The penalty for overdue levies

Private Property South Africa

What is the maximum interest rate a body corporate can charge on overdue levies?

Those who live in sectional title schemes and pay their levies on time are not affected by the interest rates charged on overdue levies, but those who habitually pay late will probably be hoping there is a maximum percentage of interest set by law on overdue accounts, says Michael Bauer, general manager of the property management company, IHFM.

The truth is, there is no limit, he says.

PMR 31 (6) allows the trustees in the sectional title scheme to determine the interest rate charged on overdue amounts and to recover the interest owed to the body corporate. The interest rate is determined at the time the levies are decided on but the trustees can change the interest rate at any time. As in the case of levies charged, the trustees must pass a resolution annually after each AGM as to what interest rate will be charged on overdue levies and they can decide the increase if need be (which needs another resolution).

This is a tool to discourage late payments so as to keep the financials in the scheme healthy, he says. The interest is not meant to be a source of income for the body corporate, although it does sometimes become just that.

The trustees do not have to consult the owners in the scheme when the decision is made on what percentage to charge, however, the owners can (as per 39 (1) of the Sectional Title Act), direct the trustees to limit the interest to a certain amount.

If owners want to do this they need to get a majority vote but there is no basis in law on what a maximum interest rate should be. The only case where it does affect interest charged is where the unpaid interest exceeds the outstanding capital amount (the duplum rule).

What Bauer recommends is 15,5 to 24% per annum, which he says he feels is reasonable.

The other thing that trustees must remember that when the resolution is passed it must state that it is compound interest charged.

“The one thing to remember in all cases of collecting payments,” said Bauer, “is that good credit control is better than trying to correct non-payment after the fact. If payments are collected on time, there is no problem. If there are cases of non-payment, contact those owners directly to get to the bottom of it. There are sometimes extreme cases such as death being the reason for non-payment, which is one that we have come across recently.”

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