Advice and Opinion

How To Collect Levy Arrears From Non-Paying Owners

While most would assume that levy accounts are paid up in full every month, there is often a small percentage of every sectional title scheme that does not pay on time or at all, says Michael Bauer, general manager of the property management company, IHFM.

Sometimes the non-payment is caused by complications such as deceased estate, where monies will be kept tied up until the estate is wound up (and in some cases this can take up to three years), he said. In cases such as these there is not much to do but to wait for the legal processes to take their due course and it would then be up to the trustees to work out alternatives to getting money in from other means.

For the other “normal” situations, to collect levies it is best for the trustees to get a sound credit control procedure in place and be sure to enforce it, said Bauer.

The second step would be to make sure that there are updated statements of account, correct contact details for each owner, registered rules, a levy budget, minutes, resolutions reflecting the due date of the levies and amount, and the determination of the interest rate before handing the case over to an attorney. This information will be needed by any attorney instructed to collect the outstanding amounts.

The attorneys will then follow these steps:

1. They will send a letter of demand to the owner – usually demanding payment within five days of receiving the notice, and stating that summons will be issued if they do not pay.

2. The summons – the owner will have to enter an appearance to defend within 10 court days.

3. If the owner does enter an appearance to defend and the claim is a liquid amount, the trustees can apply for summary judgement – the owner will have to appear in court to show their defence. This is an application process so the trustees must give the other side 10 days’ notice.

4. If they do not enter an appearance to defend, then a default judgement can be applied for, which usually takes a minimum of three weeks to receive from the courts.

5. Once the default judgement has been forwarded to the court then the Warrant of Execution will be sent with the judgement to the owner.

6. The execution against movables is then issued.

7. Once the judgement has been obtained, a letter must be sent giving the owner a last opportunity to pay up (in terms of Section 65, which is a garnishee order to attach income from a debtor or rental from a property investor).

8. The Section 65 notice is then sent to the court to request a date and they will usually give a date six weeks from the date submitted.

9. The notice will then be served and a court appearance is required by the debtor.

10. The debtor can delay the process but at the court appearance the creditor can apply for an emoluments attachment.

11. At any stage, once the judgement has been obtained, the creditor can apply for a Section 66 to attach immovable property but the courts do not like granting these easily as it is taking away someone’s home if it is their primary residence. It can happen that if a Section 66 is granted and the sale in execution takes place that at the auction the reserve price is not met and the unit can be sold in execution. If this happens, the unit may have to placed on auction a second time and if no sale transpires, the next would be the sequestration of the owner of the unit.

This basic process of debt collection can take from a few weeks to two years, and Bauer says that in his experience, trustees need to act immediately if they notice owners are behind in their levy payments for more than 30 days.

Bauer’s advice when it comes to establishing which debtors to “go after” with legal processes, is to focus on the top debtors, i.e. those with the highest chance of paying up and prioritise those.

When preparing the levy budgets for the year ahead, the trustees should consider a float for smaller schemes of around 10% and up to 20% for bigger schemes if they don’t have a good reserve to maintain a good cash flow, said Bauer.

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