Are You Obligated to Pay Arrear Levies When Purchasing a Sectional Title Unit? Part 2
Recently, the High Court and the Supreme Court of Appeal (SCA) were required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The issue in the appeal is firstly, the statuses of the parties, consequently, whether the body corporate’s reliance on the statutory embargo is susceptible to challenge and secondly, the High Court’s order, which irrespective of the interpretation given to the embargo provision, cannot stand. In 2018, Mr Steinmuller acquired a unit in a sectional title scheme at a sale in execution. The transfer was authorised by a court order that Standard Bank obtained against the registered owner of the unit. It’s important to note that, as per the Act, a body corporate is not considered an owner of property; it merely manages the common property on behalf of the individual owners. Simply put, the body corporate is not a party to the sale agreement. The said sale was contingent upon the published conditions of sale, which described that the Purchaser was liable for certain payments including: “All levies due to a Body Corporate in terms of the Sectional Titles Act, 1986…” If a property is sold in execution, a contract is established between the sheriff, who executes the court order, and the purchaser, whose bid is approved. The execution creditor (Standard Bank) is thus also not a party to the agreement. The purchaser bears the responsibility to pay the purchase price and any additional amounts due to abide by the terms of the agreement. This is a contractual obligation. The sheriff may enforce the terms of the sale agreement or seek cancellation of the transaction in accordance with rule 46(11) if a buyer fails to meet a condition of the sale. In this case, the terms of the sale stipulated that the sheriff would be entitled to recover levies that were due to the body corporate as part of the purchaser’s payment. This was the context in which the appeal needed to be resolved. Mr. Steinmuller would only have an enforceable right if he had fulfilled his contractual duties under the terms of the agreement of sale. His right operates against the sheriff and not the body corporate. If Mr. Steinmuller’s contractual obligations are limited by the terms of sale, he might be able to demand that the sheriff grant transfer upon payment of that money. He cannot, however, insist that the body corporate accept his offered payment and, as a result, offer a clearance certificate that would allow the transfer to take place. The body corporate’s statutory power to refuse to issue a clearance certificate until all outstanding payments have been made cannot be limited by Mr Steinmuller’s contractual right to transfer. A conveyancer’s certificate attesting to the fact that all money owed to the body corporate has been paid is required before the sheriff can grant transfer. Until the terms of the embargo are fulfilled, the body corporate would legally be able to refuse to deliver the certificate. The result is that Mr. Steinmuller is not a party to any disagreement that may exist conceptually about what is owed to the body corporate, he has no legal interest. As a result, the SCA ordered that the High Court’s ruling be set aside and replaced with an order dismissing the application with costs, including the costs of two legal counsels where so employed. The court concluded that, with regards to the decision in Barnard NO v Regspersoon van Aminie en ’n ander, legal fees paid to recover money owed to the body corporate was protected by s15B(3)(a) of the Act. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Complex Living: Be Aware of the Hidden Costs
When considering the purchase of a unit within a complex, it’s crucial to look beyond the surface-level expenses such as the advertised levies. Without thorough research, potential buyers may find themselves facing unexpected financial burdens. The structure of sectional title schemes In sectional title schemes, you own your unit but share ownership of the property’s common areas with other unit owners. This collective ownership, known as the body corporate, is responsible for the maintenance of exteriors, gardens, security, and the overall upkeep of the complex. These responsibilities are funded through monthly levies, which can be more complex than they first appear. Monthly administrative levy The administrative levy is the primary fee in sectional title schemes, varying based on your unit’s size, which means that larger units contribute more. This levy covers not just the utilities—such as electricity and water, billed collectively to the scheme and then apportioned to units based on usage—but also the maintenance of common areas, operational expenses, and building insurance. Reserve funds and special levies Since 2016, a law has mandated that a portion of levies be allocated to reserve funds for long-term maintenance, guided by a 10-year capital expenditure plan. This fund, typically no less than 15% of the administrative levy, is designed to prevent the sudden imposition of special levies for major maintenance projects. Despite the reserve fund’s intent to cover large expenses, unforeseen costs like significant repairs or utility billing errors can necessitate special levies. These are decided by the trustees and can represent a significant additional cost. CSOS levy The Community Scheme Ombud Service (CSOS) levy, another cost in sectional title schemes, is the lower of R40 or 2% of an owner’s levy when it exceeds R500, with no levy charged for amounts under R500. This is collected quarterly by managing agents. The risk of non-paying owners Non-paying owners in sectional title schemes pose a significant risk, which can strain the scheme’s finances. Trustees can address late levies by seeking an adjudication order from the Community Schemes Ombud Service (CSOS) or taking legal action through an attorney to enforce payments. However, these steps can take time, and in the interim, compliant owners may face unexpected special levies as the scheme manages these financial shortfalls, directly impacting your budget and financial planning. Make an informed decision Before committing to a purchase, prospective buyers should request the latest levy statement to fully understand monthly charges, particularly since utilities are included in sectional titles. The actual cost, including utilities, can far exceed initial quotes. It’s also vital to review the most recent AGM pack, current budget, and financial statements to understand the financial health of the scheme and avoid investing in a poorly managed, financially unstable scheme. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Understanding homeowners associations (HOAs)
If you are considering buying a property in a housing development, it’s essential to understand what a Homeowners Association (HOA) is and how it operates. HOAs are legal entities responsible for managing and regulating housing development schemes. Although homeowners own their individual properties, the HOA maintains and oversees communal infrastructure, such as roads, security systems, and other shared amenities. When purchasing a property in a housing development, the title deed will typically include a condition that mandates automatic membership in the HOA for the new owner. Additionally, the transfer of ownership cannot occur without the HOA’s approval. During the registration process, you will receive access to the HOA’s Constitution and Conduct Rules. Here is an example of the language you might find in the title deed: “SUBJECT to the following condition contained in Deed of Transfer Number Txxxx/20xxx, imposed by Stormers Country Estate (Pty) Ltd, Registration Number XXXX/XXXXX/XX, as developers, and as stipulated in the Stormers Country Estate Homeowners Association Constitution, established under Section 29 of the Land Use Planning Ordinance No 15 of 1985, and approved by the City of Cape Town under Section 42 of the same ordinance, regarding the subdivision of Erf XXXX Cape Town: ‘That the within property may not be sold or transferred without the prior written consent of the Stormers Country Estate Homeowners Association, of which the Transferee shall become a member. Such consent shall not be unreasonably withheld.’” HOAs can be established through two legal structures: as a non-profit company or a common law association. Non-Profit Company: An HOA set up as a non-profit company operates under a Memorandum of Incorporation and is governed by the Company Act. Common Law Association: An HOA established under common law operates according to its Constitution, guided by Common Law. In both structures, the HOA’s governing documents serve as binding contracts for homeowners/members within the development. These financial and governance documents must be submitted annually to the Community Schemes Ombud Services (CSOS) for record-keeping and oversight. The Constitution and Core Duties of HOAs The Constitution of a common law association outlines the operational obligations and governance structure of the HOA. It allows members or executive members to create regulations and rules that bind all members. The Constitution details the scope of the HOA’s activities and the powers of its executives, which are typically defined during general meetings. Core Duties: Maintenance and Repairs: One of the HOA’s primary responsibilities is the upkeep and repair of communal spaces and shared amenities. This includes tasks such as landscaping, pool maintenance, parking lot upkeep, and the management of recreational facilities. By collecting membership fees, the HOA ensures these areas are well-maintained, enhancing the living experience for all residents. Enforcement of Rules and Regulations: HOAs establish and enforce community guidelines, which may cover architectural standards, noise restrictions, pet policies, and parking regulations. These rules are essential for maintaining the community’s appearance and ensuring a high quality of life for all members. Financial Management: The HOA board oversees budgeting and financial management, ensuring funds are allocated transparently and effectively. While HOAs do not have inherent powers to impose penalties on members, their governance documents may grant them the authority to pursue legal action for collecting overdue levies, fines, or other fees owed by members. A well-managed HOA, with effective oversight by elected executives, can foster a strong sense of community and potentially enhance the market value of individual properties. Before purchasing a property within a housing development scheme, reviewing the applicable governance documents and familiarising yourself with the rules and regulations you will be expected to follow is crucial. Reference: Home Owners’ Survival Manual by Graham Paddocks While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup
Are you obligated to pay arrear levies when purchasing a sectional title unit? Part 1
Recently, the High Court and the Supreme Court of Appeal (SCA) was required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The Sectional Titles Act 95 of 1986 stipulates in Section 15B(3)(a)(i)(aa) that the registrar of deeds shall not register a transfer of a unit or an undivided share therein unless he is presented with a conveyancer’s certificate attesting to the fact that, as of the date of registration, the body corporate has certified that all monies owed to the body corporate by the transferor in respect of the said unit have been paid, or that payment has been made to the satisfaction of the body corporate. In this matter, Mr Steinmuller bought a property in a sectional title scheme sold by the sheriff in a sale in execution. The previous owner of the property owed money to the body corporate of Marsh Rose in respect of arrear levies. The body corporate obtained a judgment against the previous owner for the said amount. When Mr Steinmuller purchased the property at the sale in execution, the judgment debt was still due. The body corporate sent Mr Steinmuller an invoice stating that an amount was owed to them for the property purchased (the clearance figures), which had to be paid before the body corporate would provide the clearance certificate. According to the terms of the sale in execution, Mr Steinmuller was required to pay any levies that were owed to the homeowners’ association or body corporate. He insisted on receiving the ledgers containing the sums claimed for levies for the specific period, as well as the resolutions passed by the body corporate’s trustees regarding the interest charged thereon. The body corporate declined to give the requested information. It stated that Mr Steinmuller was not yet the owner and therefore not entitled to receive it. Due to this, he filed an application with the High Court of Gauteng, requesting an order directing the body corporate to sign all documents and take the required actions to enable the transfer of the property into his name, against payment of R150 000 into a trust account as security for the levies that the body corporate was owed. The High Court granted his application with an increase of the sum to be paid into a trust account as security. The judgment debt that the body corporate acquired against the property’s former owner was not included in the sum granted. According to the court’s ruling, a judgment debt is not an obligation owing to the property and thus should not be a burden on the new purchaser. The body corporate appealed to the SCA with the National Association of Managing Agents (NPC) as co-appellant. The SCA ruling will be discussed in part 2 hereof. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup