Strata Levy Recovery South African Style
or, how similar [or different] are strata levy liabilities in South Africa …
A Quick Take
In my ever-wider quest to know more about strata titles, I follow what’s going on in other countries that may have lessons for strata citizens down under. And, since South African strata laws were original modelled on ours, how they evolve can provide useful insights. Today’s article explores a recent important decision of the South African High Court about overdue strata levies and what their reasoning might mean in Australian strata title conditions.
[a 7:25 minute read, with 1417 words]
The Full Article
THE CASE, THE DECISIONS & A REVIEW
The case is the South African High Court decision in The Body Corporate Marsh Rose {Sectional Title Number: 269/2012) v Arno Steinmuller, The Standard Bank of South Africa Limited & Haasbroek & Boezaart Attorneys Inc [Case Number: A5002/2020) and you can read the judgment here.
The case involves an appeal by the Marsh Rose strata building to the Gauteng High Court regarding the interpretation of section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 from a previous judgment by a single judge, questioning whether the judge was entitled to assess whether the security offered by a strata purchaser for outstanding strata levies and other liabilities was sufficient for the strata building to issue a clearance certificate for settlement.
Steinmuller purchased the strata lot at an auction in January 2018 when strata levies were overdue and the strata building had taken recovery action, including getting judgment.
The strata building said that the buyer had to pay all the amounts owed by the previous strata owner which included the unpaid strata levies, a judgment debt amount, and unassessed legal costs of the strata building totalling R312,903.21 before it had to issue a levy clearance certificate.
In South Africa, a strata lot sale cannot be finalised without a strata building levy clearance certificate.
The buyer offered to pay R150,000.00 saying that the strata building had not established it was entitled to the claimed amount and that was his assessment of the correct liability. The strata building rejected the offer but reduced its claim to R295,044.81 and provided a breakdown of the amounts claimed that included R43,380.09 for the legal costs of the judgment it had obtained and other recovery work against the previous strata owner.
The buyer then offered to pay R250,000 to the strata building as security to allow the sale to be finalised and after which the correct amount due could be determined.
Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 allows for security to be paid to strata abuilding as an alternative to payment as a commercial option but has some qualifications.
The strata building refused the security offered.
So, the buyer applied to the Supreme Court for an order requiring the strata building to issue a levy clearance certificate for a R250,000.00 security payment.
Initially, a single Supreme Court judge agreed with the strata owner and ordered the issue of the levy clearance certificate on the basis of the R250,000.00 security payment. The strata building appealed to the High Court.
A few issues were decided by the High Court in its decision as follows.
Firstly, the High Court considered the limits of section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 which referred to the ‘amounts due’ to a strata building under a levy clearance certificate.
On that first issue it decided that the ‘amounts due’ were not whatever the strata building considered were due and did not include unlawfully raised strata levies or other amounts that were not legally due. In other words, they had to be what was actually due.
Secondly, the High Court considered whether section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 permitted a buyer to make an alternate provision for the ‘amounts due’ instead of paying the claimed amounts and if a conditional payment was acceptable.
On that second issue, it decided that a buyer could make a payment under protest of a different amount than a strata building claimed, provided it was satisfactory to the strata building, to allow the levy clearance certificate to issue and sale finalised, saying that:
this was a ‘business-like and common-sense’ thing to do,
it would avoid ‘costly and unnecessary litigation’,
a strata building’s ‘embargo’ [refusal] of a levy clearance certificate over disputed amounts would be ‘an obstacle to the transfer of property’ and ’an arbitrary deprivation of property’ rights, and
otherwise, a strata building ‘could secure payment of money that may turn out not be due’.
Thirdly, the High Court considered what criteria applied to a buyer’s alternative arrangements to make them satisfactory.
On that third issue, it decided that:
there were no specified methods or means to considering what was satisfactory,
a strata building’s decision about that was reviewable by a Court [relying on the decision in Mkontwana v Nelson Mandela Metropolitan Municipality (CCT 57/03)],
a strata building had to apply reason and justice,
a strata building had to exercise honest judgment, and
a strata building had to rely on reasonable grounds [relying on the decision in Koumantarakis Group CC v Mystic River Investment 45 (Pty) Ltd [2008] ZASCA 53], and
it was the strata building’s onus [obligation] to establish what was due.
Otherwise, in relation to strata levies and the levy clearance certificate, that would reverse the onus onto a liable strata buyer to establish things it could not properly know before becoming an strata owner.
Fourthly, the High Court considered the status of the strata levies, the judgment and the legal costs as liabilities in this case.
On that fourth issue, it decided that whilst the liabilities for strata levies were a strata lot ownership liability, the legal costs [including in the judgement] were not as they were the personal liability of the judgment debtor [the previous strata owner].
It also decided that since the claimed legal costs were not taxed [independently assessed] they were not yet due and that interest on those legal costs was improperly charged.
One of the High Court judges dissented [disagreed] saying that strata buildings were entitled to refuse clearance if they believed any money was due without the qualifications the other judges applied.
So, the South African High Court has limited a strata building’s power to force strata buyers to pay for all amounts they incurred [or recovered under judgments] against former strata owners for recovering outstanding strata levies. Forcing strata buildings to justify the amounts they claimed when issuing strata levy clearance certificates based on provable matters, limiting those amounts to the strata levies and formally ordered amounts, excluding amounts due under judgments and orders against former strata owners, and permitting alternate arrangements about strata levy liabilities that involved payments under protest.
AN AUSTRALIAN PERSPECTIVE ON THE DECISION
Australian strata laws provide for strata buildings to issue strata information certificates that include information about what amounts are due to it for a strata lot which are used in sales to adjust and pay anything outstanding.
But, unlike South Africa, Australian strata laws don’t legally prevent strata lot sale settlements if the information certificates aren’t issued or the claimed amounts aren’t paid. Instead, Australian strata laws typically make the old and new strata lot owners jointly liable for what is due and those things are covered and adjusted between them under the contract and as part of the sale finalisation. So, there’s no need for strata buyers to make arrangements with strata buildings about things.
So, the case isn’t directly relevant to Australian strata lot sales.
But, in relation to the South African’s High Court position limiting liability for amounts due under Court judgments to the former strata owner and requiring legal recovery costs to be assessed, it is similar to the positions taken by the NSW Supreme Court in Owners of Strata Plan 36131 v Dimitrou [2009] NSWCA 27.
CONCULSIONS
This South African case [like in Australia] highlights the importance and trickiness of getting outstanding strata levies and legal recovery expenses when strata lots get sold in insolvent or forced sale situations because recovery actions take time and cost a lot, old strata owners cannot pay, and new strata owners don’t want to pay for legal and other charges.
It also demonstrates how internationally universal strata levy recovery challenges are.
And finally, it reminds all strata stakeholders that when strata levy recover expenses [especially legal costs and judgment amounts] grow and become a significant proportion of the total due for strata lots, there’s going to be disputes about those expenses, costs and judgments between strata buildings, strata owners, financiers and strata buyers.
January 30, 2024
Francesco ...