SHOULD INTEREST RATE ON OVERDUE LEVIES BE CAPPED? – Mandi Hanekom, Propell

The age-old debate continues on whether the interest rate charged on overdue levies should have a maximum or whether bodies corporate should be able to continue charging the rate they feel is necessary, says Mandi Hanekom, operations manager at Propell.

 

There has also been mention as to whether the Prescribed Rate of Interest applies in cases such as these, which is currently set at 15,5% per annum, but previous case law shows that the PRIA rate does not apply to sectional title scheme levy interest amounts.

 

When the trustees are determining what interest rate to charge, it would usually be the rate that they would have to pay, were they to borrow money in lieu of the levies due. If one were to compare the PRIA rate to what is charged commercially, it is not high enough, she said.

 

Prescribed Management Rule 31 (6) allows the trustees to determine the interest rate charged on overdue levies in their scheme and to recover the amounts due by all means necessary. In normal circumstances, the interest rates are decided when the levies are set for the year, but nothing prohibits the trustees from increasing the interest charged at any time. All that is needed is a resolution passed by the trustees at a special general meeting, said Hanekom.

 

“What many seem to forget is that interest charged on overdue amounts is not designed to earn an income for the body corporate but is there as a mechanism to prevent people from allowing their levy accounts to go into arrears. Where there are habitual under-payers or those who do not pay at all, there has to be a tool to recover costs of their bills being outstanding for extended periods of time,” she said.

 

The principle of charging interest on overdue levies is a good one, as those who do not pay their levies should be penalised in some way. If the interest rate is particularly high, those who are in arrears will try to avoid the high penalty by paying up, says Hanekom.

 

“My opinion is that interest should be charged and that the rate should be determined by the trustees of the bodies corporate and not by another body which might not know what their particular circumstances are,” she said.  

The only limitation on interest levies that is applicable, said Hanekom, is the in duplum rule, where the interest charged cannot exceed the capital amount.

 For further information contact Mandi Hanekom on 0861 33 34 35 or email mandi@propell.co.za.

 

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