Levy clearance certificate: Refusal to issue?

Note: Footnotes omitted and emphasis added

Introduction

[1] This appeal concerns the interpretation of s 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 (‘the ST Act’). The court has to consider whether the court a quo was entitled to assess whether the security in the form tendered by the first respondent would suffice to oblige the appellant to issue the requisite levy clearance certificate.

Background Facts

[2] The appellant is a Body Corporate of Marsh Rose. It is duly constituted in terms of section 36(1) of the ST Act for the sectional scheme known as Marsh Rose. The first respondent purchased a unit in the scheme at a judicial auction on 30 January 2018 and has complied with the conditions of the sale in execution. The registered owner of the property (the soon to be ex-owner) – is not cited in these proceedings.

[3] The body corporate refused to issue a levy clearance certificate required in terms of section 15B(3)(a)(i)(aa) until the outstanding amount of R312 903.21 owed by the current registered owner of the unit has been paid.

[4] The amount demanded by the body corporate does not comprise exclusively of levy amounts due to the body corporate. It includes, amongst others, a judgment debt and un-taxed legal costs against the registered owner granted pursuant to a debt in respect of the property. The appellant contends that the subsection is intended to secure payment of all amounts owing in respect of the unit upon transfer of the property into the name of the transferee. Accordingly, the amount owed cannot be determined subsequent to the provision of a clearance certificate as found by the court a quo.

[5] In paragraph 33.3 of the answering affidavit, the body corporate states:

“In so far as legal fees are concerned, these are legitimately owing. If it is necessary to tax them, then this would need to be done prior to transfer taking place since a levy clearance certificate cannot be issued before they are paid (or proper provision made therefor).”

[6] On 17 April 2018, the body corporate provided the first respondent with a new breakdown of charges in the sum of R295 044.81. The first respondent again disputed the amount claimed and tendered to give security to the body corporate in the amount of R150 000.00 for the clearance certificate to be issued. The body corporate refused to accept the security proffered by the first respondent as being insufficient as to both the amount and form.

[7] On 19 February 2018, the first respondent, through his attorneys, addressed a letter to the body corporate stating:

“We are instructed that you had claimed an amount from our client which does not comprise exclusively of levy amounts due to the Body Corporate. We are instructed further that when our client requested the ledger detailing this amount, you refused stating instead that our client could pay under protest and raise the dispute at a later stage. This is unacceptable as some of the amounts that the Body Corporate is claiming are patently unlawful, such as the collection costs.

This refusal by the Body Corporate to provide the ledger detailing the amount claimed by the Body Corporate is unreasonable and irrational and is presently causing our client damages due to the delay in the transfer of the property.

We are accordingly instructed to demand, as we hereby do, that you provide:

1. The ledgers detailing the amounts that the Body Corporate is allegedly owed;

2. The minutes circulated by the Body Corporate in respect of the levies raised from 2014 to present;

3. The resolution passed by the Trustees of the Body Corporate in respect of the interest charged on arrear levies from 2014 to present.”

[8] The Body Corporate’s written response on 22 February 2018 was that the first respondent accepted to pay all amounts outstanding to the body corporate when he signed the conditions of sale. It stated that it was not obliged to provide the first respondent with information detailing the amount claimed as he was not yet a registered owner of the unit.

[9] The first respondent (purchaser in execution) applied to the court a quo for an order directing the body corporate to issue the required levy clearance certificate in respect of the unit against payment by him into his attorneys’ trust account of an amount as security for any amount which the body corporate might recover in an action or arbitration that the body corporate may institute in respect of the property within ten days of the granting of the order.

[10] Wanless AJ accepted the first respondent’s interpretation of the statutory provisions.

He held in favour of the first respondent and made the following order:

1. That First Respondent (Appellant herein) is to sign any and all papers and take any steps necessary, for the transfer of the property known as section [….] of the Sectional Scheme Marsh Rose SS269/2012, Country View Extension 1 Township (“the property”) to the applicant (First Respondent herein) subject to paragraph 2 hereof.

2. Within 10 (TEN) days of the granting of this order the applicant is to provide an amount of R250 000,00 (Two Hundred and Fifty Thousand Rand) for the purposes of Section 15B(3) of the Sectional Titles Act of 1986.

3. The aforesaid sum shall be held as security for any claim that the First Respondent may have in respect of the property in the trust account of the applicant’s attorneys of record and shall be unconditional and irrevocable subject to paragraphs 4, 5 and 6 hereof.

4. The first respondent (appellant herein) is to institute an action in respect of, alternatively, refer to arbitration, its claim against the applicant and any other party in respect of the property within 10 (TEN) days of the granting of this order.

5. In the event that the first respondent fails to comply with paragraph 4 hereof the amount paid in terms of paragraph 2 hereof shall be repaid to the applicant.

6. In the event that the first respondent complies with paragraph 4 hereof, the amount paid in terms of paragraph 2 hereof shall be retained in an interest-bearing bank account held by the applicant’s attorneys of record pending the finalisation of the action or arbitration as set out in paragraph 4 hereof.

[11] The body corporate appealed against the judgment and order of the Court below, leave to appeal having been granted by Wanless AJ.

[12] It is the body corporate’s case that the “amounts due” in terms of section 15B(3)(a)(i)(aa) includes any amounts owing to it no matter how it is comprised. The body corporate’s view is that the amount due by the owner should first be determined (where there is a dispute concerning them), payment should be made, or provision made therefore and only then would it issue a clearance certificate.

[13] The provisions of the statute, as I will show, does not support the far-reaching interpretation contended for by the appellant. If parliament intended that “amounts due” to the body corporate should also include amounts unlawfully raised to the account of the owner, it would have said so expressly.

[14] The body corporate submits further that the amount of R250 000.00, which the court ordered to be paid into the attorney’s trust account, should include a sum of R43 380.09 in respect of the legal costs of the judgment that the body corporate obtained against the registered owner.

[15] I turn now to consider the provisions of Section 15B (3)(a)(i)(aa) of the ST Act, which provides:

‘The registrar [of deeds] shall not register a transfer of a unit or an undivided share therein unless there is produced to him ─
(a) a conveyancer’s certificate confirming that as at date of registration ─
(i)(aa) if a Body Corporate is deemed to be established in terms of section 36(1), that Body Corporate has certified that all moneys due to the Body Corporate by the transferor in respect of the said unit have been paid, or that provision has been made to the satisfaction of the Body Corporate for the payment thereof;’ (my emphasis)

[16] It is trite that when interpreting a statute, the language in the legislation should be read in its ordinary sense and that the words in a statute must be given their ordinary meaning in accordance with the context in which they are found . Consideration must further be given to the context in which the provision appears, the apparent purpose to which it is directed, and the material known to those responsible for its production .

[17] The section, when construed in a business-like and common-sense manner, allows for the transferor, instead of making actual payment as at the date of registration, to make provision for the payment of the debt provided it is to the satisfaction of the body corporate. This has the advantage that it will avoid the consequences of payment under protest, namely, costly and unnecessary litigation to reclaim what is not due.

[18] The legislature must have been aware that the monies due to the bodies’ corporate could be disputed on bona fide grounds, which could be an obstacle to the transfer of property and the embargo could amount to an arbitrary deprivation of property where, as in the present case, the property owes substantial amounts which are disputed.

[19] The court below noted that as the indebtedness of the first respondent is admittedly in respect of arrear levies only and that only arises upon the transfer of the property, nothing will prevent the body corporate from joining other parties in the action or contemplated arbitration to claim the other monies due to the body corporate.

[20] To hold otherwise would mean that Bodies Corporate, which have raised charges to an account of the owner without any lawful right to do so, may withhold transfer of the unit indefinitely to secure payment of disputed monies that may turn out not to be due. This could hardly have been the intention of the legislature.

[21] This brings me to the second issue.

The statute requires the payment provisions to be to the satisfaction of the body corporate without specifying what form of security is needed. The body corporate is not required to satisfy itself by any particular method or means.

[22] There can be no question that the decision of the Body Corporate would be amenable to challenge if the Body Corporate does not act in good faith; it refuses to exercise any real discretion at all; or if its discretion is exercised in a manner prejudicial to the interest of the owner.

In Mkontwana the Constitutional Court, in dealing with embargo provision in terms of section 11(3) of the Municipal Systems Act, which are similar to section 15B, held that a dispute on clearance figures is susceptible to judicial intervention.

The court held:

“… A dispute about the amount of the consumption charge that must be settled before a section 118(1) certificate can be issued is a justiciable issue. There is nothing to prevent any owner or purchaser of the property, including any applicant in this case, from accessing a court to have the justiciable issue resolved. The last argument has nothing to commend it”.

[23] The body corporate must exercise its discretion according to the rules of reason and justice . It must exercise an honest judgment and its decision to reject the payment provision must be based on reasonable grounds. See Koumantarakis Group CC v Mystic River Investment 45 (Pty) Ltd .

The onus rests on it to prove that it is entitled to the disputed amount . The body corporate cannot contend for a payment in full ‘under protest’.

As Sishi J found in YST Properties CC v Ethekwini Municipality and Other , such payments are not conditional and constitute full payment of the debt owed. The onus then rests on the person paying the debt to establish, in other proceedings, that the amount paid was not actually due and should not have been paid. This would have the effect of reversing of the onus which rests on the body corporate to prove the amount due to it.

Additionally, the court below has already made provision for proceedings to be instituted by the body corporate for it to establish not only the amount due to it but also the party liable for such amount.

[24] The form of security which has been ordered by the court a quo is unconditional, irrevocable and will earn interest. It takes account of the amount which may, in totality be due, to the body corporate by all parties, not just the transferor. The court a quo was correct, in my view, in finding that the payment provision was objectively reasonable and the body corporate ought to have been satisfied with the security offered and issued the clearance certificate.

[25] The appellant, it would appear, has taken upon itself the power to unlawfully raise to the account of the owner amounts which are not due to it, thereby exercising its discretion in a manner prejudicial to the first respondent’s interest.

[26] I digress to observe that the appellant conceded that it had no claim against the first respondent save for arrear levies at the commencement of the hearing in the court below. It argued, however that until all the charges were paid, it was entitled to apply the “embargo” provided to it in terms of section 15B(3)(a)(i)(aa) by refusing to issue the clearance certificate.

[27] The liability for levies is the incident of ownership of a sectional title unit and is a burden that attaches to such ownership . The amount of R43 380.09 being legal costs in respect of which the body corporate has taken judgment against the owner and has attached the property in execution, is not a burden on the unit as the nature of the debt has changed. The judgment debtor remains personally liable for the debt and costs, and his credit rating is impugned thereby. The body corporate cannot claim the same amount again from the first respondent as it has done.

[28] The amount of collection and legal costs claimed before a clearance certificate could be issued is R57 395.89. These costs have not been taxed or agreed to as provided for in section 25(5) of the STSMA and are accordingly unlawfully levied as the amount is not due.

[29] It is common cause that the body corporate has charged interest on un-taxed legal fees, which it is not entitled to do. The interest charges raised to the account are R142 810.25 over 4 years and nine months. Instead of charging 9% simple interest on the judgment amount as ordered by the court, the appellant unlawfully varied the court order and charged interest at an inflated rate of 24% compounded monthly, which meant that certain amounts raised to the account would have exceeded the capital balance which offends against the in duplum rule.

[30] The body corporate has refused to provide a resolution authorizing the charging of the aforementioned interest.

Section 3(2) of the STSMA read with the management rules 21(3) provides:

(3) The body corporate may, on the authority of a written trustee resolution-…

(c) charge interest on any overdue amount payable by a member to the body corporate, provided that the interest rate must not exceed the maximum rate of interest payable per annum under the National Credit Act, 2005 (Act 34 of 2005), compounded monthly in arrear;”

[31] The body corporate has failed to prove that it was authorized to charge the inflated interest on the overdue amount.

[32] All contributions levied are due and payable once the trustees of the body corporate have passed a resolution to that effect . The first respondent took issue with the computation of the claimed amount and requested the body corporate to produce the resolutions passed as proof that the amounts claimed are owing and payable. The explanation or supporting documents were refused. On the Plascon-Evans test, the body corporate’s version that levies are due and payable falls to be rejected as they have not been proved.

[33] It is not clear why the body corporate is claiming levies from the first respondent when section 3(2) of the Sectional Titles Schemes Management Act states that ordinary levies, additional levies and levies payable to the reserve fund may be recovered by the body corporate by an application to a regional ombud from persons who were owners of units at the time when such resolution was passed.

[34] In the light of the aforegoing, the Court a quo was entitled to assess whether the security in the form tendered by the first respondent was sufficient to oblige the body corporate to issue the clearance certificate under the circumstances.

[35] In the result, the appeal is dismissed with costs.