Can a body corporate accept settlement amount regarding arrear levies?

03 January 2022 ,  Marié Combrink 446

We are currently assisting clients / body corporates to collect levies owed regarding Sectional title properties.  We note that owners owing the amount want to make offers to pay and amount to settle arrear levies in full and final as they experienced financial difficulties during covid and could not keep up with payments.

In most instances the arrangement to pay arrears we have to explain that the current monthly levy amount should also be kept up to date. 

I recently read case law relating to the question in the heading.

Zikala v Body Corporate of Selma Court and Another

This judgment is very important to take note of if you attend to the collection of levies and for trustees and managing agents of sectional titles.  This case explains that  trustees and managing agents will fall foul of their statutory responsibilities if they accept, without properly following procedure, a settlement of arrear levies, even if it is in good faith or they know that the owner cannot afford to pay the arrear levies. 

When I read the case I thought this is overly hash but I agree with the court that this protects the other owners who would otherwise be carrying the shortfall of levies not paid.  Strict measures are prescribed and necessary in the legislation for dealing with such instances to uphold proper order and to even out the responsibility to all owners.  When you make a decision to purchase in a complex, understand that the insurance, maintenance and responsibility to upheld the value of the properties are important to all owners, BUT also each and every owner has a responsibility.  If one owner do not give co-operation this can cause all owners to suffer damages.

In this matter the owner made an offer to 2 of the trustees but there was no resolution in place authorizing these 2 trustees to make an offer and which amount is acceptable.  The managing agent in this matter indicated that although the owner made and offer and 2 trustees indicated that the offer is acceptable to them, they did not look at the bigger picture in that they did not take into consideration all legal fees and expenses and interest.  The acceptance of the offer was revoked on the basis that the acceptance was not legal and binding and accepting the offer is not to the benefit of the body corporate but rather prejudice to it.

In court, and on appeal Mr Zikala indicated that the offer was accepted and in order and cannot be revoked on basis as indicated above.

The court took into consideration Section 10 of the Sectional Titles Management Act and Rule 25 that gives prescribed management rules and more specifically that if a budget has been approved, the body corporate must give notice to each owner of the levy payable per month.  The levy must be collected by the body corporate.

The argument of Zikala failed as the court confirmed that even if the 2 trustees did give consent and accepted the offer, such acceptance was invalid taking their statutory duties under the STSMA into consideration.  The only manner in which the trustees could have been authorized to accept the offer and the acceptance be valid was by way of a unanimous resolution of all the members of the body corporate, giving their consent and taking all factors into consideration.

Ensure as trustees and managing agent of Sectional titles that you act within your powers and take your responsibilities and duties serious as provided by the STSMA.  It is only in exceptional circumstances that the body corporate can decide and authorize that the levy or part of the amount due and payable be written of and not collected.