Understanding Levies in Sectional Title Schemes

Before delving into the specifics of levies, it's important to clarify what they are and why they are essential.

Definition and Purpose of Levies

Levies, also known as contributions, are monthly payments made by members of a sectional title scheme to the scheme's trustees or managing agent. These payments are crucial for ensuring the scheme has sufficient funds to cover all anticipated expenses. These expenses typically include the maintenance of common property, managing agent fees, administration costs, and similar expenditures.

Allocation of Collected Levies

The funds collected from levies are allocated to two distinct funds within the scheme:

Administrative Fund: This fund is used for the day-to-day administration and operational costs of the scheme.

Reserve Fund: This fund is earmarked for future maintenance projects and other significant expenditures that the scheme will ultimately incur. 

Both funds are essential for the sustainability of the scheme and allow the scheme to meet both current and future needs.

Special Levies for Unforeseen Expenses

In addition to ordinary levies, schemes may at certain times need to impose special levies. These are collected to address unforeseen but necessary expenses that arise and cannot be postponed, such as urgent repairs or legal costs. Special levies ensure that the scheme can meet these unexpected financial demands without compromising its financial stability.

In summary, levies are a fundamental aspect of managing a sectional title scheme, providing the necessary financial resources to maintain and enhance the property while ensuring it meets both current and future needs.

For the purposes of this article, there are two main methods of collecting arrear levies from non-paying members, namely:

1. CSOS process; and
2. Court process

Community Schemes Ombud Services (CSOS)

Trustees on behalf of the Body Corporate (BC) can approach the Community Schemes Ombud Service (CSOS) to obtain an order forcing a member who is in arrears to pay their monthly levies.

Process for Filing a Dispute with CSOS:

Submission of Dispute Resolution Form: The applicant must submit a dispute resolution form to CSOS.
Application Review: CSOS will review the application and, if approved, issue an acknowledgment letter with a unique reference number to the applicant.

Section 39 of CSOSA outlines the relief that can be sought through CSOS. Specifically, section 39(1)(e) allows CSOS to order the payment or repayment of contributions or any other amounts due.

It's important to note that an order from CSOS carries the same legal weight as a court order. 

Court Process for Debt Collection

While a detailed analysis of the debt collection process in ordinary court is beyond the scope of this article, we offer a concise overview of the key steps involved.

Initial Steps in the Debt Collection Process

The process typically begins with the dispatch of a letter of demand to the defaulting member, referred to as the debtor. Although not mandatory, issuing a letter of demand is recommended because it informs the debtor of their breach and provides an opportunity to rectify the situation before legal proceedings begin. This step also demonstrates to the court that efforts were made to resolve the issue amicably.

Legal Proceedings

If the debtor does not address the breach within the timeframe specified in the letter of demand, the BC represented by its trustees, may issue a court summons. The summons marks the beginning of formal legal proceedings and is served by the sheriff of the court. 

Defence and Judgment

Upon receiving the summons, the debtor has the opportunity to file a notice of intention to defend. If they fail to do so promptly, the BC can apply for a default judgment. A default judgment is intended to accelerate the court process and can lead to the BC obtaining an order against the debtor. 

Enforcement of Judgment

Should the debtor ignore the court order, the BC can obtain a warrant of execution against the debtor’s movable property. If these assets are insufficient to cover the debt, the BC may seek a court order to declare the debtor’s unit within the scheme as executable. Consequently, this unit can be put up for auction to recover the unpaid levies.

Conclusion

Timely payment of levies is crucial for the smooth operation of sectional title schemes. It ensures that the Body Corporate has sufficient funds to cover all shared expenses and maintains the property value for all members. Homeowners should prioritise levy payments and communicate openly with their managing agents or trustees if financial difficulties arise. 

At SKM Attorneys , we understand the nuances of levy collection and offer expert legal advice to ensure that your scheme manages its finances effectively. Whether you need assistance with arrear levy collection or community scheme related disputes, our dedicated team is here to help.