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Bodies corporate - defaulting levy payers

by Michael Bauer on

Owners of sectional title units who run up substantial levy arrears and then try to sell their units without meeting these debts – or whose units are being sold in execution – will discover that the Sectional Title Act (clause 15 (b)) prevents them dodging the levy debts even though they plan to leave.

The Act specifies that the body corporate is always a preferred creditor, ahead of the banks and second only to the municipality, whose rates and taxes are the first bills that have to be paid if and when cash is raised by the sale of a unit. Where the proceeds from the sale are too small to cover the money owing the buyer will not be exonerated from paying them down the line.

The conveyancers involved in the transfer will usually issue a certificate undertaking that the outstanding levies will be paid – but, if there is doubt as to whether the proceeds will be sufficient to meet the debt, the body corporate should demand the cash owing upfront.

Experience has shown that it can be dangerous to allow a transfer to go through without the debts being settled, especially on sales-in-execution. Trustees have to be extra cautious wherever they are faced with a sale-in-execution.

On standard transfers there is seldom any problem but the trustees should always check that their managing agent is now billing the new owner. Quite frequently, this is overlooked and the new owner then finds himself with a three or four month levy bill. Also Clause 15(b) of the Sectional Title Act stipulates that transfer cannot be withheld for an “unreasonably long” period once the levies are paid.

Very few reasons are permitted to hold up a transfer. One of the few might be a serious problem in the unit concerned (e.g. a leaking balcony) which should be put right at the outset.

Doubt sometimes arises over which ancillary bills have to be paid by the seller and which by the buyer. For example, the trustees/managing agents have to issue a levy clearance/paid up certificate and give their consent to the transfer taking place. The fee for this is for the seller’s account but in a sale in execution the purchaser has to pay this bill.

Inexperienced bodies corporate occasionally do not realise that they have the power to withhold the levy clearance certificate and thereby prevent the transfer. If this happens the seller can get away with fairly large sums still owing on levies.

Bodies corporate must also take note that they are entitled to charge compound interest on arrears owing and for any legal fees they may have incurred in relation to these.

Quite frequently, a debtor will ask for leniency claiming, probably justly, that he is under huge financial strain. Bodies corporate are, however, in no position to be accommodating here because they have no assets of their own but represent all the owner-members in the scheme and cannot expect them to cover a defaulter’s debt.

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