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Levies are the lifeblood of all community housing schemes, including Sectional Title (ST) developments, freehold security estates and retirement villages.
They are needed to cover the day-to-day operational expenses of these schemes and, in ST complexes in particular, to enable the trustees to fulfil their fiduciary duties to maintain the common property in accordance with the approved budget and the 10-year maintenance plan.
However, notes Andrew Schaefer, MD of leading property management company Trafalgar, levy arrears are also a fact of life in most schemes. “It is almost impossible for any scheme to achieve 100 percent levy compliance on a continuous basis, given widespread economic pressure on consumers and the unpredictability of retrenchment, for example, or business failures, divorce and deaths in the family which may make it difficult or impossible for certain owners to pay their bills. Unfortunately, some owners also withhold levy payments when they have disputes with the trustees or directors.
“But that doesn’t mean that ST trustees and the directors of the Homeowners Associations (HOAs) that run gated estates should not be concerned about levy arrears. Unchecked, these can accumulate very quickly to the point where the scheme is unable to pay its municipal bills, service providers or insurance premiums. And that places all owners at risk of their properties losing value, not just the non-payers. Owners who do pay their levies also become frustrated and despondent that they are covering service delivery costs for owners in arrears, which is not a sustainable predicament.”
Consequently, he says, all trustees and directors must ensure that their schemes have proper plans and systems in place for the collection of outstanding levies. “And fortunately, they are now able to seek relief through the Community Schemes Ombud Service (CSOS) and achieve results far more quickly and cost-effectively than through the traditional legal route.
“Indeed, taking a claim for outstanding levies through the Courts to the point where a meaningful result can be achieved with the attachment and sale of a property can take years, and involve huge legal expenses which place a scheme under even more financial strain. In contrast, over the past year we have seen levy arrears matters being resolved through the conciliation and adjudication services provided by CSOS in as little as two to four months. These services are also provided free of charge to all community housing schemes registered with CSOS.
“So as managing agents, we are definitely encouraging our clients to go this route, which is provided for in Section 39(1)(e) and Section 39(1)(f) of the CSOS Act. In terms of these provisions, trustees or directors can apply to CSOS for an order for the payment or repayment of any contribution due by an owner in the scheme, or apply for an order that requires an owner’s tenant to pay part or all of their monthly rental amounts to the Body Corporate or HOA until the levy arrears have been settled.”
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The CSOS process is also reasonably straightforward, says Schaefer, beginning with an electronic dispute resolution application form available on the CSOS website, which contains the details of the applicant’s claim. (See the Forms tab on https://csos.org.za/) This is then sent to the respondent who is afforded seven days to reply. That response is then sent to the applicant, who may or may not need to provide CSOS with further information.
“The next step is conciliation, when CSOS brings the two parties together to try to resolve the matter, and we frequently see matters being resolved at this stage, with a settlement agreement being drafted in the conciliation meeting and given to both parties to sign. However, if there is no ‘meeting of minds’, a certificate of non-resolution will be issued and the matter will be referred for adjudication within seven days.”
As an aside, he says that Trafalgar is very impressed with the steps that have been taken by CSOS recently to appoint more adjudicators, and especially to employ the services of private sector professionals with years of experience and expertise in dealing with matters affecting community housing schemes.
“All parties will be notified of the adjudication, but they will usually not need to attend in person. In most cases, the adjudicator will read all documents previously submitted and decide the matter based on these. This means, especially from the applicant’s point of view, that they need to be strategic and very particular when assembling the portfolio of documents on which their claims are based.
“This portfolio of documents must, for example, include valid trustee or director’s resolutions regarding the scheme’s right to collect levies and the right to charge interest on outstanding levies. If the scheme has a managing agent empowered to collect outstanding levies on its behalf, they also need to be a member of the Council for Debt Collectors and hold a valid Fidelity Fund Certificate from the Property Practitioners Regulatory Authority, which are further documents that will need to be included.
“There is a real risk that the adjudicator will reject a claim if they find that the documentation is incomplete, so it is best for trustees and directors to seek assistance from a managing agent like Trafalgar, which has extensive experience of the process and knowledge of the requirements.”
Once the CSOS adjudicator has made a decision and issued an Adjudication Order, says Schaefer, any of the affected parties can lodge an appeal based solely on a question of law within 30 days. This appeal will be heard in the High Court of the relevant jurisdiction. “In practice, however, this rarely happens and we have found, especially with regard to levy defaulters, that they will start to pay what they owe as soon as the Adjudication Order is issued – and sometimes even before that.
“This brings the matter to a quick and easy end for the trustees and directors, and immediately restarts the flow of money into the scheme’s accounts, which in our opinion is a much better option than spending a great deal of time, money and effort in pursuing debt collection through the Courts.”
