Those who live in sectional title schemes and pay their levies on time are not affected by the interest rates charged on overdue levies, but those who habitually pay late will most likely be hoping there is a maximum percentage of interest set by law on overdue accounts.
As in the case of levies charged, Bauer says the trustees must pass a resolution annually after each AGM as to what interest rate will be charged on overdue levies, and they can decide the increase if need be, which needs another resolution.This is according to Michael Bauer, general manager of property management company, IHFM, who says the truth is that there is no limit.
Prescribed management rule (PMR) 31 (6) allows the trustees in the sectional title scheme to determine the interest rate charged on overdue amounts, and to recover the interest owed to the body corporate.
The interest rate is determined at the time the levies are decided on, but the trustees can change the interest rate at any time.
As in the case of levies charged, Bauer says the trustees must pass a resolution annually after each AGM as to what interest rate will be charged on overdue levies, and they can decide the increase if need be, which needs another resolution.
This is a tool to discourage late payments so as to keep the financials in the scheme healthy, he says. The interest is not meant to be a source of income for the body corporate, although it does sometimes become just that.
The trustees do not have to consult the owners in the scheme when the decision is made on what percentage to charge, however, the owners can, as per 39 (1) of the Sectional Title Act, direct the trustees to limit the interest to a certain amount.
If owners want to do this they need to get a majority vote, but there is no basis in law on what a maximum interest rate should be, says Bauer. The only case where the interest charged is affected, is where the unpaid interest exceeds the outstanding capital amount (the duplum rule).
Bauer says he recommends an interest rate of 15.5% to 24% per annum, which he feels is reasonable.
The other thing that trustees must remember when the resolution is passed is that it must state that it is compound interest charged.
“The one thing to remember in all cases of collecting payments is that good credit control is better than trying to correct non-payment after the fact,” says Bauer.
“If payments are collected on time, there is no problem. If there are cases of non-payment, contact those owners directly to get to the bottom of it.”
He says there are sometimes extreme cases, such as death being the reason for non-payment, which is a case they have recently come across.
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