Advertisement
Most owners in sectional title (ST) schemes understand the need to pay their levies, but there are always a few defaulters who persistently ignore their obligations – in some cases until they face the possibility of being declared insolvent and having all their assets placed under administration and sold to pay off their outstanding levies and any other debts.
And unfortunately, it can often take a year or even more to get to that point after the ST scheme trustees have been through all the legal steps necessary to get a High Court sequestration or liquidation order, while the defaulters continue to place an unfair burden on other owners and possibly even threaten the financial stability of the scheme.
However, there is now significant relief in sight for a large number of ST schemes, says Andrew Schaefer, MD of leading property management company Trafalgar, thanks to the introduction by the Gauteng High Court of a dedicated court roll for unopposed liquidation and sequestration applications.
“This has significantly reduced the waiting time for these applications to be heard and finalised, and we are hopeful that the High Courts of other regions will follow suit.”
He does stress, though, that an application for sequestration or liquidation should never be viewed as the starting point in recovering outstanding levies. “The first and an increasingly efficient route is the Community Schemes Ombud Service (CSOS) dispute resolution process. It is considerably quicker, substantially less expensive than litigation and has an excellent track record of resolving levy disputes.”
In terms of the Sectional Titles Schemes Management Act (STSMA), trustees should begin the levy debt recovery process by issuing a formal letter of demand setting out the outstanding levies, any applicable interest and a deadline for payment or for reaching a payment arrangement.
If this does not produce results, the next step is to approach the CSOS for dispute resolution. In many instances, the service succeeds in bringing the parties together and securing either payment or a structured repayment agreement. Where necessary, a CSOS adjudication order can also be made an order of court, giving it the same legal force as a court judgment.
Advertisement
“But there are always a handful of owners who will simply ignore a CSOS ruling, even after it has been made an order of court, and especially where the amount outstanding has become substantial and the owner commits an act of insolvency, the trustees may have no choice but to incur the costs of applying to the High Court to have that owner sequestrated or liquidated. In practice, many of these matters involve ST units owned by trusts.”
Once a sequestration or liquidation order has been granted, the Court appoints a trustee or liquidator to administer the insolvent estate or entity and sell any assets it has – including the ST unit on which levies are owed – in order to pay creditors, and this creates a realistic opportunity for the ST scheme to recover the outstanding levies, says Schaefer.
“ST legislation also provides another important safeguard, which is that a unit cannot be transferred to a new owner until the body corporate has issued a levy clearance certificate confirming that all amounts due to it have been paid. This means that whether the property is sold voluntarily, in execution, or as part of a liquidation or sequestration process, the outstanding levies must generally be settled before transfer can take place.
“And while there may be exceptional cases where the sale proceeds are insufficient to settle every debt in the insolvent estate, these legal protections significantly improve the prospects of recovering outstanding levies compared to many other forms of unsecured debt.”
Nevertheless, he says, ST trustees should continue to follow a structured escalation process rather than immediately resorting to expensive litigation. “The objective should always be to resolve the matter as early as possible through engagement and the CSOS process. Only when every reasonable opportunity has been exhausted, and a debtor continues to disregard legally binding orders, should sequestration or liquidation be considered.”
He also urges trustees not to allow arrears to accumulate unchecked. “The sooner trustees begin the recovery process, the greater the likelihood of recovering the debt before it reaches a level that threatens the financial health of the scheme. Delaying action often results in larger arrears, mounting interest and escalating legal costs, all of which ultimately affect every owner in the complex.”
