The Supreme Court of Appeal handed down a Judgment on 2 November 2023 confirming the embargo on transfers created by Section 15B(3) of the Sectional Titles Act, 1986 (the Act).
This embargo provision offers security to bodies corporate in that a sectional title unit may not be transferred unless the body corporate has issued a levy clearance certificate which certifies that all money due to it in respect of the unit has been paid, or that provision has been made to the satisfaction of the body corporate for such payment. This assists them in recovering amounts owed by owners of units in the scheme without the need for costly and time-consuming litigation. The embargo is similar to that provided by section 118(2) of the Municipal Systems Act in respect of rates due to a local authority.
This appeal was against an order of the High Court compelling the body corporate to issue a levy clearance certificate despite the absence of payment of all monies owing to it by the registered owner. Due to the risks posed to bodies corporate across the country by this order, the court granted the National Association of Managing Agents leave to intervene as a co-appellant. The purchaser had bought a sectional title unit at a sale in execution. In terms of the conditions of sale, the purchaser had to pay all levies due to the body corporate (unlike normal sales in which the historical debts would be payable by the seller). The purchaser queried the levy amounts claimed, and instituted action against the body corporate to compel it to sign all papers and take all steps necessary to facilitate transfer. The purchaser furthermore tendered a reduced amount (which the high court subsequently increased) to be held in his attorney’s trust account as security for the levies due. The sale was in execution of a judgment by the mortgagee bank against the owner of the unit, although the body corporate also had a prior judgment against the owner.
The primary issue before the court was whether the body corporate’s reliance on the statutory embargo is open to challenge by the purchaser. In this case the conditions of sale referred to “levies” being payable by the purchaser, and not to “all monies” due to the body corporate, which the purchaser argued did not include interest and previous recovery costs, and therefore placed a limit on what he had to pay. The court found that the body corporate is not a party to the agreement of sale between the purchaser and the sheriff and the wording of the conditions cannot have any legal bearing on the rights of the body corporate. The purchaser can also not demand that the body corporate should accept a limited payment and provide a clearance certificate. The purchaser’s rights lie against the seller only, being the Sheriff in this case, and any demand for transfer should have been addressed to the Sheriff and not the body corporate.
Accordingly, the court found that the body corporate was entitled to refuse to issue a clearance certificate until the conditions of the embargo were met, ie until all monies due to it are paid, or until provision has been made to the satisfaction of the body corporate for the payment. The appeal was upheld with costs.
This case serves as a reminder to buyers at sales in execution to verify in advance the amount of the arrear rates and levies which are to be added to the bid price accepted at the auction.