Special levies in a Sectional Title Scheme

Trust litigation – Who can institute a claim and which court has jurisdiction?
April 19, 2018
Beware of “repayable on demand” loans – they may prescribe
June 5, 2018

From time to time a body corporate may be required to raise a special levy on its members.  Such a levy would be in addition to the normal monthly levies for which members are customarily responsible.  As the use of the word “special” suggests, these levies would be required to off-set unexpected but urgent expenditure which was not foreseen at the AGM of the Body Corporate and may include re-painting of the common property, repair to the lift or enhanced security.

Under the Sectional Titles Act of 1986 there was no provision whereby these special levies would be pro-rated between a seller and a purchaser of a unit.  In the absence of an agreement to apportion the special levy between the parties to a sale agreement the seller was liable for payment of the entire special levy.  This could be unfortunate for the seller where the special levy has been declared shortly before the sale, resulting in the seller paying for the additional amount when the purchaser would benefit from the improvement.

Happily the Sectional Titles Schemes Management Act, 2011 does shed some light on the issue.  Section 3(3) provides that where a body corporate has raised a special levy the levy can be recovered from the owners of units at the time the resolution to raise the special levy was taken. However, in the case of a change of ownership of a unit the successor in title becomes liable for pro rata payment of such special levy from the date of change of such ownership.  A case can therefore be made that a special levy be apportioned between the parties to a deed of alienation with effect from date of transfer. Nevertheless the parties to a deed of alienation could agree that one of them be exclusively liable for the full amount of the special levy.

Prospective purchasers should therefore always enquire from the seller, the estate agent or even the body corporate whether any special levies are payable and, if so, what amount is outstanding.  The amount could be considerable and have a very real impact on whether the purchaser can afford to purchase the unit.

What if a special levy has been raised and a seller fails to disclose this fact to the purchaser?  Would an uninformed purchaser who has not included such an amount in his estimate of costs for the purchase be able to cancel the contract?  It could be argued that based on the maxim caveat emptor (the buyer beware!) the purchaser should have made enquiry regarding the existence of a special levy or not.  The counter argument, especially where the purchaser is not represented by an attorney (as is most often the case), is that failure by the seller to disclose the existence of a special levy would constitute bad faith.  Were the special levy amount to be reasonably substantial, there may be grounds for an aggrieved purchaser to withdraw from the sale agreement.

For more information regarding property and sectional title schemes, please contact:

 

Robert Ferrandi  |  Managing Partner

E: r.ferrandi@bissets.com

Areas of Expertise: Property Law & Conveyancing

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)