Limitations of Levy Clearance Certificates

By Auren Freitas dos Santos

Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 (“ST Act”) provides that the registrar of deeds shall not register a transfer of a unit or an undivided share therein unless there is produced to him a conveyancer’s certificate confirming that as at date of registration the Body Corporate has certified that all moneys due to the Body Corporate by the transferor in respect of the said unit have been paid, or that provision has been made to the satisfaction of the Body Corporate for the payment thereof. 

Section 15B(3)(a)(i)(aa) of the ST Act is considered to be one of the most important provisions in the ST Act from the perspective of scheme management because it establishes the basis of the body corporate’s right to place an embargo against the transfer of section when the owner thereof is in arrears.    The Supreme Court of Appeal has gone as far to categorise section 15B(3)(a)(i)(aa) as effective security for debt recovery. 

Although the use of the clearance certificate for purposes of debt recovery is common practice amongst sectional title schemes, there is a lesser known practice to withhold clearance certificates for non-financial reasons. 

The use of clearance certificates for ulterior purposes gives rise to the question whether or not a body corporate may withhold a levy clearance certificate, when all the monies due to it has been paid, but the owner of the unit who wants to sell the unit has allegedly transgressed the rules of the scheme or allegedly failed to comply with any law relating to the common property or to any improvement of land comprised in the common property.

Until recently, this question had not been definitively answered by our courts and as a result many sectional title schemes have used the levy clearance certificate as leverage to enforce compliance by owners for non-financial matters.

Fortunately, on 24 October 2022 the High Court handed down an important judgment relating to this very question.  The facts of this matter are summarised as follows: 

The applicant sold his unit and at the time of sale he had paid all monies due to the body corporate in respect of the said unit. The body corporate and its managing agent, however, refused to issue a levy clearance certificate based on the fact that the applicant had failed to submit approved as-built building plans, and that as a result it was justified to withhold the levy clearance certificate until the applicant complies by submitting such plan.  Notwithstanding the fact that the applicant provided the body corporate with an undertaking by the purchasers of the unit in terms whereof they declared themselves willing to pay all and any costs related to the submission of the as-built building plans the body corporate continued in its refusal to issue the clearance certificate.  The applicant had to revert to the urgent court to obtain an order directing them to issue such a levy clearance certificate.  

The Court noted as follows:

1. The purpose of section 15B(3)(a)(i)(aa) is to ensure the economic viability and sustainability of bodies corporate

2. The ordinary meaning of the words of section 15B(3)(a)(i)(aa) in the context that they are used indicates that the sole purpose of a levy clearance certificate is to ensure that the monies due to a body corporate are paid before the property is transferred to a new owner, or that provision has been made to the satisfaction of the body corporate for the payment thereof.

3. To use the levy clearance certificate as leverage to enforce compliance with rules or any applicable law, would be to unilaterally extend the purpose for which section 15B(3)(a)(i)(aa) was promulgated by the legislature and would nullify the express language of the section, and does not accord with a strict construal of the section.

4. If the legislature intended the clearance certificate to be used as a mechanism to ensure compliance with all the rules of a sectional titles scheme, or any applicable law, it would have clearly said so.

5. A body corporate cannot, if it is convinced that a specific rule or law was contravened, sit back and wait for the day that the recalcitrant unit owner wants to sell the unit, and then use the levy clearance certificate as a mechanism to compel compliance.

Ultimately the Court found that a body corporate is obligated to issue a levy clearance certificate if all the monies due to it is paid.  In the matter in question, the Court directed and compelled the body corporate to immediately issue a clearance certificate and it is worth noting that the Court granted a punitive cost order against the body corporate.

In light of this recent High Court judgment trustees and management agents should consider themselves warned that refusing to issue a clearance certificate for non-financial reasons is an unlawful practice with serious repercussions.

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 should you have any questions regarding levy clearance certificates.