By Auren Freitas dos Santos
In an important judgment by the Supreme Court of Appeal of South Africa, delivered on 2 November 2023, the court scrutinised the interpretation of section 15B(3)(a)(i)(aa) of the Sectional Titles Act, which regulates the issuance of clearance certificates in sectional title schemes.
Case Background
The Body Corporate of Marsh Rose found itself in legal dispute with Mr. Steinmuller following his purchase of a sectional title unit at a sale in execution. The crux of the dispute lay in the refusal of the body corporate to issue a clearance certificate to Mr. Steinmuller, who had acquired the property encumbered with a judgment debt owed to the body corporate by the previous owner. The body corporate’s stance was predicated on the provisions of section 15B(3)(a)(i)(aa) of the Sectional Titles Act, which effectively empowers a body corporate to withhold a clearance certificate until all debts owing to the body corporate have been settled by the owner of the unit.
The High Court’s Stance
Initially, the Gauteng Division of the High Court ruled in favour of Mr. Steinmuller, directing the body corporate to issue the clearance certificate against a security payment made into the purchaser’s attorney’s trust account. The judgment hinged on the interpretation that a judgment debt does not impede the transferability of the property to a new owner.
The Supreme Court of Appeal’s Analysis
Upon appeal, the Supreme Court of Appeal overturned the High Court’s decision, shining a light on the inherent purpose of the embargo provision. The court underscored that the statutory embargo is intended to shield the financial interests of the body corporate, ensuring the recovery of debts without resorting to costly and time-consuming litigation.
In essence, the court found that the body corporate was not a party to the sale agreement and therefore, Mr. Steinmuller’s contractual obligations could not truncate the body corporate’s statutory right. It was determined that while the sheriff could transfer the property upon the fulfilment of contractual obligations by Mr. Steinmuller, the body corporate retained its right to withhold a clearance certificate until its conditions were satisfied.
The Role of National Association of Managing Agents
A significant turn in the appeal was the intervention of the National Association of Managing Agents (NAMA), which was granted leave to join as a co-appellant. NAMA’s participation was pivotal, underscoring the broader implications of the judgment on the property industry. Their concern was that the High Court’s interpretation diluted the protection afforded to bodies corporate, potentially leaving them without recourse to recover debts from previous owners.
The Supreme Court of Appeal’s Order
The Supreme Court of Appeal’s decision to uphold the appeal, with costs, restored the authority of the embargo provision. It confirmed that the provision of section 15B(3)(a)(i)(aa) of the Sectional Titles Act serves as an effective security measure for debt recovery within sectional title schemes. Moreover, the court clarified that the debt for arrear levies and related legal costs are indeed impediments to the transferability of the property, thus supporting the body corporate’s refusal to issue a clearance certificate until full payment is made.
The Impact of the Judgment
The judgment has reinforced the statutory embargo as a critical instrument for the financial stability of sectional title schemes and has reaffirmed the legislative intent to provide effective protection to bodies corporate, ensuring their economic viability and the sustainability of sectional title schemes.
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 for assistance with any matters relating to levy clearance certificates.
