By Marina Constas, Director BBM Attorneys 

In the current economic climate it is becoming increasingly difficult for Community Schemes to keep the collection of levies up to normal levels. It has become near impossible for schemes to truly count on collecting one hundred percent of their levy roll.  

The Community Schemes Ombud Service has recognised by way of a published directive that due to the Covid-19 pandemic, trustees are encouraged to consider payment arrangements for defaulting owners who can furnish proof that they cannot comply with their monthly commitments. In Community Scheme adjudications heard this year, being  Sonneveld Atlantis Homeowners Association vs Kodishang and Clear Water Heights Body Corporate vs Babalwa Mtanga, the debtors who owed over R50 000 respectively in levy payments were given the opportunity to pay the debt back over twelve months.  

But what of the monthly commitments of the scheme? Expenses do not suddenly diminish, in fact, by all accounts they increase. Section 3(1) of the Sectional Titles Schemes Management Act 8 of 2011 provides that the Body Corporate must perform the functions entrusted to it which functions include establishing and maintaining an administrative fund which is reasonably sufficient to cover the estimated annual operating costs for the repair, maintenance, management and administration of the common property as well as insurance costs and the costs of the Auditor, Managing Agent and employees of the scheme.  

Every owner pays a monthly levy which goes into the administrative fund. It follows that owners who default on their levy payments are effectively being subsidised  by other members of the body corporate who pay their levies diligently every month. In my view, it’s becoming rather easy to opt out of paying the levy based on financial difficulty. In fact, we see that the people who were in arrears way before the COVID-19 virus hit, are simply utilising the pandemic as an ongoing excuse to avoid any payments at all.  

Trustees need to remain vigilant around the question of levy debt. It is advisable to appoint a Trustee who works with the Managing Agent on a weekly and monthly basis to keep an eye on the collection process. Two important things to note are firstly that in terms of the Prescription Act, No 68 of 1969, a debt arising from levies, prescribes-in other words becomes extinguished, after a period of three years. To ensure that levy debts do not prescribe, trustees must interrupt prescription by obtaining a judgement or an order on behalf of the Body Corporate in respect of the debt.  

That means that debtors must be handed over for legal action. Secondly, the common law in duplum rule provides that arrear interest ceases to accrue once the sum of the interest equals the capital outstanding at the time. The shabby handling of the collections process can result in a scheme losing out on hundreds of thousands of Rands which should have been plowed into the administrative fund. Trustees can also face legal claims if they attempt to cut off electricity without a court order. 

The moral of the story for trustees is to strike while the iron is hot in handing over recalcitrant and genuine debtors. Legal fees can be claimed back once a bill of costs is taxed and placed on the debtor’s account. Taking the matter legal will also enable the scheme to attach and sell the unit. I have experienced great success in the legal route of disconnecting electricity by way of court application. We utilise this strategy to collect the very large sums outstanding.  

Whilst there are many owners in financial difficulty, the future value of the scheme cannot be compromised by non-paying owners who simply cannot afford to stay. I’m afraid that giving debtors twelve months to pay off substantial debt is simply unsustainable for the financial health of a scheme.  

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