Advertisement
Recent court judgments highlight how important it is for Sectional Title bodies corporate to take quick and effective action against levy defaulters to protect their financial stability, says Andrew Schaefer, MD of leading property management company Trafalgar.
These recent cases have centred on the issue of debt prescription, as outlined in the Prescription Act. This is a debtor’s right to claim that a debt has expired or lapsed after a specified period, provided that they have not acknowledged the debt, promised to pay the debt or made any payments towards the debt during that period, and provided that their creditor has not obtained a monetary judgment against them in the interim.
Retail debt relating to credit cards, personal loans, store cards, cellphone accounts, electricity accounts and school fees prescribes after three years, for example, while debt relating to home loans, municipal property rates and tax owed to SARS only prescribes after 30 years.
“And for levy debts, the default prescription period was generally understood to be three years, meaning that if the body corporate had not taken the appropriate legal action to collect the debt during that period, the defaulter was entitled to resist any further attempts to collect by stating that the debt had prescribed,” he says.
“However, there has for some time been debate around the question of whether a body corporate could be somewhat protected against the prescription of levy debts by subsections 13(1)(e) and (i) of the Prescription Act. These provide for the standard three-year period of prescription to be extended until one year after a debtor who is also a member of the governing body of any creditor that is a juristic person, ceases to be a member of that governing body.
“An example of this would be when a director of a company (a juristic person) also owed that company money. They would not be able to claim prescription of that debt for three years plus at least one year after they had ceased to be a director of the company. And in the recent case of L.A. and Another v Body Corporate of London Place and Others (the London Place case) the Cape High Court was asked to determine whether a similar prescription delay could be applied to all members of a body corporate (a juristic person), or only to the trustees of a body corporate.”
The Court’s decision, Schaefer notes, was that the provisions of the Act relating to the extension of the prescription period only apply to the trustees of a Sectional Title scheme, “and the practical effect of that judgment is that ordinary members or owners in a body corporate can still claim debt prescription after three years”.
Advertisement
If the decision had gone the other way, it would have meant that ordinary members could not claim prescription either until a year after they had quit the body corporate – which they would not have been able to do without paying off their arrears and obtaining a levy clearance certificate from the body corporate.
“As things stand now, though, bodies corporate need to make sure that they have procedures in place to immediately address any levy default – and make sure that if it does become necessary to issue summons or seek a monetary judgment against any owner in their scheme after other attempts to resolve the issue have failed, they don’t delay beyond three years.
“But an even better option is for bodies corporate to try to avoid costly and lengthy Court actions altogether by making use of the very effective dispute resolution process offered by the Community Schemes Ombud Service to obtain a binding CSOS order for the levy defaulter to pay their arrears. Trafalgar has a separate department to attend to these matters, at a much-reduced fee.
“This is a low-cost solution with a much faster timeframe than the Courts, and it is what we strongly advise as a first option for dealing with persistent levy defaulters in all the schemes we manage.”
