Bank rates are the benchmark for interest to be billed for unpaid levies

THE DEBATE continues over whether the interest rate charged on overdue levies should have a ceiling or whether bodies corporate should be able to continue charging the rate they feel is appropriate, says Mandi Hanekom, operations manager at Propell.

The question also arises of whether the rate set under the Prescribed Rate of Interest Act applies where levies are overdue.

The rate is set at 15.5 percent a year under the Prescribed Rate of Interest Act, but case law shows that this is not the rate that is to be charged on overdue levies.

When trustees determine the interest rate they should charge, it is the rate that they would have to pay were they to borrow money in lieu of the levies due.

If you compare the pre- scribed rate with what is charged commercially, it is not high enough, Hanekom says.

“Prescribed Management Rule 31 (6) allows the trustees to determine the interest rate charged on overdue levies in their schemes and to recover the amounts due by all means necessary.

“In normal circumstances, the interest rates are decided when the levies are set for the year, but nothing prohibits the trustees from increasing the interest charged at any time. All that is needed is a resolution passed by the trustees at a special general meeting.

“Interest charged on overdue amounts is not designed to earn an income for the body corporate but is a mechanism to prevent people from allowing their levy accounts to go into arrears. Where there are habitual under-payers or those who do not pay at all, there has to be a tool to recover the costs of their bills being outstanding for extended periods.”

The principle of charging interest on overdue levies is a good one, as those who don’t pay their levies should be penalised, Hanekom says.

If the interest rate is particularly high, those in arrears with their levies will try to avoid the penalty by paying up.

“My opinion is that interest should be charged and that the rate should be determined by the trustees of the bodies corporate and not by another body which may not know what their particular circumstances are,” she says.

“The only limitation on interest levies that is applicable is the in duplum rule, where the interest charged cannot exceed the capital amount.”

Call Mandi Hanekom at 0861 33 34 35 or e- mail mandi@ propell.co.za.