There is a recent court case which I think is very important to every trustee and owner in a sectional title scheme.
It relates to two very important facts.
Firstly, trustees have no authority to accept compromise on levies owed. Secondly, trustees and body corporates cannot amend the basis on which levies are charged except by going through a legal change to the participation quota on the sectional title plans.
The matter, Zikalala versus Body Corporate of Selma Court and Another, was heard in the KwaZulu-Natal High Court in Pietermaritzburg in May and judgment was delivered on September 23, 2021.
In summary, Zikalala owns a unit at Selma Court, a sectional title scheme in Durban.
He fell into arrears with his levy payments and in February 2018, the body corporate obtained a default judgment against him for some R24 000.
A summary of the judgment prepared by property law experts STBB – which I will extensively borrow from – says the matter then went to the Magistrates Court to be processed in terms of that court’s debt collection measures.
Zikalala then approached the attorneys acting on behalf of the body corporate and indicated to them that he could not pay the full amount at once.
He offered to pay off the debt by way of instalments in the sum of R1 000 per month, which amount would be inclusive of the existing monthly levies.
The offer was rejected and the attorneys were instructed to proceed to obtain a warrant of execution.
This however yielded nothing as the sheriff could not attach adequate assets of value from Zikalala’s residence.
In subsequent proceedings in the Magistrates Court, Zikalala made a further written offer of settlement after securing a loan of R30 000 from family.
He offered to pay the amount in “full and final settlement” of the debt and the trustees accepted the offer.
Now, here is the catch: while Zikalala was liaising directly with the trustees, the attorneys for the body corporate liaised with the managing agent.
The total amount owing in respect of the arrear levies and the body corporate’s legal costs as at April 1, 2019 far outstripped the amount tendered as a settlement.
Unbeknown to Zikalala, the managing agent informed the attorneys that while the trustees had accepted his offer, they “had not looked at the bigger picture” in that the total owing to the body corporate including legal expenses was R58 619.85.
This means there was a shortfall of over R28 000 which would take approximately five years to pay off based on Zikalala’s proposal.
The attorneys then wrote to Zikalala informing him of the decision to revoke the offer of settlement on the basis that it would prejudice the body corporate.
Ideally, in court and on appeal, Zikalala contended that he had not breached the terms of the agreement and that the revocation by the body corporate was unilateral.
He stated that he had communicated his offer of settlement not only to the attorney, but also emailed two of the trustees.
Both trustees responded that the offer of settlement was acceptable.
This left the body corporate faced with the question of whether it was competent for its trustees to compromise its claim for levies, costs and interest due and payable by an owner given that the actions of the trustees were outside the legal scope of their powers in terms of the Sectional Titles Schemes Management Act (STSMA) and the regulations.
It argued that the two trustees were not entitled to accept the settlement as there was no resolution authorising them to do so and, in any event, that their duties under the Act are to collect levies and they are not, unless in exceptional circumstances, entitled to write off parts thereof in this manner.
Management Rule 25 of the STSMA provides that once a budget has been approved, the body corporate must give notice to each owner of the contributions that will become due and payable.
These must be collected by the body corporate.
Where such contributions or levies have not been paid, the body corporate in pursuing any claims is entitled to receive from such owner any charges and interest due on any overdue contributions.
Zikalala however argued that, since he made an offer for a full and final settlement of the body corporate’s claim, there was no uncertainty as to what the offer entailed and the compromise which it was intended to achieve.
The argument had to fail.
Firstly, because Management Rule 10(1) refers to a ‘document’ signed on behalf of the body corporate being valid and binding where it is signed on ‘the authority of a trustee resolution’ by two trustees, or one trustee and the managing agent.
It is common cause that both trustees agreed to accept the offer from Zikalala but there is nothing on record indicating the trustees acted pursuant to a resolution authorising them to accept such an offer, assuming in law they were permitted to do so.
Also according to the STSMA, regulations surrounding levy contributions cannot be modified without the written consent of any owner who is adversely affected by such modification.
The High Court found that the body corporate was correct to argue that accepting Zikalala’s offer would have resulted in the remaining portion of the unpaid levies being paid by other members of the body corporate, as a result of the compromise.
This means those members would have been “adversely affected” by a decision taken by two trustees to the exclusion of the managing agents and the other owners.
There is no record of such written consent or resolution by the owners permitting the two trustees to encumber the body corporate with the unpaid portion of levies and contributions amounting to R28 000.
Thus, even if the two trustees did give their consent and accepted the offer, such acceptance was invalid for want of compliance with their statutory duty under the STSMA.
The only manner in which the trustees could have been so authorised was by way of a unanimous resolution of all the members of the body corporate, giving their consent to compromise the claim.
It follows therefore that trustees may not conclude an agreement outside the ambit of the powers given in terms of the STSMA.
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.