Outstanding charges, body corporates and sales in execution

Recently our Supreme Court of Appeal had to consider whether a purchaser was entitled to only pay for outstanding levies of a sectional title property that was sold in an execution sale or also the other outstanding charges such as water, sewerage etc. where the terms of the execution sale only required payment of the outstanding levies. In effect, the court had to consider whether a body corporate could be forced to accept a lesser amount because of the terms of a sale in execution.

The body corporate of a sectional title scheme is provided with certain functions and responsibilities in terms of the Sectional Titles Schemes Management Act 8 of 2011 ("STSMA"), of which some of the well-known functions are to require the owners of the scheme to contribute to the funds of the scheme by way of normal and special levies and to maintain the scheme. 

The Sectional Titles Act 95 of 1986 further provides that when a sectional unit is to be transferred in the deeds office, the Registrar of Deeds is not allowed to register the transfer of the unit, unless provided with a conveyancer's certificate confirming that, on date of registration of the transfer of the unit, the body corporate has certified that all money due to the body corporate in respect of the unit have been paid, or that provision for the payment of the money due has been made to the satisfaction of the body corporate.

The question with regards to whether the body corporate can be forced to ask a lesser amount than what is due on a sale of execution transaction was recently discussed in a Supreme Court of Appeal ("SCA") case in which the buyer refused to pay the full amount as provided by the body corporate on the basis that the conditions of sale that were signed at the auction did not make provision for all the charges provided but only stated that "all levies due to the body corporate" are payable. 

The SCA looked at the legislation as mentioned above and stated that the Sectional Titles Act provides a twofold purpose which the first is to protect a specific class of property owners who holds property as individual owners of a unit and co-owners of the common property and to be managed by the body corporate on behalf of the owners in the scheme. The second purpose relates to providing the body corporate with a more cost-effective way of recovering amounts owed by owners and thus the body corporate does not have to spend unnecessary funds with an expensive litigation process. These are therefore vital and legitimate purposes for debt collection for body corporates and they assist with the economic viability and sustainability of sectional title schemes.

The SCA then went further to look at the conditions of sale that were signed at the auction and mentioned that a contractual obligation flows from the signing of the conditions of sale, but this contractual obligation is between the Sheriff, who acts on behalf of the judgment creditor, and the purchaser. The Sheriff will therefore give transfer of the property once the purchaser has complied with all the conditions as envisaged in the conditions of sale. It is, therefore, for the Sheriff to confirm whether the purchaser complied with all the conditions of the conditions of sale and thus approve the transfer to take place.

The body corporate is not a party to the agreement of sale and the fact that there is a difference in the wording of the conditions of sale which refers to "levies" and the Sectional Title Act which refers to "all monies" due to the body corporate, can have no legal bearing on the rights of the body corporate. The body corporate has a statutory right to refuse the transfer of a unit until all monies due have been paid, or a provision to the satisfaction of the body corporate was made. Unless a body corporate is also contractually bound by the sale conditions at an auction, its statutory right remains unchanged and the buyer can only enforce his contractual right against the Sheriff, once all conditions of the sale have been met, and not against the body corporate's statutory right to refuse to issue the clearance certificate until all monies due have been paid. 

It must be kept in mind that the SCA case does not mean that body corporates can now ask any amount at their own whim, but that there should still be valid proof of the calculation of the charges outstanding on the unit and the final amount payable must therefore be within these perimeters. The body corporate therefore can ask for levies, water consumption, sewerage services, arrear costs, interest charges and legal fees that are outstanding on the unit being sold in execution.