Sectional Title - Can a body Corporate write off levy arrears, interest and legal fees?

By Jennifer Paddock

Jennifer Paddock

Image: Jennifer Paddock

In the realm of sectional title schemes, the issue of financial management is of paramount importance. One of the key aspects of this is the collection of levies, interest, and legal fees. A question that often arises is whether a body corporate has the power to write off or reduce these claims.

According to section 3(1)(f) of the Sectional Titles Schemes Management Act of 2011 (the STSM Act), a body corporate is obligated to collect levies. This obligation is further reinforced by prescribed management rule 25(2)(c), which provides that if money owing is not paid on the dates specified in the levy notice then the body corporate must send a final notice to the owner. This , which notice must state that the body corporate intends to take action to recover the amount due if the overdue contributions and charges and interest owing are not paid within 14 days after the date the final notice is given.

While the law generally allows for private dispute resolution and permits a creditor to reduce a financial claim to achieve settlement, this principle does not extend to bodies corporate. A body corporate only has the powers specifically given to it by the  STSM Act, its regulations, and its rules, and the prescribed management rules do not include any provision that allows trustees or members to compromise and write off a part of the body corporate’s levy claims. This position was confirmed by the Gauteng High Court in the Zikalala v Body Corporate Selma Court and Another case.

In this case, the court held that trustees would act beyond their statutory powers if they compromised the body corporate’s levy claims or decided not to enforce the body corporate’s claims for collecting interest and legal costs. The court further stated that the only way the trustees could have been authorised to compromise the claim was through a unanimous resolution of all the members of the body corporate.

However, as we point out in the Paddocks Advanced Sectional Title Financial Management Masterclass notes, the court failed to take into account the provisions of section 11(2) of the STSM Act. The wording of section 4 of the STSM Act makes it possible for a body corporate to make a rule under section 11(2) that gives it the power, in appropriate circumstances, to compromise any specified claim for outstanding amounts or to compromise levy claims generally if specified conditions are met, perhaps on the authority of an ordinary or special resolution of members.

In conclusion, while the body corporate does not inherently have the power to write off levy debts, interest and legal fees, there are certain circumstances and procedures that can authorise such actions. However, these are complex matters that require careful consideration, detailed explanation to owners, and—perhaps most importantly—an advanced  understanding of financial management issues regulated by the STSM Act and its associated regulations.

To gain a deeper understanding of these issues and more, we invite you to join the Paddocks Advanced Sectional Title Financial Management Masterclass starting in early May 2024. This 3-week online Masterclass will equip you with all the necessary information to take your knowledge of sectional title finances to an advanced level, helping you become an expert in body corporate finances. Registration for this will open soon.

By Jennifer Paddock

Courtesy: Paddocks Press

Paddocks Press Sectional Title & HOA Management News

Article reference: Paddocks Press: Volume 19, Issue 3.

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This article is published under the Creative Commons Attribution license.

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