Security Estates Beware: Your Levies At Risk If Owner Goes Under

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There are many advantages to living in a security estate, provided that the HOAs (Home Owners Associations) which normally run them are financially sound.  Since HOAs rely on the collection of levies from members to fund communal expenses, they should always be protected in this regard by title deed conditions obliging all owners –

  1. To become and remain members of the HOA and to be bound by its constitution (with rules and regulations requiring prompt payment of levies), and
  2. To obtain a levy clearance certificate before transferring ownership to a buyer, who must in turn be bound to join the HOA.

The practical result is that any outstanding levies will have to be settled in full before any transfer of ownership can take place.

But what if an owner’s estate is liquidated/sequestrated?  The liquidator/trustee is required by law to sell the property as an asset in the estate, and must then pass transfer to the buyer.  But if the liquidator/trustee can do this without a clearance certificate from the HOA, i.e. without settling the arrear levies, your HOA will be left with a (probably worthless) concurrent claim against the owner’s estate.   The result – you and the other owners will have to cover the shortfall.

Conflicting cases: HOAs at risk

A High Court decision in March this year had HOAs celebrating because the effect of the Court’s order was that the HOA had a right to full payment of arrears before transfer could be passed.  But a contrary decision by another High Court in June has thrown the whole matter into doubt again.  There could be a lot at stake here – in the second case for example, the HOA is down R426k (plus legal costs) on a house sold by the trustee for R700k.

The second case is reportedly being appealed, and its effect is accordingly suspended.  But until the Supreme Court of Appeal rules definitively on the matter, HOAs should consider themselves at risk and should –

  • Keep a close eye on any levy accounts going into arrear
  • Act immediately to collect outstanding levies – take legal action if necessary.
Ashersons Attorneys

Ashersons Attorneys

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