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Special levies

21 May 2009

During an economic downturn that has many of us tightening our belts the last thing we welcome is an unexpected expense. As an owner in a sectional title scheme however, unexpected expenses are a real possibility. We all know that we have to pay our general levy, which is the result of an owner-approved budget at each annual general meeting and is normally payable in monthly instalments, but we are also liable to pay any special levies that are validly raised by the trustees from time to time. General levies are part of our budgets, but special levies generally hit us out of the blue. We explain the law applicable to these special levies so that you can be armed next time one is raised by the trustees in your scheme.

The Sectional Titles Act 95 of 1986 ("the Act") itself does not mention special levies. The management rules prescribed under the Regulations to the Act deal with special levies in prescribed management rule ("PMR") 31(4). PMR 31(4) gives the trustees the power to raise special levies from time to time provided that two requirements are met. Firstly the expense for which the special levy is raised must be necessary and secondly the expense must not have been budgeted for in the budget approved by the owners at the last annual general meeting. The trustees may decide in resolving to raise a special levy that such levy will be payable in one lump sum or in such instalments and at such times as the trustees think fit.

It seems from the wording of PMR 31(4) that the trustees have been empowered with the ability to raise special levies for unforeseen and unexpected expenses.

The requirement of necessity is difficult to definitively interpret as it is a subjective concept which may differ from person to person or from board of trustees to board of trustees. Additionally, the requirement that the expense item must not have been budgeted for creates the problem that technically the trustees are not able to raise special levies to cover the shortfall when a budgeted item has been under-budgeted for.

Save for the requirements set out above, PMR 31(4) does not give us an indication as to what expense items justify the imposition of a special levy. Disputes often arise when special levies are purportedly raised for an expense item that appears to be an improvement to the common property. Luxurious and non-luxurious improvements to the common property are governed by PMR 33 and require particular processes to be followed and levels of owner consensus to be obtained before they are authorised. Trustees do not have the power to simply raise special levies for improvements to the common property as envisaged by PMR 33 without following the requisite procedures.

It must be noted that in terms of section 37(2) of the Act, the persons who are owners at the time the special levy was raised are liable to pay the special levy. This becomes especially important when a special levy is raised and becomes due and payable after an owner has sold his unit but before the transfer of ownership has taken place. As soon as the unit has been transferred from the seller to the purchaser the seller may believe that he is not liable to pay the special levy anymore because he is no longer the owner of the unit. But because the seller was the owner at the time the special levy was raised and became due and payable - the body corporate is only entitled to recover the special levy from him and has no legal entitlement to recover the special levy from the purchaser as the new owner in the absence of some other contractual arrangement.

The University of Cape Town and Paddocks offers a 6-month distance learning Sectional Title Scheme Management Certificate course, suitable for anyone who is interested in furthering their knowledge in sectional title scheme management. Please contact Christina at christina@paddocks.co.za for further information.

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