Many of us consider our homes to be the single most expensive purchase we will make in our lives, therefore good care and maintenance of this investment are critical. The advantage of owning property in a Sectional Title Scheme is that all owners contribute to the scheme’s upkeep, which benefits everyone. However, there is always the possibility that one of the owners will fail to make timely and adequate levy payments. The Body Corporate should take action as soon as possible to collect the outstanding contributions.
Levy Collection in A Sectional Title Scheme
Levies are collected by a Body Corporate to cover the day-to-day expenditures of running a Sectional Title Scheme. This covers charges such as general maintenance, payment of building insurance levies, mandatory contributions to the (CSOS) Community Schemes Ombud Service, and service providers, among other things. Furthermore, under the Sectional Title Schemes Management Act, the Body Corporate is required to establish and maintain minimum reserve funds for future maintenance, and schemes are required to draft 10-year maintenance plans for the schemes and to account for the costs associated with these anticipated expenses in the reserve fund.
What happens when owners don’t pay their levies?
If the Body Corporate is unable to maintain a healthy balance sheet, the scheme will be unable to maintain its necessary upkeep. Even a few owners who do not pay their levies can have a significant influence on the scheme’s budget. When levy revenue drops quickly, a scheme that hasn’t built up a large reserve may have to postpone paying creditors or employees.
As a result, not only does this have a negative impact on the state of your investment, but it also puts you and all other owners in financial jeopardy, as the Body Corporate may be forced to raise special levies to make up for any shortage in funds.
Among the other impacts are:
- Services, such as water and electricity delivery, may be interrupted or disconnected by the local municipality.
- Additional fees may be required to have services reconnected by the local municipality.
- Service providers may terminate their service agreements with the Body Corporate.
- Maintenance, both scheduled and unplanned, may be delayed, resulting in more costly damage down the road as a result of the lack of maintenance.
- The marketability of units in the scheme may be affected.
Owners have a legal obligation to pay their levies on time and in full. Nonpayment by one or more owners can put a Sectional Title Scheme’s health under serious strain, and collecting those costs is critical.
The foregoing risks should be avoided by a well-managed scheme with a strong debt recovery policy. The trustees and their Managing Agent are responsible for enforcing such a policy in order to keep the scheme out of financial trouble.
What if someone doesn’t pay?
Despite the necessity of levy payments, most Sectional Titles Schemes face difficulties with non-paying owners. Even more concerning are the high fees and lengthy procedures involved in collecting these debts.
When it comes to collecting arrear levies, the trustees of the scheme have two alternatives. The first is to request an adjudication order from the Community Schemes Ombud Service (CSOS). Second, they have the option of appointing an attorney to file legal action against the defaulting owner.
The CSOS approach is often faster, less expensive, and does not require the involvement of lawyers. There are a few steps involved, but if the application is approved, the payment order that results is just as legally binding as a judgment from the Magistrates’ Court. We should however mention that the Body Corporate might still need to appoint an attorney in order to enforce the adjudication order.
If the debt is not paid, the defaulting owner’s moveable and/or immovable assets must be seized to cover the debt, which could take a long time. In the case that levies are not paid, the Sectional Titles Schemes Management Act 8 of 2011 allows the Body Corporate to hand the matter over to an attorney, who will proceed with action to attach the property to cover the debt. While it is unlikely that you may be evicted from your home owing to non-payment of levies, it is not completely out of the question.
To avoid any delays in starting the proceedings with CSOS, it is recommended that a Body Corporate keep proper records of the AGM minutes, the trustees’ resolutions whereby the levies were determined, the participation quota schedule, the levies schedule, a copy of the approved budget, and thorough accounting of what the debtor owes. Any company should also have a contingency plan in place in case of a disagreement, as well as a budget for any expenses that may be incurred as a result of the conflict.
Trustee Training Guide – The Essential Guide for Trustees
This is merely a very brief overview of a very complicated topic within Sectional Title Scheme regulations. Fitzanne Estates provides extensive training, guidance, and resources on what is required of Scheme Executives. We go through everything you need to know in great detail, and it will be well worth your time.
Fitzanne Estates has designed a free, downloadable Trustee Training Guide to assist you with everything you need to make a success of your role as Trustee in a Sectional Title Scheme. Click here to visit the Trustee Training Guide.
More about Fitzanne Estates
Fitzanne Estates (Pty) Ltd is a Property Management Company that can sufficiently administer your property investment to the benefit of the Landlord, the Body Corporate, and the NPC – Non-Profit Company. Services include Letting, Sectional Title Management, Full Title Management (NPC – Non-Profit Company) and Sales.
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