It is essential that non-payers in sectional title schemes be dealt with quickly and the body corporate needs to take an attitude of ‘zero tolerance’ towards defaulters.
In the long run, Bauer adds, it is these non-payers who suffer the most because, when put under pressure from the scheme’s lawyers and finally made to pay, they will find themselves (in terms of the Prescribed Management Rules 31 (5)) also having to pay the compound interest on their debt, the legal costs incurred by the trustees and their attorneys, as well as all costs involved in the recovery of their levies and other amounts owed by them.
Michael Bauer, general manager of property management company IHFM says the big problem in sectional title schemes is that a minority of members - often living an unsustainable lifestyle and paying their hire purchase, retail and other accounts only as and when it suits them - adopt the same lackadaisical approach to their sectional title levy payments.
He says some members of sectional title schemes have legitimate and serious reasons for being unable to pay their levies, but whatever the reasons, the trustees have the fiduciary responsibility to ensure that their body corporate is liquid and remains solvent.
“They must, therefore, enforce strict credit controls and treat all non-payers equally.”
In the long run, Bauer adds, it is these non-payers who suffer the most because, when put under pressure from the scheme’s lawyers and finally made to pay, they will find themselves (in terms of the Prescribed Management Rules 31 (5)) also having to pay the compound interest on their debt, the legal costs incurred by the trustees and their attorneys, as well as all costs involved in the recovery of their levies and other amounts owed by them.
In addition, he says they will find themselves with a bad credit record which will be picked up by all future credit providers.
Any sectional title owner likely to fall behind on his levies, says Bauer, should immediately contact the trustees, or their managing agent, to try and ‘make an arrangement’. He says that if this is not done and the debts continue to remain unpaid for a significant period the trustees have no choice but to proceed with the collection process.
“The law does provide remedies for body corporate creditors, but these are always time consuming and expensive and need additional funding.”
Bauer says all too often trustees have not budgeted for a reserve as well as working capital. IHFM recommends budgeting for a 10-20% addition to the annual levy (depending on the size of the scheme) to ensure that the body corporate remains solvent and has the funds to cover both levy arrears and the legal fees which, although eventually recoverable, do mount up in the interim.
“Trustees have to be strict and deal with debtors in the quickest possible way to ensure that the cash flow of the body corporate is secured. It has to be made clear that they have a policy of zero tolerance for defaulters.”
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