The following article appears in the January/February 2007 edition of "De Rebus" the national journal of the Law Society of South Africa:
Payment provisions for disputed sectional title debts when wishing to sell
By Roland Darroll
A sectional title unitholder wants to sell his unit. The body corporate won’t issue a clearance certificate. It says he owes it moneys due. He says he does not, but without that certificate the transfer is a non-starter.
Most, if not all, unitholders pay under protest, get the clearance certificate, and then claim the payment back (the ‘protest payment’ route).
However, the relevant section, s 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986, provides another way –
‘The registrar shall not register a transfer of a unit or … undivided share …, unless there is produced … -
(a) a conveyancer’s certificate confirming that as at date of registration-
(i) (aa) … [the] body corporate … has certified that all moneys due to the body corporate by the transferor in respect of the … unit have been paid, or that provision has been made to the satisfaction of the body corporate for … payment…;’ (my emphasis)
The unitholder can therefore provide for payment (the ‘payment provision’ route) rather than actually pay and reclaim.
Christo Botha (Statutory Interpretation, Juta, Cape Town, 4th ed, 2005, at 69), points out ‘legislation should generally be interpreted [so]that no word or sentence is … redundant or superfluous’.
Payment provision could be made by, say, providing some sort of conditional guarantee or depositing it into the trust account of an attorney, accompanied by his undertaking to pay the body corporate the amount eventually found, or agreed, to be due.
What if the provision does not satisfy the body corporate? Section 15B(3)(a) (i)(aa) ensures that unitholders settle their outstanding commitments before selling their units. It assists the financial soundness of a sectional titles scheme. However, bodies corporate can be mistaken or unreasonable, like everybody else.
The body corporate’s discretion as to whether it should be satisfied with the unitholder’s payment provision is not unfettered. When a statute requires an act to be ‘to the satisfaction’ of some entity or authority, it confers a discretion. Where the payment provision is objectively reasonable and the unitholder’s dispute is bona fide, the law obliges the body corporate to be satisfied.
‘A discretion must be exercised according to the rules of reason and justice, not according to private opinion. It must not be arbitrary, vague and fanciful but legal and regular …’
[Sharp v Wakefield 1891 AC 173, at 179; Casser & Casser v Bellville Municipality 1958 (3) SA 318(C) at 325 and Pretoria North Town Council v A. I. Electric Ice-Cream Factory (Pty.) Ltd., 1953 (3) SA 1 (AD) at 12.]
Apart from being illogical, clumsy, costly and time-consuming, protest payments are unnecessarily litigious. Public policy eschews unnecessary litigation. In Lawyers for Human Rights and Another v Minister of Home Affairs and Another 2004 (4) SA 125 (CC), the Constitutional Court, per Madala J at 150 [75], commended inter alia the following legal principles:
‘(i)[to] avoid opening … the floodgates to unnecessary litigation;
(ii) to ration scarce judicial resources by applying them to real rather than hypothetical disputes;
(iii to place limits on the exercise of judicial power by precluding rulings … not needed to resolve disputes;… ’
There is also a duty on practitioners to avoid useless litigation, as Lewis on Legal Ethics stresses (Juta, 1982, at 106). Throughout the case law it is assumed axiomatically that unnecessary litigation is to be avoided (eg, Combustion Technology (Pty) Ltd v Technoburn (Pty) Ltd 2003 (1) SA 265 (C) at 269 [15]; South African Bureau of Standards v GGS/AU (Pty) Ltd 2003 (6) SA 588 (T) at 592 [8] referring to Ebrahim v Excelsior Shopfitters and Furnishers (Pty) Ltd (II) 1946 TPD 226 at 236).
Where practitioners advise their clients to make protest payments, they could even be violating this duty. Litigation is inevitably needed to recover such payments.
Litigation may, of course, be necessary either way. If the parties are not able to settle their dispute, either the unitholder will need to sue the body corporate (after a protest payment), or one of the parties will have to sue the other (after a payment provision).
There could be important differences, though. The matter will more likely be settled where the funds are held by a third party rather than a party itself, possession of the disputed funds being the self-encouraging factor that it is.
There is also the question of the onus of proof. Schwikkard & van der Merwe, Principles of Evidence, 2nd ed, Cape Town, Juta, 2002, at 538 point out that,
‘the guiding principle … is that the person who makes a positive assertion is generally called upon to prove it, with the effect that the burden of proof lies generally on the person who seeks to alter the status quo’.
If the unitholder ‘protest pays’, he will be seeking to alter the status quo. The onus will be on him to show that he is entitled to the return of the disputed amount. On the other hand, if the unitholder makes a payment provision and the body corporate sues for the amount it considers due, the onus is on the body corporate.
Zeffert et al, The South African Law of Evidence, Lexis Nexis Butterworths, 2003, chap 3 (pages 45 – 92) set out what they call ‘a sustained analytic questioning of almost everything’ about the onus of proof. They call the law in this area ‘mysterious, enigmatic, elusive…’ (page 46) ‘where obfuscation has been the norm’(page 59). Therefore Schwikkard & van der Merwe’s assertion may not hold. It is beyond this article to enter these mysteries, but if Schwikkard & van der Merwe’s assertion applies, whether the unitholder ‘protests’ or ‘provides’ could be crucial in deciding on where the onus lies.
For all the above reasons, unitholders obstructed from selling their units by monetary disputes with their bodies corporate should not be cowed into protest paying. Payment provision is an equally valid and otherwise better route. Bodies corporate cannot refuse a clearance certificate just because the unitholder takes the latter course. The unit seller will be in a much better position to resolve the remaining ‘moneys due’ dispute with the body corporate – without being blocked from passing transfer to the purchaser of his unit.
Roland Darroll BA(Unisa) BA LLB (UCT) is an attorney in Cape Town.
Friday, 09 February 2007
Monday, 29 January 2007
Sectional Titles - the uppity owner
One problem with sectional titles schemes is that the law is not clear and authoritative when it comes to what the body corporate should or can do with an unco-operative owner. I have a current case where the owner in question is persisting in building a structure on an area abutting on his unit where it is by no means certain that it is for his exclusive use, even though he is the only person that has physical access to the area concerned. To be able to claim the right of exclusive use in any area, the unitholder must either have received it by virtue of a notarial cession or the rules must provide that particular area is for the exclusive use of the unitholder concerned.
The strategy of our uppity unitholder is to quietly and intermittently carry on adding to the unauthorised structure until it slowly becomes a fait accompli, something already done and beyond alteration. Numerous warnings have been issued by the body corporate, but to no avail. What is the remedy of the body corporate, in other words the other owners in the complex ?
One thing one can try is to persuade the building inspector of your local authority to issue a cease and desist order in terms of their bylaws. This will cost the body corporate nothing and should have the desired effect, providing you can get your local authority to co-operate.
Another possibility is to apply for what is called a mandatory interdict that, if granted by the court, will consist of an order that the recalcitrant unitholder not only cease further construction but also dismantle what has already been constructed without due authority. A problem is that one needs to show prejudice and the lack of an alternative remedy in order to succeed in obtaining an interdict of this kind. In certain circumstances this could be difficult for the body corporate to show: the additional construction might be ugly but does it really prejudice anyone ?
The other alternative is to resort to arbitration in terms of Management Rule 71 under the Sectional Titles Act 95 of 1986. This has plusses and minuses. One plus is its relative speed when compared to the courts. One authority [Prof C G v d Merwe, author of Sectional Titles, Butterworths, looseleaf (not the English equivalent of Loslyf), updated to 28 February 2006, p 9-19] maintains that cost-effectiveness is another. I am not so sure about that. The state pays for the judge in the courts – the parties have to pay for the arbitrator in arbitration and this can also be expensive.
The learned author (we lawyers use these old-fashioned courtesies towards each other) also says another plus is that arbitration "offers better safeguards against procedural irregulations [sic – I presume he means 'irregularities'] by virtue of the provisions of the Arbitration Act 42 of 1965, that will apply to any arbitration proceedings in terms of the Sectional Titles Act".
What should also be considered is an amendment to the conduct rules imposing fines on unitholders who break those rules and the power to request an amount as security for future transgressions. This is a speedy and inexpensive remedy but the rule must provide built-in safeguards to ensure that it is not abused, eg an enquiry to establish the breach of the rules before the sanction is imposed.
In any event: a word of advice to potential sectional titles unit buyers – read the "management" and "conduct" rules first. That will tell you what kind of a situation you are moving into.
The strategy of our uppity unitholder is to quietly and intermittently carry on adding to the unauthorised structure until it slowly becomes a fait accompli, something already done and beyond alteration. Numerous warnings have been issued by the body corporate, but to no avail. What is the remedy of the body corporate, in other words the other owners in the complex ?
One thing one can try is to persuade the building inspector of your local authority to issue a cease and desist order in terms of their bylaws. This will cost the body corporate nothing and should have the desired effect, providing you can get your local authority to co-operate.
Another possibility is to apply for what is called a mandatory interdict that, if granted by the court, will consist of an order that the recalcitrant unitholder not only cease further construction but also dismantle what has already been constructed without due authority. A problem is that one needs to show prejudice and the lack of an alternative remedy in order to succeed in obtaining an interdict of this kind. In certain circumstances this could be difficult for the body corporate to show: the additional construction might be ugly but does it really prejudice anyone ?
The other alternative is to resort to arbitration in terms of Management Rule 71 under the Sectional Titles Act 95 of 1986. This has plusses and minuses. One plus is its relative speed when compared to the courts. One authority [Prof C G v d Merwe, author of Sectional Titles, Butterworths, looseleaf (not the English equivalent of Loslyf), updated to 28 February 2006, p 9-19] maintains that cost-effectiveness is another. I am not so sure about that. The state pays for the judge in the courts – the parties have to pay for the arbitrator in arbitration and this can also be expensive.
The learned author (we lawyers use these old-fashioned courtesies towards each other) also says another plus is that arbitration "offers better safeguards against procedural irregulations [sic – I presume he means 'irregularities'] by virtue of the provisions of the Arbitration Act 42 of 1965, that will apply to any arbitration proceedings in terms of the Sectional Titles Act".
What should also be considered is an amendment to the conduct rules imposing fines on unitholders who break those rules and the power to request an amount as security for future transgressions. This is a speedy and inexpensive remedy but the rule must provide built-in safeguards to ensure that it is not abused, eg an enquiry to establish the breach of the rules before the sanction is imposed.
In any event: a word of advice to potential sectional titles unit buyers – read the "management" and "conduct" rules first. That will tell you what kind of a situation you are moving into.
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