Sectional Titles

Courier – October 2010

These include (with their opening paragraphs):

Stilus - insuring liquidity
Stilus was registered in July 2010 as Santam's newest underwriting management agency to utilise its specialist skills in the sectional title industry.

One of the industry's greatest concerns has been the failure of members of bodies corporate to pay their monthly levies. The present economic climate has exacerbated this problem and the time is opportune to launch an insurance product to correct these ills.

The promoters of Stilus, Charles Coetzee and attorney Tertius Maree, have been involved in the sectional title industry since its inception in South Africa. The novelty of their approach to resolve the illiquidity issue lies in the Stilus insurance policy. Stilus has already been heartily welcomed by insurance brokers, managing agents and bodies corporate trustees who have been briefed on the policy.

Adjusting the levy formula
Levies, whether normal or special, are calculated based on participation quotas of sections. The participation quota method is based on the floor area of sections measured from the median line of the outer walls. Although the participation quota method has its critics and can result in seemingly unfair results, it is generally considered to be the most satisfactory method. It is also the one sanctioned by law.

In certain instances the need may arise to depart from the participation quota method. An example is when an owner's yard area is included as part of his or her section. Other owners may not have yards or the yards are not of a similar size. It would seem unfair to contribute on this yard area based on the participation quota method because, for example, the maintenance of such area would be much less than a section used for residential purposes or even a garage. (In most schemes such yards would be exclusive use areas).

Fortunately the legislature has left open a back door in the form of section 32(4) ofthe Sectional Titles Act 95 of 1986.

Initiating the levy recovery process
More than anything else, problems arise due to the lack of information submitted at the start of the recovery process. It is of the utmost importance that your attorney is supplied with all the facts and details of a particular matter. What follows is a brief discussion of the minimum requirements:

  • Up to date statement
  • Contact details
  • Rules
  • The latest approved budget and minutes of the annual general meeting
  • Trustees' resolution determining individual levies
  • Trustees' resolution confirming the rate of interest

Trustees need to be wide awake at the time of unit sales
When a sectional title unit is sold and transfer of ownership is about to take place, trustees and managers need to be wide awake to ensure that the financial interests of the body corporate are secured.

At the time of registration of transfer the body corporate has a very secure, but once-off opportunity to ensure that all monies due to the body corporate in respect of the unit in question are fully paid. At this point in time the legal position regarding amounts due to the body corporate is stronger than even that of a bondholder. However, this remarkable advantage will only materialise if all necessary things are done meticulously to ensure payment.

The key provision of the Sectional Titles Act is section 15B(3) in terms of which no transfer may be registered at a Deeds Registry unless the Registrar is furnished with a certificate by the conveyancing attorney to the effect that all monies due to the body corporate have either been paid or that provision has been made for payment thereof to the satisfaction of the trustees

Q & A
Question: May the full balance of the years levies be claimed if an owner defaults on a particular monthly payment?

Answer: Yes and No.

Levies due after the financial year end
Most bodies corporate hold their annual general meetings within three or four months of their financial year-end. The main reason for the time lapse is the time required to prepare the annual financial statements, the budget for the ensuing financial year and the other prescribed documentation in respect of the annual general meeting.

During the period after the financial year-end and until levies are approved for the ensuing financial year, Standard Management Rule 31(4A) stipulates that owners are obliged to continue paying levies to the body corporate in the same amounts and instalments as were due and payable by them during the expired financial year. In this interim period, owners should therefore continue to pay their ordinary levies in respect of their sections and the additional levies in respect of their exclusive use areas.

'Other' types of insurance?
Are trustees authorised to decide?
Do trustees have a discretion to procure insurance against risks other than those prescribed in the rules?

You may well ask how this question fits into a discussion of levy issues.

Be patient.

MCS Courier 37


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