Extra charges on your levy statement: legal or not?
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One of the most frustrating tasks some trustees and managing agents have to tackle, is the situation where the body corporate finds itself in financial difficulty as a direct result of some of its members failing, and/or refusing to pay their contributions (commonly referred to as "levies').
The common law in duplum rule applies to all interest charges, which means that the current interest on debt can never exceed the capital amount of that debt. It is from this place of frustration that trustees and managing agents often take a "desperate times call for desperate measures" approach and unlawfully place certain amounts on the defaulting member's levy statement.
While it is completely understandable that the trustees feel the need to take action to force the defaulting owner to make payment as a matter of urgency, it is important that they act in a lawful and appropriate manner when doing so. Here are some things to remain mindful of in such circumstances:
- Legal fees need to be taxed Naturally, the body corporate will want to recover the legal expenses it has incurred in the collection of arrear contributions from the member, but if the member fails and/or refuses to agree to pay such legal fees (which they almost always will), the management rules prescribed under the Sectional Titles Schemes Management Act require that the body corporate get the fees taxed before it can be legally recovered from the member. Therefore, trustees cannot simply add the body corporate attorney's fees to the members levy account upon receipt of the invoice from the instructed law firm.
- The in duplum rule applies The common law in duplum rule applies to all interest charges. This rule provides that the current interest on debt can never exceed the capital amount of that debt. In simple terms, if the interest outstanding ever increases to the point where it is equal to the capital amount, interest stops running. For example, if a member owes the body corporate R20 000 in arrear levies, he cannot owe a cent more than R20 000 in interest and his total amount due and payable, including arrears and interest, cannot exceed R40 000.
- Penalties must be reasonable It is possible for the body corporate rules to provide for a penalty to be charged if an owner fails and/or refuses to pay his contributions timeously, but it is important to note that the trustees can only add such penalty to an owner's levy account if it is specifically provided for in rules, which have been approved by the Community Schemes Ombud Service. In addition, the penalty needs to be reasonable in the circumstances.
- Has the owner been given fair warning that a penalty will be added to his account if he does not settle his debt, and has he been given an opportunity to explain why he has fallen behind on his payments and negotiate a payment plan? If not, the imposition of a penalty may not be reasonable.
Should you have any questions regarding whether or not you may add specific amounts to a defaulting member's levy account or wish to discuss whether certain items have been illegally added to your account, email Paddocks for a no-obligation quotation.
Author: Ane de Klerk