First pay up, then call the movers
Associations have recourse to securing outstanding levies from insolvent estates
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.
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)