By Auren Freitas dos Santos
This is a question which is often overlooked by trustees and owners alike. It is usually assumed that once the members of the body corporate approve the administrative and reserve fund budgets at an annual general meeting, the liability to pay the resultant levy contributions simply accrues and that no further steps need to be taken by the trustees.
This is a dangerous assumption to make and has led to many sectional title schemes being unable to successfully recover outstanding levy contributions. One of the best examples of the effects of this assumption can be seen in the matter of Body Corporate of the Peaks Sectional Title Scheme v Prinsloo NO and Another (7729/2012) [2012] ZAWCHC 201 (20 September 2012).
In this matter, the Peaks Sectional Title Scheme applied for the provisional sequestration of the respondents’ estate. The basis of the application was a claim against the respondents in excess of R1 million which the body corporate contended that it had for outstanding levies and legal fees.
The respondents disputed that the applicant had established prima facie a liquidated claim and sought the dismissal of the application for this reason. The respondents argued that a claim had not been established because liability for the levies claimed by the applicant had not accrued.
The respondents based their argument on the provisions of Section 37(2) of the Sectional Titles Act, which specified that liability for contributions levied, accrues from the passing of a resolution to that effect by the trustees of the body corporate. The provisions of section 37(2) of the Sectional Titles Act have subsequently been carried forward into section 3(2) of the Sectional Titles Schemes Management Act.
The High Court confirmed that this provision is designed to ensure that any action for the claiming of levies by the body corporate is sanctioned by the trustees and that sectional title owners are protected from claims for levies which have not been approved by the trustees. The High Court found that liability for the levies in question had not accrued and that because of this the claim for legal fees had also not accrued and the application was dismissed with costs.
Therefore the body corporate lost the opportunity to recover more than R1 million from the respondents due to the innocent assumption that the levies automatically became due and payable upon approval of the scheme’s budgets.
As we start a new year, we wish to remind trustees of the importance of passing a trustee resolution as soon as possible after the approval of the budgets at the annual general meeting confirming the liability for contributions levied in terms of the approved budgets.
Specialist Community Scheme Attorney (LLB, LLM), Auren Freitas dos Santos, is a Director of The Advisory, a boutique consultancy specialising exclusively in community schemes law.
Contact him at www.theadvisory.co.za or email info@theadvisory.co.za if you require any assistance with levy disputes within your sectional title scheme.
