First pay up, then call the movers

As­so­ci­a­tions have re­course to se­cur­ing out­stand­ing levies from in­sol­vent es­tates

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - AN­DREW MOLVER

THE Supreme Court of Ap­peal re­cently con­firmed that reg­is­tered ti­tle con­di­tions which pro­hibit the trans­fer of res­i­den­tial prop­erty with­out a clear­ance cer­tifi­cate or the con­sent of the rel­e­vant home own­ers as­so­ci­a­tion are en­force­able in in­sol­vency sit­u­a­tions, where the ef­fect of such con­di­tions is for the as­so­ci­a­tion to be paid prior to any se­cured cred­i­tors.

The court es­tab­lished the above po­si­tion in its judg­ments of De­cem­ber 12 2014 in re­spect of the mat­ters of Wil­low Wa­ters Home Own­ers As­so­ci­a­tion (Pty) Ltd vs Jerry Sekete KOKA NO & oth­ers and Mon­ica Gez­ina Cowin NO vs Kyalami Es­tate Home Own­ers As­so­ci­a­tion & oth­ers, which both con­cerned the en­force­abil­ity of the ti­tle con­di­tions in ques­tion upon in­sol­vency.

The judg­ments mark a ma­jor victory for home own­ers as­so­ci­a­tions across the coun­try, the ma­jor­ity of which have no other means of se­cur­ing the out­stand­ing levies ow­ing to them than through the en­force­ment of the ti­tle con­di­tions in ques­tion.

The As­so­ci­a­tion of Res­i­den­tial Com­mu­ni­ties and Na­tional As­so­ci­a­tion of Man­ag­ing Agents par­tic­i­pated in both mat­ters as am­ici cu­riae (ie friends of the court) with a view to ad­vanc­ing the col­lec­tive in­ter­est of all home own­ers as­so­ci­a­tions.

The mat­ter was ul­ti­mately de­cided on the strength of the ar­gu­ment, ad­vanced by the am­ici cu­riae among oth­ers, that the reg­is­tra­tion of the con­di­tions in ques­tion cre­ates real rights which are bind­ing on the Mas­ter of the High Court as well as the trustees of the in­sol­vent es­tate, in con­se­quence of which the trustees are ob­li­gated to sat­isfy the con­di­tions req­ui­site for the rel­e­vant home own­ers as­so­ci­a­tion to is­sue a clear­ance cer­tifi­cate prior to the trans­fer of the prop­erty be­ing pos­si­ble. This was found to be the case ir­re­spec­tive of the rights which se­cured cred­i­tors hold in terms of the In­sol­vency Act.

The Supreme Court of Ap­peal agreed with Wil­low Wa­ters Home Own­ers As­so­ci­a­tion and the am­ici cu­riae that the trustees’ ar­gu­ment that the ti­tle con­di­tions in ques­tion sim­ply cre­ated a per­sonal right to re­cover pay­ment demon­strated a con­fla­tion of two dis­tinct rights; whereas a home own­ers as­so­ci­a­tion’s right to pay­ment of amounts due to it is a per­sonal con­trac­tual right giv­ing rise to a mere con­cur­rent claim in re­spect of the in­sol­vent es­tate, the as­so­ci­a­tion’s right of veto in terms of the ti­tle con­di­tion which re­stricts the owner’s en­ti­tle­ment to dis­pose of the prop­erty gives rise to a real right which is bind­ing upon all. It is the lat­ter right which was in con­tention in the present mat­ters and which was found to be a real right on ac­count of the con­di­tions of ti­tle be­ing in­tended to bind suc­ces­sive own­ers and sub­tract from the bun­dle of own­er­ship rights or­di­nar­ily en­joyed by any prop­erty owner.

The am­ici cu­riae had also ar­gued that it would be un­con­sti­tu­tional not to en­force the ti­tle con­di­tions in ques­tion, as do­ing so would amount to an ar­bi­trary de­pri­va­tion of prop­erty.

In this case the prop­erty would con­sist of the rel­e­vant home own­ers as­so­ci­a­tion’s right in re­la­tion to the prop­erty to veto its trans­fer prior to the sat­is­fac­tion of all obligations owed to it and the is­su­ing of the re­lated

Reg­is­tra­tion of the con­di­tions in ques­tion cre­ates real rights which are bind­ing on the Mas­ter of the High Court as well as the trustees of the in­sol­vent es­tate

cor­po­rate who re­cover rates and taxes and levies by virtue of the pro­vi­sions of sec­tion 118(2) of the Mu­nic­i­pal Sys­tems Act and sec­tion 15(B)(3)(a)(i)(aa) of the Sec­tional Ti­tles Act re­spec­tively, which pre­vent the trans­fer of prop­er­ties prior to the rel­e­vant clear­ance cer­tifi­cates hav­ing been is­sued, in­clud­ing in in­sol­vency sce­nar­ios. This pro­vides greater se­cu­rity to home own­ers as­so­ci­a­tion mem­bers who are no longer at risk of hav­ing to con­trib­ute to any short­falls aris­ing from out­stand­ing levies deemed to be ir­recov­er­able on ac­count of the po­ten­tial non-en­force­abil­ity of the ti­tle con­di­tions.

Th­ese de­ci­sions will ben­e­fit all as­so­ci­a­tions, from those with only a few mem­bers where the non-re­cov­ery of any levies would have a sub­stan­tial im­pact on in­di­vid­ual own­ers, to larger res­i­den­tial es­tates where the abil­ity of as­so­ci­a­tions to se­cure pay­ment of levies is cen­tral to their abil­ity to pro­vide on­go­ing ser­vices.

Pic­ture: THINKSTOCK

TI­TLE CON­DI­TIONS EN­FORCE­ABLE The judg­ments now place home own­ers as­so­ci­a­tions on an equal foot­ing with mu­nic­i­pal­i­ties and bod­ies cor­po­rate who re­cover rates and taxes and levies by virtue of (pro­vi­sions in acts)

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