A Guide to Understanding the Legal Implications of Levy Arrears in Sectional Title Schemes

In light of the escalating cost of living, many Sectional Title owners have found it increasingly difficult to meet their levy obligations. This financial strain has, in turn, placed considerable pressure on trustees who are tasked with ensuring the continued operation and maintenance of their schemes despite inadequate cash flow.

Regrettably, some trustees, in their frustration, have resorted to unlawful measures in an attempt to compel payment from defaulting owners. However, such actions not only contravene the law but may also result in further detriment to the scheme. It is, therefore, imperative that trustees adhere strictly to the prescribed legal processes when seeking to recover outstanding levies.

The Legal Framework

The Sectional Titles Schemes Management Act (STSMA) provides a clear framework regarding the rights and responsibilities of trustees in the event of non-payment. It is crucial for trustees to recognize that levy contributions are not discretionary but form an essential part of the ownership responsibilities in a Sectional Title scheme. The failure to collect levies can have severe consequences, including the deterioration of common property, compromised security measures, and a general decline in property values.

Steps for Recovering Arrear Levies

The STSMA prescribes a structured process for recovering levies from defaulting owners, which includes the following:

1. Appointment of legal firm

   At an Annual General Meeting, the Body Corporate may resolve, by way of a duly passed resolution, to appoint a legal firm for the purpose of instituting and managing the collection of arrear levies on behalf of the scheme.

   
   

2. Referral to the Community Schemes Ombud Service (CSOS)

   Trustees may also elect to refer such matters onto CSOS for dispute resolution.

Why Legal Action Remains Essential

When dealing with levy arrears, trustees must navigate the most effective route to ensure financial stability within their scheme. While CSOS offers a dispute resolution process, it is important to recognize the inherent limitations of relying solely on this mechanism.

1. CSOS is Not a Debt Collection Agency

   The Community Schemes Ombud Service (CSOS) was primarily established to resolve disputes related to governance, procedural matters, and scheme-related disagreements. It was never intended to function as a debt collection tool. While CSOS orders are legally binding, their enforcement often requires escalation to the courts—meaning additional legal steps are still necessary.

   
   

2. Delays and Inconsistent Outcomes

   Contrary to the claim of efficiency, CSOS processes can be time-consuming, with cases often delayed due to high volumes and administrative backlogs. In contrast, legal action, especially through specialized attorneys, ensures that arrears collections are handled with urgency and the weight of direct legal enforcement.

   
   

3. CSOS Orders Still Require Court Intervention

   Even if a CSOS ruling is obtained, enforcement remains a challenge. Many defaulters ignore CSOS orders, requiring the scheme to proceed to the Magistrate’s or High Court to obtain execution orders. This means trustees could end up navigating both CSOS and the legal system, effectively doubling the process.

   
   

4. Protecting the Financial Health of the Scheme

   The financial well-being of a scheme depends on its ability to enforce levy payments promptly. While litigation may involve costs, these can be recovered from the defaulting owner upon successful execution. Relying on CSOS alone risks prolonged arrears, leading to severe cash flow issues that could impact essential services and maintenance

Measures Available to Trustees

Beyond formal legal avenues, trustees may have certain management rule-based options available to encourage payment, provided they remain within the bounds of the law. These may include:

• Restricting access to non-essential facilities such as community swimming pools, tennis courts, guest parking, or clubhouses.

• Limiting certain services where permissible, including refuse collection, gardening, Internet access, or visitor entry.

• Imposing interest on overdue levies, in line with the scheme’s management rules and subject to the Prescribed Rate of Interest Act.

• Recovering legal costs associated with levy collection, where applicable.

Prohibited Actions

Trustees must also be cognizant of actions that are expressly prohibited under the law.

These include:

• Disconnecting essential services such as water, electricity, or gas, as this infringes upon constitutional rights which  must be executed through a court order.

• Imposing arbitrary penalties or fines that are not stipulated in the scheme’s management rules.

• Harassing or intimidating defaulting owners, including public naming or physical threats.

• Attempting to evict defaulting owners or restricting access to their property, as eviction can only be executed through a court order.

• Seizing the personal belongings of an owner as a means of recovering debt.

• Preventing the sale of a unit by a defaulting owner. However, trustees may lawfully withhold the levy clearance certificate until arrears are settled in full.

Conclusion: A Strategic, Not Singular Approach

While CSOS serves a purpose in dispute resolution, it should not be viewed as the primary mechanism for levy recovery. A balanced strategy, leveraging legal action where necessary, ensures that schemes remain financially secure while upholding the rights of all paying members. Trustees must carefully assess each case and engage the appropriate legal professionals to ensure arrears are recovered efficiently and in the best interests of the community.