Sectional Titles

MCS Courier - October 2018

Undue protection of defaulters; a self-defeating policy?

When considering the effects of Management Rules 21 and 25 it seems that the legislature’s objective is a weird variant of consumer protection. The first and most important counterintuitive aspect is that by protecting the defaulting owners, the other ‘consumers’, being the owners who pay their levies meticulously, are actually being penalised by having to bear expenses for which the defaulters should be responsible.

Consider the effects of MR 25(4) and (5):-

(4)  A member is liable for and must pay to the body corporate all reasonable legal costs and disbursements, as taxed or agreed to by the member, incurred by the body corporate in the collection of arrear contributions or any other arrear amounts due and owing by such member to the body corporate, or in enforcing compliance with these rules, the Conduct Rules or the Act.

(5) The body corporate must not debit a member’s account with any amount that is not a contribution or a charge levied in terms of the Act or these rules without the member’s consent or the authority of a judgement or order by a judge, adjudicator or arbitrator.

It is necessary to deal with these provisions in reverse, due to the fact that recovery of costs can only take place after the debtor’s account in the body corporate’s books has been debited with such costs. The attorney collecting the legal costs must do so on behalf of the body corporate which is her client. For the attorney to issue a summons in her own name would not be the prudent or correct procedure. In order to be able to collect the costs from the defaulter, such costs must therefore first be debited against his levy account. In order to do this in the normal course of events, a court judgement must first be obtained, which follows upon the issue of a summons. Thereafter the costs must be taxed, adding further costs.

The first question which arises is why magistrates were omitted from sub rule (5). Must we assume that the term ‘judge’ includes a magistrate? I have no answer. Fortunately most, but not all, magistrates still assume jurisdiction in respect of such actions.

The requirements of these provisions preclude the possibility of collecting arrears without the, often unnecessary, costs of a summons and judgement. In fact, the costs payable by the defaulter are ultimately considerably more, due to the poorly considered requirements of these provisions.

Yes, the provisions do allow for an agreement with the defaulter as to costs, but such agreements will seldom materialise due to no fault of the body corporate or its attorney.

Should the attorney succeed in collecting payment without summons, the costs will not be collectable from the defaulter and must be for account of the body corporate, which must in turn make provision for payment in its annual budget and which will ultimately be paid by the guiltless members.

The alternative to the latter would be for the attorney to issue a summons in her own name, which would be an unnecessary duplication of proceedings, probably incorrect, and certainly not in the interest of the defaulter.

As far as taxation is concerned, not only does it add to the costs eventually payable by the defaulter, but in practice it causes a considerable delay in payment. Is it reasonable that the attorney must carry the costs burden until eventual payment? Is it reasonable that the body corporate must?

You might say that payment of interest must compensate for such delays. But the attorney is very unlikely to benefit therefrom, and the raising of interest is in any event problematic. Consider MR 21:-

(3) The body corporate may, on the authority of a written trustee resolution-

(c) charge interest on any overdue amount payable by a member to the body corporate; provided that the interest rate must not exceed the maximum rate of interest payable per annum under the National Credit Act (Act 34 of 2005), compounded monthly in arrear.

Let us first look at the resolution which is required. I have always suggested to trustees that they should determine the interest rate at the time and under the same resolution by which the levies are determined. This seems to make sense, but is it correct? The provision requires a written resolution by the trustees. In terms of MR 14(4) there are two methods of adopting trustees’ resolutions, namely by voting upon it at a meeting of trustees, or by adoption of a written resolution sent to the trustees. Does this mean that MR 21 requires that the latter procedure must be followed? If not, what does a ‘written trustee resolution’ mean? Would it be sufficient to adopt the resolution at a trustees’ meeting and subsequently to record it in the minutes ‘in writing’? I doubt that this is what the legislator had in mind, leaving the question: Why must this resolution, as opposed to other equally important trustees’ resolutions be in writing?

If this sounds petty, keep in mind that ‘petty’ questions such as this are the causes of many disputes. Having not settled this issue, let’s look at the maximum rate prescribed under the National Credit Act. Consider the meaning of the instruction that the interest charged in respect of arrear levies ‘must not exceed the maximum rate of interest payable per annum under the National Credit Act'.

Such rate is currently 26.75% per annum, being the rate prescribed for unsecured credit (20%) plus the current Reserve Bank repurchase rate (6,75%).

The NCR, not surprisingly, makes no mention of arrear levies. One will also not find in the NCR a category of credit agreements which can be considered to apply specifically to levies at sectional title schemes. Therefore it would be incorrect to assume that the provisions of the NCR apply to sectional title levies, as some do.

The generally accepted view that the maximum rate of 2% per month, as prescribed in respect of incidental credit agreements applies, is also not correct, as it is not ‘the maximum rate of interest payable per annum under the National Credit Act.’

Download MCS Courier October 2018 to continue reading - How many levies are there in fact?

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