(3) of the Sectional Titles Act, No 95 of 1986. The reasoning of the proponents of withholding is that the provision is a restraint on the Registrar’s power to register the transfer of a unit without the necessary certificate and that it does not actually oblige a body corporate to issue a levy clearance certificate.

I do not believe this argument to be correct. The issue of a clearance certificate by the body corporate is not a discretionary action. Should a body corporate withhold a certificate for no reason at all, the affected parties will be entitled to apply for a court order compelling the body corporate to do so, and there can be little doubt that such an application will succeed. If this is true, then it is clear that the body corporate has a duty to issue the certificate, subject to compliance with the statutory requirement. It remains then to establish the scope of such statutory requirement.

The further argument in support of the right to withhold is that, ultimately, the body corporate may have to perform the rectifying work at its expense if the owner does not, and that this will entail a monetary obligation. However, it is not a monetary obligation yet. The statutory requirement refers to ‘all moneys due’ and not to non-monetary obligations or even potential monetary obligations such as compliance with certain other statutory provisions or rules. In my view such non-monetary obligations cannot fall in the category of ‘all moneys due’ until such time as –

  1. it has materialised that the owner has failed to perform the necessary work, transferring the duty to do so to the body corporate, and
  2. the actual amount of the expenses to perform the work has been quantified.

Before these things happen there can be no mention of ‘moneys due'. In fact, should the body corporate withhold a clearance certificate for such reasons, the affected parties will be entitled to ask that a (justifiable) amount be specified. If the body corporate is then unable to do so and still withholds the levy clearance certificate, it is likely that the body corporate will become liable for damages should the transaction fail as a result.

The corrective obligation of the owner concerned must accordingly first be converted to a quantified monetary obligation before the trustees would, with justification, be allowed to withhold the issue of a levy clearance certificate.

What then are the trustees to do when an owner is about to transfer a unit and it appears that certain unauthorised things have been done, affecting the common property? A frequent example is the unauthorised physical extension of a section, but there could be many other examples. Dealing with such issues when a unit has already been transferred to a new ‘innocent’ owner is always problematic.

The first point is obviously that trustees should at all times remain aware of what is happening in their own scheme and take appropriate and timeous action. The majority of instances where non-compliance becomes an issue at the time of transfer can in my view be ascribed to the trustees’ failure to remain alert to aspects such as building alterations.

Should an unauthorised alteration, for whatever reason, only come to the trustees’ attention at the time when a levy clearance certificate is applied for, the solution would not be to withhold the issue of the certificate. In my view that would be irresponsible and could expose the body corporate to a civil damages claim. What they should rather do is to take steps to bring the situation to the attention of the purchaser, notifying him of the fact that compliance would become his responsibility upon registration of transfer. The issue would then become one to be addressed between seller and purchaser and if that should lead to cancellation of the sale, the body corporate would not be at risk of facing a damages claim. Should the transfer nevertheless be proceeded with, such early notification would serve to ease the trustees’ later task to procure compliance by the new owner.

Should trustees attempt to withhold levy clearance certificates for reasons other than a truly liquidated debt to the body corporate, it would open the gates to do so for any reason which may eventually result in some as yet unspecified amount of money becoming due to the body corporate. This could never have been the intention of the legislature.

MCS Courier No 45 Dec 2013

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