Everything you need to know about levies in sectional title schemes – Part 2

by JENNIFER PADDOCK and ANTON KELLY

Often referred to as the life-blood of the body corporate, owners have to pay contributions – also known as levies – and trustees, managing agents and attorneys may have to collect them.

Every person involved in a sectional scheme needs to understand how contributions work, from the procedures to be followed when they are raised to the consequences of non-payment.

Special contributions

In terms of section 3(3) of the Sectional Title Act and prescribed management rule (PMR) 21(3)(a) the trustees may from time to time raise special contributions for expenses which are necessary but were not budgeted for in the estimated expenditure approved at the last AGM.

Trustees do not have the power to raise a special contribution when a budgeted expense exceeds the approved estimate. They can only raise a special contribution for unexpected expenses which were not included in the budget. These special contributions may be payable in one lump sum or by such instalments as the trustees think fit.

It is important to note that the trustees alone have the power to raise special contributions for genuinely necessary and unbudgeted expenses. Many owners think that because they were not consulted by the trustees or did not vote in favour of a special contribution, that it was invalidly raised, but this is not so. Trustees are under no obligation to consult owners in this regard and are entitled to raise special contributions in accordance with the provisions of PMR 21(3)(a).

When do contributions and special contributions become payable, who is liable to pay them and what happens when units change hands during a financial year?

In terms of section 3(2) and (3) contributions and special contributions are due and payable on the passing of a resolution to that effect by the trustees of the body corporate, and may be recovered from the persons who were owners of units at the time when the resolution making the contributions due and payable was passed. However, if a unit is transferred during the course of the financial year or during the period in which a special contribution is paid, the new owner becomes liable to pay the contribution, pro rata, from the day of transfer.

This can become a contentious issue when, for example, a special contribution is raised and becomes due and payable after an owner has sold his unit but before the transfer of ownership has taken place. As soon as the unit has been transferred from the seller to the buyer, the new owner becomes liable for any unpaid portion of the special contribution. Similarly, if the day after transfer has occurred a special contribution is raised for something that occurred ‘before the buyer’s time’ – the buyer as the owner at the time the special levy was raised and became due and payable is liable to pay the special contribution.

Part 3 will focus on whether an owner can ever legally withhold payment of contributions, whether contributions can ever be claimed back from the body corporate and what sanctions owners who do not pay their contributions face.

Paddocks Community Scheme Specialists offer UCT training courses, legal advice, consulting and books for those involved in sectional title schemes, homeowners’ associations and other forms of community schemes.

Email Paddocks at consulting@paddocks.co.za, call 021 686 3950 or visit www.paddocks.co.za.