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HOA's embargo

18 December 2014

HOMEOWNERS ASSOCATIONS – EMBARGO ON TRANSFER WITHOUT A CERTIFICATE

I refer to the judgment of the Supreme Court of Appeal handed down on Friday 12 December 2014 in Willow Waters Homeowner's Association v Koka and Others (case number 268/2013).

The issue was whether a so-called "home owners association clause" registered as a condition of title is in fact a real or a personal right. Two conflicting decisions, one of the Johannesburg and one of the Pretoria High Courts were determined by the SCA in this case and another handed down on the same day (Cowin v Kyalami Estate Home Owners Association and Others (Case Number 499/2013)).

The SCA found that the condition is in fact a real right by simply applying the test for a real right - There was intention to create a real right by the person who created it and the right resulted in a subtraction from the dominium of the land against which it was registered.

What is curious though is that the Court found the right to be "akin to that of the embargos contained in s118 of the Local Government: Municipal Systems Act 32 of 2000 (The Municipal Systems Act) and s 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986". Maya, JA went on to state that, "These objects are precisely what the embargo in this case seeks to achieve. Nothing in the law impedes this type of security..... there is no material difference between homeowners associations and bodies corporate in respect of their objects, activities and status. There is simply no basis to deprive the association of the protection afforded by the embargo which has an identical purpose and effect to that provided to bodies corporate (and municipalities) by a law of general application."

My respectful submission is that the elephant in the (court) room is this:-

Both bodies corporate and municipalities have enabling legislation that regulates them and furthermore specifically gives them the power of embargo.

There is no such regulatory framework in the case of homeowners associations. In the absence of a "Homeowners Associations Act" the arrangement is merely contractual. Real security by means of mortgage bonds is specifically enables in the Deeds Registries Act. How can a mere contractual right be effectively elevated above rights conferred by statute? Is the SCA not infringing on the separation of powers by effectively making legislation that has never been passed by the legislator?

I have no doubt that the embargo to transfer while levies remain unpaid is a useful debt collection tool. My submission is that legislation needs to be passed to enable this.

A further consideration is the issue of Prescription. Does this judgment imply in any way that homeowners association levies are not debts that are subject to the ordinary three year prescription period? I think not. Therefore a homeowners association cannot refuse to pass transfer when a tender has been made to pay as much of the debt as has not prescribed.

Russell Warner Attorney
Norwood

 Willow Waters Homeowner's Association v Koka and Others and Cowin v Kyalami Estate Home Owners Association and Others

Reader Comments: 1
Ken Mustard 19/12/2014:

My concern is that not sufficient attention has been paid to the law of insolvency. The debt due to the HOA is not a statutory debt. It is not preferent, nor is it secured. The HOA has the right of embargo relating to monies owing to it but surely the debt as at date of insolvency "falls into the pot"? The reasoning in the Mitchell / Tshwane case also should be looked at. I think that we need to carefully consider the judgement and the effect - and also ask ourselves if HOA's should receive special treatment?

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