No ceiling on interest charged on unpaid levies

OWNERS of sectional title units who pay their levies on time are not affected by the interest rates charged on overdue levies, but those who habitually pay late may hope there is a maximum percentage of interest set by law on overdue accounts, says Michael Bauer, general manager of IHFM property management company.

But there is no limit, he says.

“Sectional title trustees are allowed to determine the interest rate charged on overdue amounts and to recover the i nterest owed t o t he body corporate.

“The interest rate is determined at the time the levies are decided on, but the trustees can change the rate at any time. As i n t h e c a s e o f l e v i e s charged, the trustees must pass a resolution at each annual meeting on the interest rate that is to be charged on overdue levies.”

They may also decide on the increase, if need be, but this would need another resolution.

“This is a tool to discourage late payment and keep the financials healthy. The interest is not meant to be a source of income, although it does somet i mes b e c o me t h a t . T h e trustees don’t have to consult the owners in the scheme when the decision is made on the percentage. However, the owners can direct the trustees to limit the interest to a certain amount.

“If owners want to do this they need to get a majority vote, but there is no basis in law for deciding what a maximum interest rate should be. The only situation that does affect i nterest charged i s where unpaid interest exceeds the outstanding capital amount (the duplum rule).”

Bauer recommends a penalty charge of between 15.5 percent and 24 percent a year.

“Trustees must also remember that when the resolution is passed it must state that compound interest is being charged. In all cases of collecting payments, good credit control is better than trying to correct non-payment. If payments are collected on time, there is no problem.

“In cases of non-payment, the best remedy is to contact the owners and find out why they aren’t paying their levies. The reason for non-payment could be extreme hardship or disruptions such as death in the family, which obviously require different solutions.”