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The illegality of withholding of a levy clearance certificate by the Body Corporate

Interesting • 18th Sep, 15

 

Recently we were instructed to attend to the transfer of ownership of the sectional title property in the Deeds Registries Office at Cape Town, and the Body Corporate of the sectional title scheme refused to issue a levy clearance certificate to the seller due to the fact that he had made  an unauthorised extension to his sectional title unit. The concern was that the sale could be cancelled or other financial loss could result from such a delay in the transfer. We approached the Cape Town High Court for relief for such irresponsible action on the part of the Body Corporate, but sensibly the levy clearance certificate was issued by the Body Corporate before further steps were taken. The issue is one often encountered in practice and warrants further discussion.

 In order to register the transfer of ownership of a sectional title property to the new purchaser, the seller is required to obtain a certificate as contemplated by section 15B(3)(a)(i)(aa) of the Sectional Title Act  of 1986to the effect that all monies due to the Body Corporate of the sectional title scheme by the seller in respect of the property have been paid, or that provision has been made to the satisfaction of the Body Corporate for the payment thereof. Such a certificate is commonly referred to as a “levy clearance certificate” and without this certificate the Registrar of Deeds will not allow the transfer to go through.

Legally the Body Corporate is only entitled to withhold a levy clearance certificate for reasons connected with the non-payment of levies – to withhold the issue of the certificate for reasons unconnected with the non-payment of levies is unlawful. Often the trustees of the Body Corporate use the issue of the clearance certificate as a tool to induce a seller who has acted in contravention of the rules of Body Corporate to remedy his default. A common example is the seller who has extended his sectional title unit without first obtaining the requisite authority from the Body Corporate. The Law Society of South Africa has penned a letter to the National Association of Managing Agents on the illegality of the withholding of levy clearance certificates for reasons unconnected with the non-payment of levies as follows:

“ A common occurrence too is that the trustees or the managing agents often attempt to withhold the issue of a levy clearance certificate with a view to forcing the registered owner of the property to comply with one or other obligation unrelated to the issue of outstanding levies – such as compliance with a  conduct rule or a demand from the trustees to do something or to desist from doing something. Any such purported withholding of a levy clearance is clearly irregular and contrary to law.”

The withholding of a levy clearance certificate by the Body Corporate may have dire consequences for the parties involved, and may even lead to the cancellation of the sale. If the Body Corporate withholds the clearance certificate for any reason other than the non-payment of levies due, it can be challenged in court and the Body Corporate may be sued for damages that result. Such damages may be substantial if the refusal to issue a clearance certificate has resulted in delay in the transfer process and concomitant financial loss, or if the seller has cancelled the sale as a result of such refusal. It is submitted that the Body Corporate should rather bring the situation to the attention of the purchaser and advise him of his responsibilities in that regard going forward as registered owner of the sectional title property.

Should you have any problems obtaining a levy clearance certificate from your Body Corporate we would be happy to assist you with explaining the unlawfulness of this action to them on your behalf, and if necessary proceeding with an action to court in order to protect all parties interests in the transaction. Please do not hesitate to contact our property department in this regard.

Michele Steindl
Senior Associate

 



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