A Property24 reader asks:
A Property24 reader says he has been asked to pay a special levy but cannot afford it and the body corporate is not budging.I have a query regarding Special levies and specifically what my rights are and what notice period should be given to homeowners to pay a special levy.
My wife and I own a sectional title property and in June 2014 we were told that there is maintenance, waterproofing and painting to be done in our complex. They calculated a total amount and assigned the cost to the homeowners based on property size. This amount ranges between R20 000 and R30 000 per unit. They want us to pay this up front by 1 August 2014 or in instalments of +-R2600 a month for 12 months.
This was not previously discussed; our last AGM was in June last year and the next one is apparently later this month in July (still to be confirmed). I checked the minutes of our last meeting to make sure and this was not mentioned.
My wife and I cannot afford to pay this. I did tell them that we can pay R1 000 a month starting from January next year, but they are not budging on their proposed payment plan.
I don’t doubt that the work needs to be done, however, it’s highly unreasonable to impose R2 600 a month special levy within a 2 month notice period.
My questions are:
1. What notice period are they required to give us?
2. What happens (from a legal perspective) if we cannot pay the special levy?
Carryn Durham, specialist sectional titles lawyer at Paddocks, advises:
In terms of prescribed management rule ("PMR") 31(4) the trustees may from time to time raise special levies for expenses which are necessary, but were not budgeted for in the estimated expenditure approved at the last AGM. Trustees do not have the power to raise a special levy when a budgeted expense exceeds the approved estimate. They can only raise a special levy for unexpected expenses which were not included in the budget. These special levies may be payable in one lump sum or by such instalments as the trustees think fit.
People will often have different views on the issue of necessity, i.e. whether or not the expense could wait to be included in the budget approved by owners at the next AGM. In this case there may be an argument that the maintenance, waterproofing and painting is not urgent and could be held off and included in the budget approved by owners at the next AGM. There is also an argument that these expenses should have been expected and budgeted for in previous years. This illustrates the importance for the body corporate to establish for administrative expenses, a fund that makes reasonable provision for future maintenance and repairs in terms of section 37(1)(a).
It is important to note that the trustees alone have the power to raise special levies for genuinely necessary and unbudgeted expenses. Trustees are under no obligation to consult owners in this regard and are entitled to raise special levies in accordance with the provisions of PMR 31(4). The Act and rules do not set out a notice period that the trustees are required to give. Any action that a trustee takes should be reasonable. The notice period should therefore also be reasonable.
The issue of recourse is very difficult. In theory, if the matter is urgent an owner who feels a special levy was incorrectly raised can approach the High Court for an order declaring it to be invalid. But High Court litigation is seldom warranted in sectional title matters because of the high costs and delays involved. If the matter is not urgent, a disaffected owner could initiate arbitration proceedings under PMR 71, but these too are expensive and time-consuming.
The most practical reaction for a disaffected owner is to get substantial support amongst other owners in the scheme to place a restriction on trustees at the next AGM to the effect that they cannot raise a special levy of more than a specified amount without the sanction of a majority vote at a general meeting of owners. And, of course, for the owners to budget conservatively and insure comprehensively so that special levies are not necessary.
The prescribed management rules set out a 'sanction' for owners who default in their levy payments. PMR 64 provides that if any contributions payable by an owner in respect of his section or the common property have not been duly paid, that owner shall not be entitled to vote at any general meeting. However, this "no vote" sanction is only applicable to general resolutions and therefore a defaulting owner is still entitled to attend trustee and body corporate meetings, to speak and to vote for any special or unanimous resolutions. Furthermore, if a defaulting owner's bondholder has made its interest known to the body corporate it may vote on behalf of the owner for general resolutions by exercising the proxy in the mortgage bond. The trustees, managing agent or the scheme's attorney can issue a summons against a regular defaulter. If an owner is in default for any other reason, he will have to defend himself in litigation procedures instituted by the body corporate to recover the arrears and will almost certainly find that he has to pay the outstanding levies, as well as interest and legal costs.
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