In this article Professor Graham Paddock deals with the importance of levy collections in community schemes. It provides a wide-angle view of levy collections to highlight the broader implications of non-payment and the necessity for equitable dispute resolution orders.
The Importance of Levy Collection
Levies are the primary income stream and the financial backbone of community schemes, necessary to enable scheme executives and managers to carry out maintenance and repairs and also cover the scheme’s administrative costs.
Impacts of Defaults on Compliant Members
When members don’t pay levies, schemes may be obliged to raise additional special levies on all members, including those who are financially compliant. When a CSOS adjudicator gives an award that reduces the amount of levies due by a member or suspends liability for interest on unpaid levies without the authority of a provision in the scheme’s governance documents, they are acting beyond their powers under the CSOS Act and beyond even the community scheme’s powers. They are, in essence, making an unauthorised exception to the application of the participation quotas or other governance provisions that specify the proportions in which the scheme must recover levies from its members. The effect of large-scale levy arrears or an adjudicator reducing the liability of a levy debtor is that all other members, without their consent, are required to pay higher levies—an unauthorised and unwarranted imposition on financially compliant members.
The Cascading Negative Impacts
The failure to collect levies, particularly when it is widespread, may have even broader implications, including:
Increased Arrears: When one member is seen to get away without paying levies it tempts other members to do the same, particularly if they are under financial pressure.
Decreased Property Values: The inability to maintain common property and provide essential services diminishes the appeal and value of units within the scheme.
Urban Decay: Badly neglected community schemes contribute to urban decay, affecting neighbouring communities and the broader district.
Economic Ramifications: The decline in property values and the appeal of community living in any particular area can have far-reaching economic consequences, including reduced investment in the property market in that area.
Long-Term Benefits of Prompt Enforcement
A proactive scheme administrative and legally compliant judicial approach to levy collections benefits the economic and social landscape by:
Upholding Community Scheme Integrity: Ensuring that all members contribute their fair share maintains the integrity and viability of the scheme.
Promoting Equity and Justice: Addressing financial delinquency fairly and consistently upholds principles of equity and justice within the community.
Preventing Systemic Failures: Robust enforcement prevents the systemic failures that result from widespread non-compliance, protecting both individual schemes and the broader community.
Instances Where Withholding Levies May Be Justified
In certain circumstances, it may be legally or morally justifiable for community scheme members to withhold levy payments. Such instances include:
Unlawful Imposition of Levies: Members may withhold levies that are imposed unlawfully or without proper authorisation under the governance documents.
Incorrectly Determined or Unreasonable Levies: A CSOS adjudicator has the power to order that the amount of a levy raised or the way it is to be paid is incorrect or unreasonable, and to order an adjustment to cure the issue—however any such order must apply to all members and not reduce the liability of one member at the expense of the others, unless that type of adjustment is provided for in the scheme’s governance documents.
Failure of the Body Corporate to Perform Obligations: If the scheme fails to fulfil its statutory obligations and members have no reasonable alternative but to spend money to rectify the default, they may have grounds to offset or withhold levies.
Conclusion—Balancing Interests
In levy collection cases, it is crucial to balance the interests of individual members and the community scheme. Scheme executives, managers and dispute resolution officials must carefully assess the validity of scheme and member claims to ensure they are grounded in law and do not undermine the collective interests of the scheme. By adopting a proactive and robust approach to levy collection and enforcement, these office bearers can ensure the long-term viability of community schemes, uphold principles of equity and justice, and prevent systemic failures that threaten the economic and social fabric of South African society.
Article reference: Paddocks Press: Volume 19, Issue 8.
This article is published under the Creative Commons Attribution license.
