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

Weekend Argus (Saturday Edition) - - PROPERTY -

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@ pro­

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