Sectional Title - High Court guidance on calculation of exclusive use levies
By Prof. Graham Paddock
Image: Graham Paddock
1. In the case of Baxter v Ocean View Body Corporate and Others (A170/2022)  ZAWCHC 234 (available at saflii.org) heard in the Western Cape High Court, two judges issued their order on 16 November 2022, based on the papers and without an oral hearing.
2. The body corporate had a conduct rule which provided:
“An owner to whom an exclusive use right has been allocated shall maintain and repair that area as if it were part of his/her/its section and keep it clean and tidy.”
3. The body corporate then increased the levy it had been raising on the applicant’s exclusive use balconies, with retrospective effect, from R3 to R23 per square metre, to cover the cost of insurance, maintenance and other expenses and to building up the body corporate’s reserve fund.
4. The applicant applied to CSOS for orders in terms of section 39(1)(c) of the CSOS Act (i) declaring that the contribution levied on the exclusive use balcony use owners had been incorrectly determined in conflict with s 3(1)(c) of the STSMA, (ii) directing that the contribution be adjusted to the correct or a reasonable amount, and (iii) in terms of section 39(1)(e) of the CSOS Act, directing that all undue amounts be refunded to him. The CSOS adjudicator dismissed the applicant’s claims and he appealed to the High Court.
5. The judges looked carefully at proviso to section 3(1)(c) of the STSM Act, which obliges the body corporate to:
“require the owners, whenever necessary, to make contributions to such funds: Provided that the body corporate must require the owners of sections entitled to the exclusive use of a part or parts of the common property, whether or not such right is registered or conferred by rules, to make such additional contribution to the funds as is estimated necessary to defray the costs of rates and taxes, insurance and maintenance in respect of any such part or parts, including the provision of electricity and water, unless in terms of the rules the owners concerned are responsible for such costs” (my underlinings).
6. The judges found that the adjudicator erred by failing to recognise the effect of the proviso to section 3(1)(c) read with the said rule. They held that the levy was incorrectly determined and directed the trustees to:
“procure the adjustment of the contribution so levied with retrospective effect so as to bring it into compliance with s 3(1)(c) of the Act by excluding from the computation of the levied contribution any provision for the defrayment of any costs for which the said owners are directly responsible in terms of the rules…”
7. Three lessons from this case are:
If a body corporate rule makes owners liable to pay EUA maintenance and repair costs, the body corporate cannot include estimates of these costs in a section 3(1)(c) ‘exclusive use levy’;
If a body corporate rule is to make owners responsible for all costs in respect of their exclusive use areas—so that the proviso to section 3(1)(c) of the STSM Act applies and the body corporate does not need to raise additional exclusive use levies—the text of the rule must make owners responsible not only for maintenance and repair costs, but also for any insurance, electricity and water costs that relate to those areas. There is no need for the rule to deal with rates and taxes, as owners are by operation of municipal law responsible for these; and
Any exclusive use levy for repairs and maintenance should not be calculated so as to include contributions to the scheme’s reserve fund, but should be limited to the body corporate’s estimated administrative fund expenses in the current financial year.
Graham Paddock is a specialist community schemes attorney, notary and conveyancer. He has been advising clients and teaching students for over 40 years, and was an adjunct professor at UCT for 10 years.
Article reference: Paddocks Press: Volume 17, Issue 11.
This article is published under the Creative Commons Attribution license.