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Clampdown II

23 February 2006

I refer to your article of 12 January 2006 entitled "Clampdown" and wish to point you to my own article published on your site entitled Sectional Titles Amendment in this regard. The Clampdown article, written by a candidate attorney, is incorrect and misleading for a number of reasons.

The initial intention of the legislator in enacting the amendment to section 47 was precisely as the candidate attorney suggests the position now is. However, prior to the passage of the bill through the parliamentary sub-committee concerned, the bill attracted the attention of "levy financiers" who attempted to convince the committee to abandon this particular change, alternatively to make a subtle change to the wording that rendered the amendment effectively of no force against creditors such as themselves.

The sequence of events was as follows:

10 December 2004
Bill 10-2005 Gazetted (gazette 27047)
Section 47 of the principal Act is hereby amended by the substitution for the proviso to subsection (1) of the following proviso:
'': Provided that any member who [is so required to make a payment to a
judgment creditor after he has paid to the body corporate any contribution which he was required to pay to that body corporate in respect of the same debt, shall be entitled to obtain a refund from the body corporate of the amount of the payment so made to the said creditor] has paid the contributions due by him or her in terms of section 37(1) to the body corporate prior to the judgment against the body corporate, may not be joined as a joint judgment debtor in respect of the judgment debt.''.


Subsequently Bill 10A -2005 is gazetted. It contains only one amendment to Bill 10-2005
On page 3, in line 40, after "corporate" to insert "in respect of the same debt".

Bill 10B-2005 incorporates the change brought about by Bill 10A-2005 above. The amendment to section 47 now reads (my emphasis):

Section 47 of the principal Act is hereby amended by the substitution for the
proviso to subsection (1) of the following proviso:

'': Provided that any member who [is so required to make a payment to a judgment creditor after he has paid to the body corporate any contribution which he was required to pay to that body corporate in respect of the same debt, shall be entitled to obtain a refund from the body corporate of the amount of the payment so made to the said creditor] has paid the contributions due by him or her in terms of section 37(1) to the body corporate in respect of the same debt prior to the judgment against the body corporate, may not be joined as a joint judgment debtor in respect of the judgment debt.''

8 July 2005
The Sectional Titles Amendment Act 7 of 2005 was assented to by the President on 8 July 2005. The wording of the amendment to section47 (1) is as follows:

Section 47 of the principal Act is hereby amended h the substitution for the proviso to subsection (1) of the following proviso:
": Provided that any member who [is so required to make a payment to a judgment creditor after he has paid to the body corporate any, contribution which he was required to pay to that body corporate in respect of the same debt, shall be entitled to obtain a refund from the body corporate of the amount of the payment so made to the said creditor] has paid the contributions due by him or her in terms of section 37(1) to the body corporate in respect of the same debt prior to the judgment against the body corporate may, not be joined as a joint judgment debtor in respect of the judgment debt.".


It should be clear that the insertion which necessitated a new bill of its own and an amended bill must have been deemed to be an important change - and indeed it was.

The instigator of the change was essentially a creditor of bodies corporate which would have stood to lose a substantial amount of money, had the bill been passed in its original form. Minutes of the Portfolio Committee on Agriculture and Land Affairs' meetings show that the aforesaid creditor first attempted to have this particular amendment "abandoned".

The scheme administered by the creditor operates in the following manner:
The body corporate is in financial dire straights, owing a large amount of money to the council in respect of service arrears. It is approached by the creditor, which offers to solve the problem. An agreement is entered into (on occasion making use of proxy votes contained in the individual owner's mortgage agreements - the creditor acts as agent for the bank and votes to the exclusion of the home owner) in terms of which the creditor advances sufficient funds to pay off outstanding debts. In security for the loan the body corporate cedes all current and future book debts to the creditor (levies owing by owners).

This is all good and well, but it doesn't end there. Each month funds are collected by the trustees (levies). However, the right to receive these funds having been ceded to the creditor, the money must immediately be paid over to the creditor. It doesn't take a chartered accountant to see that the body corporate will face a cash-flow crisis. Therefore additional loans in an amount equal to the levy for the month are extended by the creditor. Interest is charged at the highest possible lawful rate and monthly "administration charges" per unit accrue.

Should the body corporate default on its repayments the creditor, in terms of the law prior to the amendment, would be able to foreclose against first the body corporate and then all of the individual owners, irrespective of whether or not their levy payments were up to date.

The proposed amendment threatened the security of the creditor. I have dealt with the issue of just how the change in the wording changes the position in other published articles on the subject. Sectional Titles Amendment supra.

Section 37(1) is the section that empowers and enjoins bodies corporate to collect contributions (levies) from owners. Levies are collected in advance to pay for estimated (budgeted) expenses in the coming year. Levies are not levied in respect of debts already incurred as required before the wording of the amendment will be of assistance to diligent owners. I therefore am of the opinion that the amendment does not afford the owners of units the kind of protection envisaged, if indeed it protects them at all.

Russell Warner
warner.co.za

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