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Levy and Utility Arrears in Sectional Title Schemes - What Can Body Corporates Do?

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Levy and Utility Arrears in Sectional Title Schemes - What Can Body Corporates Do?

Body Corporates often find themselves stuck between a rock and a hard place when unit owners in sectional title schemes accrue substantial arrears in levies and utilities. It is usually not an easy task to decide on what the most appropriate course of action should be in such a scenario. The law however discourages "self-help" actions, whereby a party resorts to action that is unlawful.

The Community Schemes Ombud Service (CSOS) has held that trustees in apartment buildings and complexes are not legally permitted to terminate or reduce electricity services because an owner is in arrears with their levies. And while owners with arrear levies may have felt protected by this CSOS directive, there is more to it.

If the owner has built up substantial arrear levies - including electricity payments - the trustees can obtain a High Court order to disconnect the power. If a body corporate does not recover payments, it will be forced to advance monies to the Council on behalf of section owners who do not pay for electricity consumption. This is an untenable situation and trustees have a fiduciary duty to see that they collect the arrear charges.

What Happens if Levies are not Paid?

When it comes to collecting arrear levies, the trustees of the scheme have two options:

  • The first is to request an adjudication order from the Community Schemes Ombud Service (CSOS).
  • Second, the Trustees of a Body Corporate are entitled to launch legal action where the unit owner is not honouring their obligations towards utility accounts and levies. Incidentally, the entitlement flows from section 4 (1) of the Sectional Titles Schemes Management Act 8 of 2011, and Prescribed Management Rule 25.

The courts are not sympathetic to sectional title property owners who are accumulating substantial arrear levies and electricity charges and are willing to listen to an application for arrears and the termination of services. However, each court case will be decided on its merits.

Court action may be a "difficult step" for the trustees to take, but in the current challenging financial times, body corporates are struggling and cannot carry the substantial debts that are being racked up by non-payment of levies.

Because court action is usually a tedious process, Body Corporates usually take the matter to court after several notices have been sent to the defaulting unit owner. Some unit owners however consistently default in paying towards levies and utility accounts.

It must be realised as well that in the running of the Body Corporate and its affairs, the Trustees are faced with a huge burden to ensure that the scheme is well equipped and has the resources that it requires to function properly. Therefore, the incidence of having some unit owners defaulting on levies and utility accounts whilst they are still enjoying the services places a huge burden on the financial affairs of the Body Corporate, a situation which is both untenable and unstainable in the long run.

Financial Consequences of Unpaid Levies in Sectional Title Schemes.

Unpaid levies in a sectional title scheme can trigger a domino effect, jeopardizing not only financial stability but also the very infrastructure and well-being of the community.

When levy revenue drops quickly, a sectional title scheme without a large reserve may have to postpone paying creditors or employees. This can not only have a negative impact on the value and marketability of the owners' units, but it can also put all owners in financial jeopardy and could force Body Corporates to raise special levies to make up for the shortage of funds.

Immediate ripple effects:

  • Cash flow bottlenecks: The body corporate may struggle to pay essential bills, potentially delaying salaries for employees or payments to vital service providers.
  • Service disruptions: Local authorities might cut off water or electricity due to unpaid bills, causing inconvenience and hardship for residents.
  • Contractual breaches: Service providers like security companies or cleaning services may terminate their contracts if payments are consistently missed.

Long-term repercussions:

  • Erosion of property values: Unkempt buildings with disrupted services and deferred maintenance become less desirable, leading to a drop in property values for all owners
  • Infrastructural degradation: Delayed repairs and maintenance can exacerbate existing problems, leading to costly and potentially dangerous issues down the line, like leaky roofs, faulty wiring, or failing elevators.
  • Financial burden on responsible owners: To compensate for the shortfall, the body corporate might be forced to levy additional charges on responsible owners, adding to their financial strain.

Implications for Legal Cost - Additional Legal Action

Upon the court issuing an order, the Sheriff of the Court will then proceed to disconnect services of the defaulting owner. This places the Body Corporate and the Trustees in a legally sound position because the process has been done through legal means, and therefore will not invite a spoliation application by the unit owner had the Body Corporate disconnected the services without a Court order.

The legal cost for the High Court application can be placed on the owner's levy account once it has been taxed and recovered by the body corporate. If the owner still fails to pay what is owed, the trustees can proceed immediately with a warrant of execution and inevitably an application to attach and sell the unit.

While a reluctance to initiate court action is understandable, Body Corporates must not shy away from it when evidence suggests it's the best method for holding defaulting owners accountable.

It is crucial to remember that non-payment of levies "is not a victimless crime". It impacts not only the defaulters but also every resident who calls the scheme home. By understanding the wide-ranging consequences of unpaid levies, responsible owners can advocate for prompt payment and encourage adherence to financial obligations, ensuring a stable and well-maintained community for all.

Author Van Deventer & Van Deventer Attorneys
Published 19 Dec 2023 / Views -
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