Arrear levies: The function of a managing agent

8 July 2022 | Hendrik Hoffmann

Only three things in life, and more particularly in community schemes, are guaranteed: death, paying taxes, and paying contributions levied (“levies”). It is an undisputed fact that levies are the lifeblood of any community scheme. 

A quick search on the internet will provide various articles and webinars discussing arrear levies and the correct legal route to follow to collect them, whether through legal action or with submitting an application to the Community Schemes Ombud Service (“the CSOS”). 

Nobody seems to discuss the function of the managing agent in the collection process, yet a successful collection department in a managing agent’s business is one of the most effective tools for the collection of arrears. 

Debt collection in South Africa is overseen by the Council for Debt Collectors, which is a body established in terms of the Debt Collectors Act 114 of 1998. 

So, what exactly is a debt collector as defined by the Council for Debt Collectors? 

“A debt collector is any person or company other than an attorney or his employee, who collects debt/s owed to their client (usually companies) on their behalf, by email, phone or in person. They may deliver documents and may even have an acknowledgement of debt signed. Debt collectors usually operate for a fee, or for a percentage of the total amount collected. Property Managers who collect arrear rent or levies are also debt collectors.“

From the above definition, it is very clear that a managing agent should be a registered debt collector in order to perform the function of collecting arrear levies at a fee. Without being registered, the managing agent would not be entitled to any remuneration for the collection of levies. This is one of the many reasons as to why it is so important to check that your managing agent is registered by asking for a copy of their registration certificate. 

Any fees earned by a registered debt collector is prescribed by Annexure B of the Debt Collectors Act, and no ethical debt collector would dare to vary from these charges. 

When it comes to debt collection, managing agents all have different strategies, but at the end of the day, there is only one that is legally correct. This strategy just so happens to be the most effective. 

Prescribed Management Rule (“PMR”) 25 of Annexure 1 of the Regulations to the Sectional Titles Schemes Management Act 8 of 2011 (“the Act”) deals with contributions and charges. In terms of this rule, the body corporate has an obligation to send a final notice to any member who has not paid their levies by the due date. However, this is pretty much where the Act stops when it comes to the collection of arrear levies. 

The notice sent out in terms of PMR 25 is not a debt collection function, and this notice will be issued by your managing agent. Any costs for such a reminder will be determined by the agreement between the managing agent and the body corporate. 

It is general practice that the cost for this reminder will be recovered from the owner on their levy statement. However, it is very important to ensure that this charge is specified in your management rules in terms PMR 25(5). If this is not included in your management rules, you will not be able to recover this fee from the relevant member and the body corporate would have to foot the bill. 

This is where things get interesting!

First, let’s discuss the elephant in the room and identify the two kinds of strategies that are implemented: 

Managing agent 1 sends out constant reminder letters (at a cost) and eventually they give the arrears to an attorney (or CSOS) to assist with the collection. They often continue with sending letters even after an attorney has been appointed, and it also often happens that these managing agents will charge monthly legal monitoring fees. 

These constant charges cannot be considered “debt collection fees”, as they are not in line with the prescribed fees. This is not a very successful strategy as members will simply ignore the letters, whilst the managing agent is not motivated to really collect the arrears. Why would they be? They earn money for simply pressing a button on their software, and even when the body corporate appointed attorneys to work on the collection, they still get paid. 

Managing agent 2 will work strictly within the confines of the Act and charge accordingly. 

They are, at the risk of stepping on toes, the ones operating legally whilst showing the best results. Let me explain: 

Annexure B lists all the charges that a debt collector would be entitled to. The ones used most often by a managing agent would be: 

1. Send letters or emails – R21.00 excl VAT;

2. SMS charges – R3.00 excl VAT;

3. Phone calls – R21.00 excl VAT, and

4. Fee upon successful collection – 10% plus Vat on any payment received up to a maximum of R509.00.

As you can see, this fee structure ensures that the managing agent will not earn a lot if they do not collect the levies successfully. 

With debt collection, there are three very important factors to take note of: 

1. Two separate debt collectors cannot work on the same collection. Therefore, once arrears are handed over to the attorneys, the managing agent may no longer continue with their own debt collection; 

2. The debt collector is not allowed to charge an additional fee for appointing an attorney, and

3. The Debt Collectors Act places an obligation on the debtor to pay the fees of the debt collector. These charges are therefore not a body corporate expense, despite flowing through the body corporate bank account. 

Therefore, managing agent 2 would be more successful. They will do everything in their power to collect the levies before it reaches the stage where an attorney should be appointed as they want to earn their fee. 

Ironically enough, trustees regularly complain about the debt collection fees as they feel that the body corporate cannot afford it. In fact, you WANT your managing agent to earn a lot on debt collection, as this can only happen as a result of successful collection. The more they collect, the more they are paid. 

As a trustee of a body corporate, you therefore need to ensure the following: 

1. Check that your managing agent is indeed registered as a Debt Collector;

2. Ensure that they only charge the prescribed fees and nothing more;

3. Check your management agreement to ensure that their fees for reminder letters are reasonable, and

4. Always ensure that you appoint Managing Agent 2. 

For more information you can visit the website of the Council for Debt Collectors at www.cfdc.org.za. You can also lodge complaints against any debt collectors who charge more than the prescribed tariffs or who contravenes any of the conduct provisions determined by the Council. 

If you or your scheme is having an issue with arrear levies or if you have any questions with regard to the above, please contact us at TVDM Consultants on info@tvdmconsultants.com or 061 536 3138.

About the Author: Hendrik Hoffmann is a Managing Director at Rise Property Solutions.

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