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Special levies now have a sting in the tail

There are many Sectional Title owners and buyers who are under the impression that the legislation which made it compulsory for schemes to establish and maintain substantial reserve funds also did away with the need for unpopular and often problematic special levies.

But that is unfortunately not the case, says Andrew Schaefer, MD of leading national property management company Trafalgar*, because any money held in a reserve fund account can only be spent in accordance with a 10-year maintenance plan that also details the repairs to common property that are expected to become necessary over time, as well as the planned replacement of certain equipment.

“Special levies always relate to unexpected events and emergency expenditure that has also not been anticipated in the scheme’s annual budget, such as urgent repairs to lifts, roofs or water mains. And in terms of Section 3(3) of the Sectional Title Schemes Management Act (STSMA) and prescribed management rule 21(3)(a), the trustees of a body corporate are still empowered to decide when a ‘special contribution’ is necessary to fund this type of expenditure, and to recover this contribution from the current owners in the scheme.”

Special Levies

In this the STSMA is really no different from the old Sectional Titles Act, he says, in that owners really don’t have much say when it comes to the imposition of a special levy. Provided that the unforeseen expense is really necessary and cannot be delayed until the next budget is compiled, they just have to pay their portion of it, usually in accordance with the participation quota (PQ) of their sections.

“However, there is one very important difference between the two pieces of legislation, and that is the provision in the STSMA that the responsibility for payment of the special levy now passes automatically from owner to buyer when a ST unit is sold.”

Under the old Act, says Schaefer, the seller of a unit would usually have to settle any special levy amount outstanding in order to obtain the levy clearance certificate from the body corporate that is needed before transfer of ownership to a buyer can be registered. Special arrangements would have to be made with both the buyer and the body corporate if the seller wanted to deviate from this procedure.

“Now, though, the STSMA stipulates that when a unit is sold, the new owner (successor in title) automatically becomes liable for the pro-rata payment of any special levy amount outstanding, from the date when change of ownership is registered. So if the special levy is payable in 12 monthly instalments, for example, and the seller has only paid three of these by the time the unit is transferred, the body corporate is entitled to recover the remaining nine from the buyer.

“This can obviously become quite a contentious issue, especially if the special levy is imposed after the unit is sold but before the buyer has taken transfer, or very shortly after transfer has taken place, with the new owner feeling aggrieved about having to pay for events that may well have occurred before he even signed the sale agreement.”

What is more, he notes, the seller who is aware that a new special levy is imminent and deliberately denies this fact or fails to disclose it to the buyer before the offer to purchase is signed could find himself liable to the buyer for a “latent defect”, in much the same way as if he had deliberately concealed known physical defects in the property.

“For this reason, all parties involved in the sale of a ST home need to ensure that the sale agreement contains a clause that stipulates exactly who will be responsible for the payment of both ordinary levies and any special levy instalments that may already be due or become due after either the date of occupation or the date of transfer.

“This is something that ST buyers should be especially cautious about, because if they don’t wish to ‘inherit’ an obligation to pay any outstanding special levy instalments, the sale agreement or offer to purchase will most likely have to be altered by their attorney -and agreed to by the seller – before they sign it.”

Issued by Trafalgar
For more information contact
Andrew Schaefer on 011 214 5200
Or visit www.trafalgar.co.za

*About Trafalgar
Trafalgar currently has more than 80 000 residential properties worth more than R80-billion under management in more than 1300 community housing schemes around SA.

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