Body Corporate Marsh Rose v Steinmuller

The dissenting judgment in dealing with the issue of a levy clearance certificate was of the view that “the real issue in this appeal is whether a Body Corporate can be compelled to provide a clearance certificate before it has received payment of the amounts due, even if the sum due is disputed by the transferee or by any other interested party for that matter. Put another way, the issue in the appeal is whether a Body Corporate is entitled to refuse to issue a clearance certificate in the event of there being a dispute relating to the amount due to it by the owner of the Unit.”

Essence

According to the dissenting judgment a levy clearance certificate cannot be witheld in all circumstances because the community needs protection.

Decision

(A5002/2020) [2021] ZAGPJHC 440 (23 September 2021)

Order:

Disallowed appeal with costs per majority.

Judges

KE Matojane J (TH Nichols AJ concurring and LR Adams J dissenting)

Heard:        16 August 2021
Delivered: 23 September 2021

Reasons

“[64] The Body Corporate contended that security for payment is not a form of payment to the Body Corporate or provision for payment. I agree. To post security for a payment subject to certain conditions does not equate to ‘provision for payment’. Provision for payment should have exactly the same effect as payment. In other words, before the registration of the transfer, the Body Corporate should be in receipt of payment, which clearly is not the case if security is provided.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

Adams J (Dissenting):

[36] I have had the benefit of reading the well-crafted judgment of my colleague, Matojane J.

Regrettably, I do not agree that the order of the Court a quo should be confirmed and that the appeal should be dismissed. I do so because, in my view, section 15B(3)(a)(i)(aa) of the Sectional Titles Act, Act 95 of 1986 (‘the ST Act’) and the scheme envisaged by the said section, properly interpreted, together with the relevant case law, make it clear that a Body Corporate has the right to refuse to issue a clearance certificate if, in its view, there are monies due to it in relation to a Sectional Title Unit which is the subject of a transfer.

Secondly, the order of the trial court is not a competent order if regard is had to the wording of s 15B(3)(i)(aa).

[37] In my view, it is not as clear cut as the first respondent would have us believe that the charges raised by the Body Corporate were unlawfully raised. What is, in my view, unlawful, is the fact that the Body Corporate, which has as part of its statutory duties and obligations, the administration of a Sectional Title Scheme, has been deprived of the benefit of some R200 000, being the contributions in respect of the Unit in question.

Even if the Body Corporate’s entitlement to payment of some of these amounts is disputed, then, in my view, the Body Corporate is still entitled to insist on payment of the amounts due in respect of the Unit, before issuing a clearance certificate.

[38] Therefore, I am of the view that the real issue in this appeal is whether a Body Corporate can be compelled to provide a clearance certificate before it has received payment of the amounts due, even if the sum due is disputed by the transferee or by any other interested party for that matter. Put another way, the issue in the appeal is whether a Body Corporate is entitled to refuse to issue a clearance certificate in the event of there being a dispute relating to the amount due to it by the owner of the Unit.

The question is this:

  • What should happen in the event of the transferee of the Unit not accepting – either wholly or in part – the amount which the Body Corporate claims to be due in respect of the Unit?
  • Can the transferee, for example, insist on the transfer being registered before the dispute is resolved on the understanding that the dispute and the payment will be resolved later?

[39] I will for the sake of convenience, refer to the appellant as ‘the Body Corporate’ and the first respondent as ‘Mr Steinmuller’ or sometimes simply as ‘the first respondent’.

[40] In casu, the first respondent bought the Unit at a Sale in Execution on 20 January 2018 for the purchase price of R970 000. Thereafter, during February 2018, the Body Corporate indicated that it would issue a clearance certificate on receipt of payment of the amount of R312 903.21. A summary was also furnished by the Body Corporate, giving an indication of how this sum is arrived at. In the nature of these ‘clearance figures’, a certain portion thereof related to provision for levies and other charges for a few months in advance.

[41] On receipt of these clearance figures, Mr Steinmuller immediately went on the defensive and formed the view that the Body Corporate was ‘claiming amounts which it unlawfully raised and which [were] not due by [him]’. On 19 February 2018, the first respondent caused a letter to be sent by his attorneys to the Body Corporate making these views known. The said communiqué also demanded from the Body Corporate that it furnished full and precise particulars of how the sum total is arrived at. This, so the letter demanded, was to be provided in the form of the ledger card and other documentation. On 22 February 2018, the attorneys of the Body Corporate responded to this demand and, in essence, denied the first respondent’s entitlement to the requested information.

[42] On 17 April 2018, the first respondent was able to obtain a reconciliation of the account relating to the Unit from the Body Corporate to the previous owner. What was apparent from the reconciliation is that right from inception of the account during April 2014 – presumably when the previous owner took transfer of the Unit – not one cent was paid on the account.

It is therefore understandable that from an early stage collection charges and interest were debited to the account. The very first ‘interest charge’ debited was an amount of R119.46 on 14 June 2014, and the first ‘arrear cost liability’ charge of R256.50 was debited on 14 August 2014. The total amount due as at 14 April 2018, according to this reconciliation, was R295 044.81, which was R17 858.40 less than the amount quoted in the ‘clearance figures’ presented to the first respondent by the Body Corporate during February 2018.

This, I think, is understandable. As already indicated, included in the ‘clearance figures’ furnished by the Body Corporate was an amount relating to estimated future levies and charges in respect of the few months which it would have taken for the transfer to be registered.

[43] The total of R295 044.81 consisted of the usual type of levies and charges raised by Body Corporates, namely levy charges (comprising levies, CSOS Levies, and special levies) – R103 324.35; water consumption and sewerage services in the amount of – R31 523.02; arrear cost liability – R12 264.25; interest charges – R97 137.55; legal fees – R50 615.65. These charges were raised during approximately a four-year period from 14 May 2014 until 14 April 2018.

[44] The first respondent took issue with and disputed, sometimes on rather spurious grounds, all but a rather insignificant portion of this total. The first respondent contended that of the R295 044.81 claimed in the reconciliation, R203 397.53 has either been unlawfully raised to the account or was not due by him.

[45] So, for example, the first respondent disputed the sums debited in respect of ‘arrear cost liability’ and ‘legal fees’ – which clearly relates to collection charges and legal fees necessitated by the fact that the previous owner right from the start was defaulting on payment of his monthly levies and other charges. This objection was ostensibly based on the fact that the Body Corporate debited the account without authority.

[46] Maybe it is apposite at this juncture to deal with the issue of the legal charges, which, according to the first respondent, should not be included in the payments due under s 15B(3)(a)(i)(aa). The trial court agreed with the first respondent on this issue. I don’t.

I find support for my view in Barnard NO v Regspersoon van Aminie en ‘n Ander , in which the SCA held that, in giving expression to the intention of the provision [s 15B(3)(a)(i)(aa)] to give effective protection to the body corporate, it was clear that the contributions were covered by the provision and therefore the relevant legal costs also fell within the ambit of the provision.

I am therefore of the view that the Body Corporate was entitled to insist on the legal costs being paid before issuing the clearance certificate. To say that these costs should have been taxed, as did the first respondent, is, in my view, not sustainable. In that regard, I agree with the contention by the Body Corporate that, if the transferee insisted on taxation, then that can and should be done, but before the clearance certificate is issued.

[47] At best for the first respondent, this issue is not as clear cut as he had the trial Court believe. It is not a dispute which can unequivocally be said would have been decided in favour of the first respondent.

[48] Secondly, the first respondent questioned the total interest charged. The first respondent suggests that there may have a breach of the in duplum rule. I am not convinced. Then, the first respondent rather speculatively suggests that about R55 000 had become prescribed by the time the clearance figures were issued by the Body Corporate. What the first respondent conveniently forgets is that the Body Corporate had obtained a judgment against the previous owner for the total due as and at 25 June 2015, being R43 270.03. This puts paid to the argument of prescription.

[49] The point about what is said in the preceding paragraphs is that the disputes raised by the first respondent are, in my view, not as obviously in favour of the first respondent as he contends. There is merit in the counter arguments by the Body Corporate. I think, without deciding the point, that the Body Corporate was fully within its right to insist on payment of the amount of R312 903.21 or an amount close to that. The trial Court appears to have been of the view that R250 000 is the maximum amount to which the Body Corporate could possibly be entitled to insist on for purposes of it to issue the clearance certificate.

[50] All the same, in my judgment, the first respondent should have paid the R312 903.21 before it could have demanded that the Body Corporate issue the clearance certificate. I agree with the Body Corporate that what the first respondent could and should have done was to pay the said amount under protest and then challenge his liability later.

Alternatively, he should have brought an application for a declaratory order as to the amount lawfully due to the Body Corporate.

What weighs heavily on my mind in forming this view, is the fact that the Order of the trial Court had unfairly deprived the Body Corporate of the protection afforded to it by s 15B(3)(a)(i)(aa) and the scheme envisaged by the section to receive contributions from the owners of Units in their scheme.

What is worse is the fact that since April 2014 the Body Corporate has not received one cent in respect of levies, service charges and other contributions relating to the Unit in question.

[51] More importantly, the Order does not, in my view, accord with the letter and the spirit of the said section and I say so for the reasons which follow.

[52] As indicated by the wording of the section, as cited in full in the majority judgment, section 15B(3)(a)(i)(aa) of the ST Act provides that the Registrar of Deeds shall not register a transfer of a unit unless the body corporate has certified that all moneys due to it by the transferor in respect of the said unit have been paid. At the outset, I need to make the point that the construction of this section lends itself to the interpretation which I contend for.

The Body Corporate is the entity who must indicate whether monies are due to it and how much. And only when all that money, as indicated by the Body Corporate to be due to it, has been paid, can the registration of the transfer proceed. If not, then the transfer shall not be registered.

[53] My interpretation of the section is that payment of monies due to the Body Corporate shall always and inevitably be preceded by the registration of the transfer – that is how the section is constructed and what its words say. If that requires the resolution of disputes relating to the amounts due in respect of the Unit then that should be attended to prior to transfer. The registration of the transfer shall not be registered unless and until monies due have been paid. Monies due cannot and will not be paid if there is a dispute. Therefore, it stands to reason that the transfer cannot and will not be registered until the dispute is resolved.

[54] As has been held by case law, to which I shall revert to later on in the judgment, a body corporate is given the power to resist the transfer of immovable property until moneys due and owing to it have been paid or until arrangements to pay have been made to its satisfaction. It therefore enjoys an effective preference which translates into a right not dissimilar to that of a secured creditor such as a mortgagor.

[55] In Nel NO v Body Corporate of the Seaways Building and Another the AD considered the provisions of the section. In that case the appellant was the liquidator of a company which, at the time it was placed in liquidation, was the owner of a number of units in a sectional title development. These units were mortgaged in favour of a bank. The liquidator sold the units by public auction but was unable to pass transfer to the purchaser because of a dispute concerning the interpretation of the provisions of the section.

Grosskopf JA said at 135C – D:

‘The position then is that the contested provision, although it did not create a preference in the ordinary sense, nevertheless gave the body corporate a power to resist transfer of units until moneys due to it were paid. The question at issue was the exact ambit of this power.’

[56] I interpret the aforegoing as authority for the simple proposition that the scheme of section 15B(3)(a)(i)(aa) contemplates and creates an embargo or veto provision as general security for the payment of debt to Body Corporates. The practical effect of the section is that a body corporate will be paid before transfer of immovable property is effected. A reasonable body corporate might arrive at an accommodation where there are insufficient funds available to cover the total of the debts owing to it – but is not obliged in law to do so. See: First Rand Bank Ltd v Body Corporate of Geovy Villa .

Correspondingly, a reasonable body corporate might arrive at an accommodation where there is a dispute concerning the amount due to it, but is not obliged to do so.

[57] In interpreting the section, one should also consider the difficulties experienced by bodies corporate who are faced with owners who default in their obligations to pay levies and related costs and the consequent socio-economic problems. These difficulties weigh heavily with me when I interpret the section. The point is that this statutory embargo serves a vital and legitimate purpose as effective security for debt recovery in respect of contributions to bodies corporate for water, electricity, rates and taxes, etc. Thus they ensure the continued supply of such services and the economic viability and sustainability of bodies corporate in the interest of all its members.

[58] Moreover, the trial Court’s interpretation of the section does not, in my opinion, give effect to the principle – as inter alia per Tshwane City v Blair Athol Homeowners Association – that a written instrument should be interpreted sensibly and that the words should not be interpreted so as to have an unbusinesslike result.

[59] This point is aptly demonstrated by the following facts. In April 2018 the Body Corporate issued clearance figures, indicating that an amount of about R312 000 should be paid. At that stage, the account ran up in respect of the Unit was standing at R295 000. By 14 October 2018 – when the Body Corporate’s answering affidavit was filed – that total, according to the BC, had increased to R369 000. The monthly debits at that stage, excluding interest altogether, amounted to R3264 per month. It’s been three years since then, which means that to date the account would have escalated by 36 X R3264 = R117 504, none of which has been paid by the first respondent. The point is that it makes very little business sense that an amount due to the Body Corporate, which changes and increases on a monthly basis, can and should be allowed to be the subject of a dispute and litigation before being paid, whilst at the same time the transferee of a unit is allowed effectively to be exempted from paying his dues to the BC.

[60] In sum, my view is that this result could not possibly have been the intention of the Legislature when it enacted the section. The effect of such an interpretation is that it can lead to a BC ending up in dire financial straits, which, in turn, would severely prejudice all the other members and the owners of the other units – not very businesslike.

[61] Furthermore, as I have indicated above, the section is explicit and peremptory, which means that exact compliance is required and failure to comply will result in the ensuing act being null and void. In other words, the registration of a transfer before payment of amounts due to a Body Corporate may very well be invalid.

[62] In sum, having regard to the wording of the section and the scheme at which it is aimed, the Body Corporate was entitled to embargo the transfer as monies due to it had not been paid. For this reason alone, the appeal should be upheld.

[63] There is, however, another reason why the order of the Court a quo should not be confirmed, and that relates to its interpretation of the words ‘provision for payment’.

[64] The Body Corporate contended that security for payment is not a form of payment to the Body Corporate or provision for payment. I agree. To post security for a payment subject to certain conditions does not equate to ‘provision for payment’. Provision for payment should have exactly the same effect as payment. In other words, before the registration of the transfer, the Body Corporate should be in receipt of payment, which clearly is not the case if security is provided.

[65] In the circumstances, I would have upheld the appeal and substituted the order of the trial Court with the following order:

‘The applicant’s application is dismissed with costs’.

Court summary

Summary

 

Media summary

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.