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Sloan Wilson Attorneys Newsletter – September 2016

Special Levies in Sectional Title Schemes

The raising of special levies in a Sectional Title scheme is often the cause of conflict between owners and Trustees in the scheme. I have attended many Body Corporate meetings which have been called about the issue of special levies.

There are two types of levies in Sectional Title Schemes namely general levies and special levies. In simple terms general levies cover “foreseen” annual expenses payable by the Body Corporate which have been budgeted for at the AGM including the cost of maintaining, repairing and managing the common property; rates and taxes and other municipal charges; insurance premiums and the like.

Special levies are levies which are raised to cover the costs of “necessary” expenses which have not been budgeted for in the budget approved by the owners at the last annual general meeting. In practice special levies are raised by Trustees for various reasons including, for example, the painting of the outside of a block of flats and the making of improvements to the common property. Whether or not the Trustees have the right to raise a particular special levy will depend on the facts of each case and it is not always clear-cut. I am often asked whether Trustees have carte blanche in respect of the raising of special levies. In other words, do Trustees have unfettered powers to raise special levies?

The general principles relating to the raising of levies can be summarized as follows: With regards to general levies the Trustees must prepare an estimate of general levies each year and lay this estimate before the annual general meeting for consideration and approval by the owners in the scheme. The raising of general levies is therefore a consultative process and requires the approval of the owners.

However, the Trustees may, in addition to general levies, make special levies in respect of necessary expenses which were not included in the general levies which were approved at the AGM. The raising of special levies is not a consultative process as is the case with general levies. In other the Trustees do not require the approval of the owners to raise a special levy.

However this does not mean that the Trustees have unfettered powers to raise special levies. The expenses in respect of which the special levy is being raised must be “necessary” expenses which have not been budgeted for in the general levies. Furthermore in terms of Section 39(1) of the Sectional Titles Act the owners may, at the general meeting of owners, place restrictions on the Trustees with regards to the raising of special levies. For example the owners may direct that the Trustees may not incur expenses in excess of a specified amount without obtaining the approval of the Body Corporate (owners in the scheme).

Contrary to popular belief it is not the Trustees who have an unfettered right to lay down the law in a scheme – it is the owners in a general meeting who have the ultimate decision making power in a scheme. Whilst it is correct that the Trustees perform the functions of the Body Corporate the owners may, by following certain procedures, restrict the powers of the Trustees. Bodies Corporate who wish to retain an element of control over the raising of special levies by Trustees can implement their rights in terms of Section 39(1) of the Act.

 

Determination of Levies in Sectional Title Schemes

A recent court case ( Extra Dimensions ( Pty) Ltd vs Body Corporate of Marine) dealt with the issue of determining the amount of the levies that were payable by the owners in a scheme. In many schemes the amount of the levy payable by each owner is determined in accordance with the participation quota ( PO) of each section. In fact the Sectional Titles Act (the Act) states that levies will be determined in accordance with the section’ s PQ unless a Determination has been made in terms of Section 32( 4) of the Act. Section 32( 4) enables the owners in a scheme to make a rule ( by way of a special resolution) which provides for the amount of levies payable to be determined not in accordance with the PQ but rather by way of some other calculation agreed to by the owners.

But Section 32(4) also states that if an owner is “adversely affected by such a decision” (to make a rule in terms of which levies are calculated other than in accordance with the PQ of each section) then his/her consent must be obtained.

In the above case the owners made a rule in terms of Section 32(4) which resulted in one of the owners in the scheme ( a Company) having to pay higher levies than it was previously paying. The company took the matter to court and the issue that had to be determined by the court was the interpretation of the words “adversely affected”.

The court held that the words did not allow an owner to claim that his/her rights were “adversely affected” merely because he/she was required to pay an increased levy. The philosophy underlying the Act is for all owners to be treated fairly. To decide whether or not an owner was “adversely affected” all the facts and circumstances relating to the way in which the levies are determined and the amount of the levy payable by each owner must be considered, and not only the fact that an owner has to pay more levies when the rule is passed.

In this case, after taking a ll the facts into consideration, the court held that the owner had not been adversely affected notwithstanding the fact that their levies had been increased as a result of the rule being passed in terms of Section 32( 4).

Quote of the Month

Yes, there’s such a thing as luck in trial law but it only comes at 3 o’clock in the morning. You’ll still find me in the library looking for luck at 3 o’clock in the morning.
Louis Nizer

The Lighter Side of the Law

A doctor and a lawyer were talking at a party. Their conversation was constantly interrupted by people describing their ailments and asking the doctor for free medical advice. After an hour of this, the exasperated doctor asked the lawyer, “What do you do to stop people from asking you for legal advice when you’re out of the office?”

“I give it to them,” replied the lawyer, “and then I send them a bill.”

The doctor was shocked, but agreed to give it a try. The next day, still feeling slightly guilty, the doctor prepared the bills. When he went to place them in his mailbox, he found a bill from the lawyer.

 


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