Body Corporate Levy Clearance Explained

A  matter that has become a thorn in the flesh of many conveyancers and their clients, is the often exorbitant fees charged by bodies corporate and/or their managing agents for the issuing of a so-called “levy clearance certificate”.

Where does the need for such certification originate from? Should the cost thereof be regulated?

THE TECHNICAL

 

The requirement is to the body corporate’s advantage

Section 15B(3)(a)(i) allows a body corporate to prevent transfer of a unit if the selling owner owes any money to the body corporate. This holds a substantial benefit for all owners in the sectional title scheme (as represented by the body corporate) as it ensures that owners do not escape outstanding obligations owing to the body corporate on transfer of their units to a new purchaser.

The provision refers to payment of “all monies”, not just contributions or levies.  Therefore outstanding levies as well as costs and penalties are collected in this way.

How it works in practice

In order to be able to issue the required certificate, the conveyancer notifies the body corporate of the intended transfer of the unit to the new purchaser and enquires what amounts, if any, are payable by the current owner so that the conveyancer can certify that all amounts as at date of transfer have been paid to the body corporate, or that provision has been made therefor. The body corporate or managing agent will provide the conveyancer with the figures, consisting of any arrears as well as an advance collection, and after payment has been made, usually gives written assurance that the owner does not owe any monies as at the anticipated date of transfer.  It has, however become practice,  to issue a formal certificate.  This written assurance from the trustees or managing agent is what is commonly referred to as the “levy clearance certificate”.

 

While the body corporate and/or managing agent is strictly only required to inform the conveyancer of the owner’s status in respect of any monies due , bodies corporate and/or managing agents use the “levy clearance certificate” as a tool to obtain other details.

 

Most managing agents resist the conveyancer’s request for figures of amounts owing up to the anticipated date of transfer until the conveyancer has also provided them with additional information, such as the name, domicilium address and contact details of the new owner, preferred method of delivery of the levy statement and a copy of the rules signed by the new purchaser.

Are two certificates required, one by the conveyancer and managing agent each?

We are of the opinion that the legislature did not envisage formal certification by the body corporate or managing agent before the conveyancer can issue the certificate.

Rather, it appears to be clear from the wording of section 15B(3) that the conveyancer is the party that is required to issue a certificate – the wording in the section specifically requires a “conveyancer’s certificate”.

 

The conveyancer’s certificate, in turn, is issued after “the Body Corporate has certified that…”.  It is writer’s submission that “certify” in this context does not necessarily require that the body corporate also has to issue a certificate.  The definition of ‘certify’ contains the element of formal written declaration, as seen from the following definitions:

 

  • Mirriam-Webster Dictionary: “to say officially that something or someone has met certain standards or requirements”;
  • Oxford Living Dictionaries: “attest or confirm in a formal statement; officially recognize as possessing certain qualifications or meeting certain standards”; and
  • Oxford Advanced Learner’s Dictionary: “formally declare something, especially in writing”.

 

Can conveyancers, in circumstances where a selling owner is paid up and in credit, then not argue that where a body corporate or managing agent confirms no amount is due and payable by the owner and it is clear that no amount will become due as at the anticipated date of transfer, for purposes of the issue of a section 15B(3) certificate by the conveyancer the written confirmation received suffices? Or, in the instance where an amount is due, upon receipt of confirmation that same was paid a conveyancer can then issue the certificate after payment of the amount (provided transfer takes place on or before the anticipated date), without obtaining a formal “levy clearance certificate” from the body corporate or managing agent.

 

Surely if a certificate by the body corporate or managing agent was required, the legislature would have stated that a “body corporate certificate” was required. So too, one would then have expected the legislature to require that such body corporate certificate be lodged in the deeds office, similarly to the position regarding municipal clearance certificates or homeowners’ association certificates in freehold transfers.

 

ABUSE

Even if all conveyancers are not in agreement with the above argument, there is no question that this practice constitutes an opportunity for abuse of position for the body corporate (whether or not it is acting through a managing agent) to charge its own member a fee, way in excess of the complexity of the task performed by it, in circumstances where the member has no option but to pay the fee in order to be able to pass transfer. There is no question that the seller cannot proceed with the transaction without the body corporate’s involvement and it smacks almost of blackmail.

 

Interestingly, this same issue arose quite a while ago on a discussion by practitioners on the Ghostdigest website at http://www.ghostdigest.com/articles/excessive-levy-clearance-fees/52279.  The following comments are noteworthy in the context of this article, and followed on a complaint by a practitioner regarding exorbitant fees charged by a body corporate for a clearance certificate. (The fee complained of for the certificate was then, in 2004, R800.)

 

CONCLUSION

 

The mythical ‘levy clearance certificate’ appears to have become the goose that lays the golden egg for many a managing agent.  In my experience the cost of obtaining confirmation from a body corporate now ranges from about R750 to about R1500.  Not too long ago it used to be a simple administration fee of R350.

 

The lack of regulation in the sectional titles management industry has led to the exploitation by some managing agents of the bodies corporate that they serve, and therefore, as a matter of fact, the property owners themselves.

 

As argued in this article, I believe nothing more is required than a simple written confirmation that all monies due to the body corporate by the transferor has been paid or provision has been made to its satisfaction for the payment thereof.  With today’s technology and accounting or managing systems, it should take nothing more than the simple push of a button to establish this, which might justify a small administration fee but most certainly, in my opinion, not the exorbitant amounts charged by managing agents at present.

 

One would have expected that matters of this nature be regulated by the new Sectional Titles Schemes Management Act, more particularly that prescribed maximum tariffs be set for duties of the body corporate and/or managing agents.

 

In the absence thereof, however, I believe owners of sectional title properties must take control in respect of this issue.  The owners, who are the ones directly affected by these practices, must decide and prescribe the fees to be charged for, amongst other things, attending to such a (in most instances) simple administrative task as confirming their indebtedness, or not, to conveyancers.  (I suppose the same may apply to instances were homeowners’ associations are in place, except in that instance, an actual consent from the homeowners’ association must be lodged with the transfer documents for purpose of registration.  These consents should however be prepared by the conveyancer and therefore should also not cost the owner an arm and a leg.)

Owners should therefore be involved and not be complacent with and simply accept these practices coached by managing companies to be the norm.

2017-11-16T15:22:29+00:00