Can B/C Trustees Accept A Settlement Agreement From An Owner Of A Sectional Title In Arrears?

The trustees of the body corporate of a sectional title scheme have a legal duty to recover outstanding levies, interest and costs from an owner of a unit who fails to pay his or her monthly levies.

What if, in settlement, the offending owner makes an offer that is less than the total outstanding charges, interest and costs? May the trustees accept such a settlement agreement? This issue came up in a recent case Zikalala v Body Corporate, Selma Court and Another 2022 (2) SA 305 which was heard in Pietermaritzburg, KwaZulu Natal.

This case explains that trustees and managing agents will fall foul of their statutory responsibilities if they accept, without properly following procedure, a settlement of arrear levies, even if it is in good faith or they know that the owner cannot afford to pay the arrear levies.

Strict measures are prescribed and necessary in the legislation for dealing with such instances to uphold proper order and to even out the responsibility to all owners.  When you make a decision to purchase in a complex, understand that the insurance, maintenance and responsibility to upheld the value of the properties are important to all owners, BUT also each and every owner has a responsibility.  If one owner do not give co-operation this can cause all owners to suffer damages.

Facts of the Case:

Mr Zikalalam, the appellant, is the owner of a unit in Selmahof, Durban. He failed to pay the levies and other contributions and the governing body instituted action against him and passed judgment in February 2018. He offered to pay off the judgment amount by way of monthly instalments of R1 000 each. It was rejected by the governing body. Further legal action and the introduction of more actions for further outstanding levies and contributions followed and during March 2019 Mr Zikalala made a written offer offering to pay the amount of R30 000, which amount he borrowed from his family, in full and final settlement of the outstanding amount plus costs. This offer was repeated during an appearance in the debt court and at a subsequent appearance, on April 5, 2019, the court was informed that the trustees had accepted the offer. On 9 April 2019, the attorneys for the governing body sent a letter to Mr Zikalala withdrawing the acceptance of the proposed settlement as it had been wrongly accepted. The proposed payment of R30 000 will however be accepted as payment in respect of the arrears. This is refused by Mr Zikalala and the governing body brings an application to declare his unit expendable.

The application is opposed by Mr Zikalala and he brings a counter-application for an order that the settlement agreement entered into in April 2019 with the governing body is valid and enforceable. He claimed that he had not broken the terms of the agreement and that the withdrawal of acceptance by the governing body had been done unilaterally. He made his settlement proposal not only to the attorneys of the governing body, but also to two of the trustees of the scheme, which two trustees indicated that it was acceptable. Only after the attorneys for the body corporate communicated the terms of the settlement agreement to the managing agent of the scheme were they informed that the actual amount was outstanding R58 619.00, which was far more than the proposed settlement amount. The trustees themselves, when accepting the proposed settlement, were not aware of this outstanding amount. The governing body would therefore have sat with a deficit of R28 619.00. The court of first instance dismissed Mr Zikalala's counter-application. He then appealed to this Court.

The point that the court had to consider was whether the trustees had the right to accept an offer less than the amount owed by Mr Zikalala insofar as the actions of the trustees were contrary to their powers in terms of the Sectional Title Scheme Management Act and the Regulations. Section 7(1) of the Management Act provides that the functions and powers of the body corporate must be performed by the trustees of the body corporate appointed in terms of the management rules.

Court's Decision:

This means that in the absence of an express or implicit power conferred on a body corporate in the Management Act, the trustees may not enter into an agreement that is beyond the powers conferred on them. Insofar as an act falls outside the powers conferred, the governing body, being a statutory creation, shall be deemed to have acted outside its powers. Such an ultra vires act also cannot be corrected by way of a special resolution.

Management Rule 25 explicitly provides the right to the body corporate to impose levies and contributions on owners. Where an owner fails to fulfil his obligation to pay these levies and contributions, the body corporate has the power to take the necessary steps to recover the amounts, including interest and costs.

Nowhere in the Management Act or Management Rules is there any power conferred on the body corporate to dilute this obligation by accepting a lesser amount. There is not even an implicit right on the governing body to accept a lesser amount in settlement. Whatever the motives of the trustees for accepting the proposed settlement, (rather than R30 000 now than waiting 5 years for the full amount), they were unable to accept a settlement amount for a lesser amount.

When & How Can Trustees Accept A Lower Offer / Settlement:

The only way the trustees could have been authorized to accept the offer and the acceptance be valid was by way of a unanimous resolution of all the members of the body corporate, giving their consent and taking all factors into consideration.