Marsh Rose Body Corporate/Steinmuller case law | Why community scheme stakeholders should take notice

27 July 2023 | Matthew Davidse

This article based on a recent court decision serves to implore stakeholders within the community schemes industry, or anyone with an interest in this matter, to unite in donating, to the cause of overturning a judgment which directly impacts all bodies corporate in South Africa. In this case, the body corporate sought to defend legal action brought against it and legal fees were incurred, with the view to safeguard the interpretation of an essential statutory provision, which provides protection to all bodies corporate where an owner owes the body corporate monies prior to the sale of their unit.

The Marsh Rose body corporate recently appealed to the Supreme Court of Appeal (“the SCA”) to overturn the judgment handed down on 23 September 2021, by a full bench of the Johannesburg High Court. In the judgment the High Court was tasked to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 (“the STA”). 

Section 15B (3)(a)(i)(aa) of the STA provides: 

“The registrar of deeds shall not register a transfer of a unit or an undivided share therein unless there is produced to him ─  

(a) a conveyancer's certificate confirming that as at date of registration ─   

(i)(aa) if a Body Corporate is deemed to be established in terms of section 36(1), that Body Corporate has certified that all moneys due to the Body Corporate by the transferor in respect of the said unit have been paid, or that provision has been made to the satisfaction of the Body Corporate for the payment thereof;…”

Thus, a levy clearance certificate must be issued by the body corporate before the owner of a unit in that body corporate can effect transfer of their unit to the purchaser thereof.

The purpose of a levy clearance certificate is to protect the body corporate by providing it with an effective mechanism to ensure that it receives all amounts due by the owner (transferor), as at date of registration of transfer, or to allow for adequate provision to be made by either the owner or purchaser (by agreement) for the settlement of the debt, provided it is to the satisfaction of the body corporate. 

The purchaser (and respondent in this matter) purchased a unit in the Marsh Rose sectional title scheme, at a judicial auction (sale in execution) on 30 January 2018. While the purchaser complied with the conditions of sale, the purchaser disputed the outstanding amounts claimed, and refused to settle same. 

The purchaser accordingly tendered security in the amount of R150 000.00, pending determination of the disputed amounts claimed, with the expectation that the body corporate would issue the levy clearance certificate, even though the amount claimed by the body corporate was substantially more than what was tendered as security by the purchaser. The body corporate resultantly refused to issue a levy clearance certificate required in terms of section 15B(3)(a)(i)(aa), until all of the outstanding amounts owed by the owner/transferor of the unit has been paid or appropriate provision be made therefor.  

Thereafter, and in summary, the purchaser applied to the Johannesburg High Court for relief, and the judge subsequently ordered the body corporate to sign all papers and take any steps necessary, for the transfer of the unit to the purchaser, and within 10 days of the granting of the order the purchaser was to provide an amount of R250 000.00 as security, payable into the trust account of the purchaser’s attorneys of record, and obligated the body corporate to institute an action for the recovery of the amount owing by the purchaser within 10 days from date of the order. 

The body corporate accordingly appealed the order to a full bench of the Johannesburg High Court.  

The body corporate's view in this matter was that the amount due by the owner, where disputed, should first be determined, payment should be made, or provision made therefore and only then would the body corporate be in a position to issue a levy clearance certificate.

It should be noted at this stage that the amount demanded by the body corporate comprised of the arrear levy contributions due to the body corporate and included, amongst others, a judgment debt and un-taxed legal costs granted against the owner (transferor) in pursuance of the collection of arrear levies by the body corporate. 

The court noted that the liability for arrear levies comes with ownership of a sectional title unit, and the burden to pay contributions in the form of levies is attached to the unit, and thus the ownership thereof.

The court however further noted that the legal costs in respect of which the body corporate has taken judgment against the owner, and subsequently attached the unit in execution, is not a burden on the unit, as “the nature of the debt has changed”. The judgment debtor (the current registered owner/transferor) would accordingly remain personally liable for the debt and legal costs. The court stated that the body corporate “cannot claim the same amount again” from the purchaser of the unit.

The court accordingly noted that the indebtedness of the purchaser would only be in respect of the arrear levies.

In other words, the judgment noted that a body corporate may not withhold a levy clearance certificate by insisting that judgment debts and legal fees relating to the collection of the arrear levies from the seller/transferor, are also settled (or adequate provision is first provided for the settlement thereof, in addition to the settlement of the arrear levies), before the clearance certificate would be issued by the body corporate.

The consequence of the judgment is thus far-reaching. The court drew a conclusion in interpreting the aforementioned statutory provision, that while arrear levies attach to the unit, the legal costs owed by an owner/transferor (in relation to the collection of those arrear levies) do not attach to the unit, but rather the ‘judgment debtor’ (the owner/transferor). 

Whilst it is not disputed that bodies corporate must be able show that the amounts claimed are legally due and owing by an owner in order to receive the full benefit of the protection afforded by section 15B of the STA, it is our opinion that the full bench of the Johannesburg High Court have erred in their interpretation of the aforementioned statutory provision.  

Importantly, as lower courts would be bound to follow the precedent set by a full bench of the Johannesburg High Court, bodies corporate are now potentially stifled in their ability to claim all amounts validly owing to them by the owners of units upon the sale of those units, by way of a levy clearance certificate. In effect, the judgment reduces the security provided by, and the effectiveness of, section 15B(3)(a)(i)(aa) of the STA, to bodies corporate. 

In light of the above, whether it be contributing financially toward the legal costs incurred, or raising awareness with other stakeholders on this matter, each act of support will have a ripple effect that resonates far beyond its immediate reach.

In light of the above, the National Association of Managing Agents (NAMA) has been funding this appeal and requires urgent support from those in the industry. Whether it be contributing financially toward the legal costs incurred, or raising awareness with other stakeholders on this matter, each act of support will have a ripple effect that resonates far beyond its immediate reach.

No donation is too small, and every contribution will make a significant impact. To donate, please click here to contribute.

Click here to read the full judgment: 

http://www.saflii.org/za/cases/ZAGPJHC/2021/440.html 

If you would like more information on the above, then please contact us at info@tvdmconsultants.com or 061 536 3138.

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About the Author

Matthew Davidse is a community scheme consultant for us at TVDM Consultants.

You can read more about him by clicking here.