Property Litigation

Sectional title owners beware of defaulting with your levies

No matter how tough times are, don’t even think about not paying the levies due on a sectional title development. A new high court decision makes it clear that even if you have a genuine bad luck story, and even if that story is accepted by the body corporate, the law does not allow the body corporate to be lenient and excuse all or part of the levy payments.

Sectional title law on levies is clear

The law on section title developments has been written in such a way as to make clear that the body corporate ‘must’ act to collect outstanding levies, even if it means going to court. And if it does so, even the legal fees incurred ‘must’ be charged to the defaulting member of the body corporate.

It is a lesson that the owner of an individual unit recently learnt to his cost: just days after lawyers acting for the body corporate accepted his offer of a sum, less than the total outstanding, in ‘full and final settlement’ of his debt, they backed out of the agreement. The owner was left without the agreement that he had thought would end his debt. Instead, he had to pay the outstanding levies in full, along with the legal costs of bringing the initial claim for the outstanding levies – and he was also saddled with the legal costs of his appeal. It was an expensive lesson for him, but other owners of units in sectional title developments can learn the same lesson, for free, by simply reading this article.

Sectional title owners cannot avoid their duties

Anyone who owns a unit in a sectional title development knows that levies, like taxes, are something that can’t be avoided no matter how desperate your circumstances. But the obligation to pay levies turns out to be an even more exacting duty than you may think, for even if a body corporate were to agree to someone not paying levies in full, the law simply won’t allow it.

The high court case

The case illustrating this unyielding line was decided recently by way of an appeal in the KZN high court, Pietermaritzburg. Mduduzi Zikalala, owner of a unit in a Durban sectional title development, fell behind in the payment of his levies. By the time the body corporate took legal action and asked for default judgment in February 2018, the amount then owing was just over R24,000.

Later that year, Zikalala wrote to the attorneys acting for the body corporate, acknowledging his indebtedness and saying that he was unable to pay what was due. He offered to pay off his levy debt at the rate of R1,000 a month, which would include his existing monthly levies. After that suggestion was rejected, the body corporate issued a warrant of execution. That failed, and the next step was for the body corporate to take action under section 65 of the Magistrates’ Court Act, something that requires a formal hearing into the dispute.

Just days before that hearing, Zikalala made a written offer to settle his debt – and it was this offer that would later cause the high court to consider whether a body corporate could agree to reduce or scrap someone’s levies.

Zikalala’s written offer was made on 26 March 2019. He said he had managed to obtain a loan from his family, and, as a result, he could offer R30 000 as ‘full and final settlement’ of his debt.

Three days later he appeared in person at the formal inquiry called in terms of section 65 of the Magistrates’ Court Act. The body corporate was represented by its attorney. At this formal hearing, Zikalala again made his offer, repeating that it was in full and final settlement of the claim, including costs. The lawyers for the body corporate said they would take instructions from their clients as to whether the offer was acceptable, and the matter was adjourned to 5 April 2019.

On that day, the body corporate’s lawyers confirmed that Zikalala’s offer was acceptable to the trustees. It must have seemed to him that his levy-related troubles were over at last.

But if that’s indeed what he thought, he was wrong, for, just a few days later, the body corporate’s lawyers wrote to say that his offer of R30,000, made (and accepted) in full and final settlement, was being ‘revoked’ as it had been ‘erroneously accepted’. Nevertheless, said the letter, the body corporate would accept the R30,000 offered by him, ‘as a lump sum payment towards the arrears.’

Concurrent legal actions

Now there were two sets of legal actions related to Zikalala and his levies, running side by side. First, the body corporate was pushing to get payment of the whole of the first amount owed by Zikalala – along with two further, subsequent, unpaid levy amounts, both of more than R4,000, as well as the legal costs and interest associated with all these amounts. And at the same time as the body corporate was pursuing its claims for this money, Zikalala himself had filed a counter-application asking that the settlement agreement he had made with the body corporate should be held to be valid and enforceable.

Referring to the agreement accepted on behalf of the body corporate by its attorneys, Zikalala said that he had not breached the terms of that agreement and, in revoking the agreement, the body corporate had acted unilaterally.

Backing up his position, he said he had communicated his offer of settlement not only to the attorneys, but had also emailed his offer to the trustees of the body corporate and that both had responded to say that the settlement offer was acceptable.

So, what had gone wrong?

The two high court judges hearing the matter quoted Management Rule 25 (2) which says that the body corporate ‘must’ send a final notice to anyone who hasn’t paid the levy by the dates specified, pointing out the interest payable and the amount that will accrue daily until the payment of the overdue contributions and charges, as well as the fact that the body corporate will take action to recover ‘the amount due’ if it isn’t paid within 14 days.

In addition, Rule 25 (4) provides that a member has to pay ‘all reasonable legal costs’ related to the collection of arrear levies. This was the reason that the amount claimed included compound interest even before the litigation started, as well as legal costs before judgment was granted, interest on the debt and ‘any costs associated with the recovery of the judgment debt.’

And this was also why the body corporate wanted the court to award costs on a punitive scale: ‘the members of the body corporate should not have to share in the financial burden for the recovery of outstanding contributions and levies from an errant sectional title owner.’

But how to explain the body corporate’s about-turn on accepting Zikalala’s offer?

One of the two trustees who accepted Zikalala’s offer explained that once it had been accepted, the body corporate’s attorneys ‘realised that it had been done in error and immediately sought to revoke the acceptance.’

She said that as Zikalala was ‘significantly in arrears’ it wasn’t fair to the rest of the body corporate that the ‘paltry amount’ offered should be accepted. While Zikalala had been liaising directly with the trustees, the body corporate’s attorney told the managing agents what had been offered, and the legal costs as they stood at that stage. The total amount owing for the levies and the costs ‘far outstripped’ the amount tendered as a settlement. The managing agents informed the attorneys that while the trustees had accepted the offer, they ‘had not looked at the bigger picture’ in that the shortfall, if acceptance of the offer were to stand, was an additional R30,000, an amount that would take five years to pay off in terms of Zikalala’s proposals.

The powers of the body corporate

The magistrate who first heard the matter found against Zikalala, who then appealed to the high court. There, the argument of the body corporate was based on new grounds, including whether the law allowed the body corporate to accept an offer less than had been claimed, or whether they were effectively acting outside their powers in having done so.

True, two trustees had agreed to the offer and, according to Zikalala’s legal team, that meant their acceptance was binding on the body corporate. But in response to this submission Judge Mahendra Chetty said, ‘I am not persuaded by this argument’.

The trustees were not authorised to act

Even supposing that the trustees who accepted the offer were allowed by law to do so, they had not been authorised by a resolution of the body corporate to act in this way. Acceptance of the offer by the two trustees ‘adversely affected’ the rest of the body corporate. There was no record of the owners agreeing that the trustees could saddle the body corporate with the unpaid part of the levies and costs. The acceptance of the offer was thus invalid because the trustees had not complied with their statutory duty (to obtain a resolution approving acceptance). And the only way in which the trustees could have been authorised to accept the offer ‘was by way of a unanimous resolution of all the members of the body corporate’.

The trustees appeared to have made a mistake, and accepted the offer without fully understanding how much Zikalala actually owed the body corporate. But apart from the question of their mistake, there was another problem: would the management rules ever have allowed them to accept the offer.

STSMA’s rules are clear around the collection of levies

The Sectional Titles Schemes Management Act (STSMA) made it quite clear that the body corporate was legally obliged to act ‘in terms of the rules’. This meant that the trustees could not conclude an agreement beyond the powers of the STSMA; this in turn meant that it would not be legally competent for the body corporate to agree to an act – even by way of a special resolution – if that act was outside their powers.

‘I am unable to find any power in the management rules or the STSMA that permits the body corporate to compromise on its obligation to collect levies or contributions,’ said Judge Chetty.

The rules prohibited the body corporate from excusing any owner from the obligation to pay levies and, by implication, this could be interpreted to prohibit a compromise ‘on any sum lawfully due’ to the body corporate.

‘It must therefore follow that whatever the motive of the two trustees in accepting the offer of [Zikalala], [even if] rooted in sympathy for his plight due to him being unemployed and the sole breadwinner in his family’, without any express provision in the STSMA allowing them to do so, ‘they were not empowered to accept a settlement offer of a lesser amount than what was owing’.

Levies must be collected without compromise

The management rules providing for the body corporate to take action to recover the amount due, uses the word, ‘must’. This suggests ‘that the obligation imposed on the body corporate [to get back the full sum owed for levies] cannot be compromised.’

The court added that Zikalala might well feel aggrieved that his settlement offer was unilaterally revoked by the body corporate as a result of an error by its attorney and two trustees who accepted his offer before the opinion of the managing agents was obtained. However, ‘the fact of the matter is that neither the attorney nor the trustees had authority in law to compromise the amount due. The statutory obligation imposed on the body corporate is to collect the full amount of levies and contributions due, together with interest and legal costs.’

There was no ‘latitude’ given to the trustees to ‘deviate’ from this obligation. And the fact that the trustees or the attorney failed to do their homework before accepting the offer did not help Zikalala in trying to have his offer declared valid.

Reduction in levies is not permissible

To allow the offer and initial acceptance to stand would be to ‘foist’ an agreement on the body corporate that would allow a non-compliant owner a reduction in levies, while this was ‘plainly not permitted’ by the law governing sectional title developments.

‘It would undermine the uniformity for the common burden that must be shared by all sectional owners to pay their levies, based on their participation quota. This is an intrinsic component of communal living’ as envisaged by the law and the regulations, Judge Chetty said.

The STSMA imposed a ‘positive obligation’ on the body corporate to collect levies and contributions, something that could be seen through use of the word ‘must’. ‘Whatever the conduct of the attorney and the two trustees in conveying the impression that an agreement had been reached’ the law did not give them the power to do so.

Zikalala’s argument that a ‘valid and binding compromise’ was reached in relation to the body corporate’s dispute could thus not be sustained.

Costs of appeal

What about costs of the appeal? The body corporate’s trustees and attorneys were partly responsible for creating the impression that a ‘valid and enforceable settlement’ had been reached. And they were ‘admonished’ for that mistake when the trial court had not made a costs order against Zikalala, meaning that the cost of that litigation would have to be carried by the members of the body corporate. But, said Judge Chetty, he could see no reason why Zikalala should not now be liable for the costs of the appeal.

Judgment link: http://www.saflii.org/za/cases/ZAKZPHC/2021/81.html