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With a wave of legislation and judgments thrown at us on a daily basis, it is hard to maintain the pace and to keep up to date.
MCS Courier reported in Issue no. 42, December 2012 on ‘The Peak’s Decision’. ‘The Peak’s Decision’ is a Cape High Court decision which is not yet reported.
In the Peak’s Decision the Court ruled that, without a Trustees’ Resolution to that effect, levies were not legally determined and were not due and payable in law.
It has always been maintained that there is some conflict between the provisions of the Sectional Titles Act and its Regulations.
For ease of reference, a quote from the Act and Rules:
Section 37(2) of the Act – Functions of Bodies Corporate:
(2) Liability for contributions levied under any provision of subsection (1), save for special contributions contemplated by subsection (2A), accrues from the passing of a resolution to that effect by the trustees of the body corporate, and may be recovered by the body corporate by action in any court (including any magistrate’s court) of competent jurisdiction from the persons who were owners of units, holders of exclusive use areas and holders of real rights of extension at the time when such resolution was passed: Provided that upon the change of ownership of a unit, exclusive use areas and real rights of extension, the successor in title becomes liable for the pro rata payment of such contributions from the date of change of such ownership.
Regulations (Annexure 8):
Prescribed Management Rule 30 – Contributions and Liability in terms of section 37(1) and 47 of the Act
“It shall be the duty of the trustees to levy and collect contributions from the owners in accordance with the provisions and in the proportions set forth in rule 31.”
Prescribed Management Rule 31:
“(2) At every annual general meeting the body corporate shall approve, with or without amendment, the estimate of income and expenditure referred to in rule 36, and shall determine the amount estimated to be required to be levied upon the owners during the ensuing financial year.
(3) Within fourteen days after each annual general meeting the trustees shall advise each owner in writing of the amount payable by him or her in respect of the estimate referred to in subrule (2), whereupon such amount shall become payable in instalments, as determined by the trustees.
(4A) After the expiry of a financial year and until they become liable for contributions in respect of the ensuing financial year, owners are liable for contributions in the same amounts and payable in the same instalments as were due and payable by them during the expired financial year: provided that the trustees may, if they consider it necessary and by written notice to the owners, increase the contributions due by the owners by a maximum of 10 per cent to take account of the anticipated increased liabilities of the body corporate.”
In terms of PMR31(4A), the trustees are entitled to increase the contributions after the expiry of a financial year. This indicates that the trustees may increase levies until the budget is approved and levies are determined.
PMR30 confirms that the trustees shall levy and collect contributions.
PMR31(2) requires approval of the budget at the AGM and in terms of PMR(3), the trustees shall, after approval of the budget at the Annual General Meeting, advise each owner in writing of the amount payable, whereupon such amount shall become payable in instalments as determined by the trustees.
From the Prescribed Management Rules, it would therefore appear that the procedure for imposing contributions is as follows:
1) The trustees prepare a budget for approval at the Annual General Meeting;
2) The budget is approved, with or without adjustment at the Annual General Meeting;
3) The trustees thereafter notify members in writing what contributions are due by them in accordance with the approved budget and how and when these contributions are payable;
4) The trustees may, at the end of a financial year and before the next AGM, increase levies provided that such increase may not be more than 10%.
The problem is that Section 37(2) stipulates that contributions only become due and payable upon the passing of a trustees resolution to that effect (own underlining). In the absence of a trustee resolution, the levies are not enforceable.
Therefore, trustees should ensure that they pass a resolution at commencement of a financial year to determine what contributions are due [PMR31(4A)]] alternatively they must do so after approval of the budget at the Annual General Meeting. In the absence of a trustees resolution the levies will not be due and payable although the provisions of the Prescribed Management Rules have been complied with. The rules are subordinate to the Act and therefore the provisions of the Act must be complied with.
Written by Elmo Stuart – EY Stuart attorneys – Pretoria