Failure to pay levies

Lost property?, an article featured in the June 2001 edition of De Rebus, discusses what happens when members of a sectional title scheme fail to pay their levies. The authors Roger Green and Peter Feuilherade explain that if the body corporate does not pay outstanding municipal rates the local authority may, under certain circumstances, institute legal proceedings and obtain judgment against it. If the body corporate cannot recover levies, services to that property may be terminated, insurance premiums may not be paid and maintenance costs might not be covered.

They discuss Section 37(1) (b) of the Sectional Titles Act 95 of 1985, which enables the body corporate to sue members for not paying their levies, apply for judgment and then execute against their assets. The authors then analyse problems that arise, the chief one being that if the unit is subject to a mortgage bond, the sale may not proceed without the consent and participation of the bondholder/bank. This participation can sometimes be most unhelpful - for instance, if the action is instituted in the magistrate's court, the bondholder must consent to the sale. If it is instituted in the high court, the bondholder is entitled to stipulate a reasonable reserve price. If consent is not forthcoming, the body corporate's only remedy is to ask the high court to sequestrate the member. This suits the body corporate because although it is not a preferred creditor, the transfer of the unit can only be registered and a levy clearance certificate issued, once all the arrear levies - including legal costs to the body corporate - have been paid. A body corporate is not a distinct legal persona but more of a partnership. This means that if a judgment remains unsatisfied, a creditor may recover the debt (in terms of s 47(1)) from the members on a pro rata basis in proportion to their participation quotas or in accordance, if applicable, with a determination made in terms of s32(4) of the Act.

Matters can really become ugly when the members of the body corporate who are in arrears, are also trustees and do not act against levy defaulters. Sometimes the bondholder might even abandon the unit, as buyers cannot be found. The alternative of buying back the unit at a nominal price and then paying the arrear levies in order to transfer the unit to itself is too tedious. At this stage, the building is well on its way to becoming a slum as it slips into decay. The appointment of an administrator, in practice, is of little help.

The authors suggest that the solution to such problems lies in the hands of the banks. They should show more interest and make their borrowers pay levies regularly to the body corporate. Banks should also have a more pragmatic and imaginative approach in dealing with body corporates. After all, what point is there in being the bondholder over a unit with a market value far short of the bond debt, arrear levies, interest and costs?

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