Sunday Argus November 3 2002

GRAHAM NORRIS
Property Editor

CAPE TOWN - body corporates administering sectional title apartment buildings have been warned

to apply ruthless practices in collecting levies or face the prospect of their properties

degenerating into buildings of no value.

The warning was issued by CBD specialist broker Alyce Collins of Collins Properties, who

recently completed one of the biggest city centre apartment block sales when she sold St Martini

Gardens in Queens Victoria St to Bellandia for R44 Million. "Many large residential sectional

title buildings in Johannesburg, Pretoria, Durban and East London are becoming a blight on those

cities as owners develop a culture of non-payment of levies because they are aware that the

municipalities are reluctant or incapable of taking quick action for the recovering of rates and

the payment of services, "Collins said.

Owners continued paying bonds because they knew banks acted faster than municipalities in suing

delinquent payers, but this may well change after the recent ruling by the Supreme Court of

Appeal became a tool for non-payment of bonds.

However, Collins said, there were numerous apartment buildings in those cities which, when the

municipalities eventually cut services, had become uninhabitable and of no value and the owners

simply abandoned the buildings and their bond repayments.

"In many of our major cities there are sectional title buildings worth hundreds of millions in

terms of bricks and mortar which today have no value because of their gross indebtedness and the

mare's nest they present in complex legalities should any developer wish to take them over."

Fortunately, she said, no major apartment complexes in Cape Town's CBD had reached this stage

although tow or three have come perilously close and had only been saved by strong arm tactics

against defaulters

"The problem seems to stem from a culture of civil resistance instigated particularly by those

who believe that municipalities could not, or were reluctant to, administer the full force of

the law. At the moment Cape Town is still to experience the economic power of this disruptive

element of society. But it is there and growing."

Sectional title specialist lawyer Tertius Maree, of Stellenbosch confirmed that many of the

country's CBD sectional title buildings had lost value through poor administration and

collection of levies with resultant deterioration of the structure.

"The position for the banks has also become untenable with the recent Pretoria High Court

judgement which has held that when it comes to the collection of levy debt from an owner,

outstanding levies rank ahead of any bond repayment debt. In fact, it appears that a debt for

outstanding levy payments may be collected via the sale in execution of the apartment, virtually

without the bondholder's knowledge," Maree said.

This fact was aggravated by the provision that permitted, under specific circumstances, a

municipality to obtain the right to sue the building as a whole to recover outstanding rates and

service charges and collect these ahead of the bondholder's debts.

In practice, a municipality can put an apartment up for sale in execution without the bondholder

knowing about it, and sell the apartment for the value of the outstanding rates and services.

But, in reality, municipalities act far too slowly and cumbersomely to be effective in the

collection of outstanding rates or services on multi-unit complexes, and by the time they did,

arrears are at such a level that no commercial buyer is interested.

Maree agrees with Collins that collection of arrear levies for sectional title complexes has

become so fraught with potential difficulties and exploitive loopholes, that the task is best

left to a specialist attorney.

With the new court rulings the issues are becoming clouded and bound in legal niceties. Before a

body corporate appoints a property managing agent to collect sectional title or shareblock

levies on its behalf, it should ensure that the company it appoints has the in-house skills and

savvy to perform the task efficiently.

And any real estate agent who takes on the task of levy collections should also be certain that

it knows the ropes or it could find itself on the receiving end of a claim for damages form a

body corporate for reckless or non-performance, Maree said.

He predicted that the Supreme Court of Appeal, Constitutional Court and the legislature were

going to be kept busy as bondholders and others tried to establish a semblance of order in the

sectional title marketplace.

The only reason the entire sectional title industry does not collapse is that most owners are

reasonable people with a sense of value and pride in the buildings they own collectively. They

understand the advantage of maintaining standards and values, which is why it is essential that

body corporates act swiftly to get rid of any bad apples, Maree said.