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Sword removed from the head of home owners associations

14 January 2015 Aidan Kenny, Werksmans Attorneys

Home Owners Association (for example security estates established in terms of an statute and not classified as a sectional title development with a body corporate), are normally concerned about their inability to collect unpaid levies and penalty levies of homeowners, if declared insolvent or liquidated.

Recently the North Gauteng High Court, Pretoria, held Home Owners Associations, even with a clause in the title deed, to the effect the property cannot be transferred, if all outstanding levies and penalty levies are not paid, is not entitled to withhold the consent to transfer of the property if the levies are not paid. The trustees or liquidators can consequently transfer the property without payment of the levies or penalty levies or the required consent.

Aidan Kenny, director and property specialist at Werksmans Attorneys, says the decision sent shock waves through the Home Owners Association community. Home Owners Associations were concerned they will not be able to function effectively, by providing services such as security, garden services and water services funded by levies which is collected from homeowners declared insolvent or liquidated.

The Supreme Court of Appeal however brought relief recently when the decision of the North Gauteng High Court,Pretoria was over turned on appeal in the case of Willow Waters Home Owners Association Pty Ltd v Koka. The Court held that Home Owners Associations which had a clause in the Title Deed to the effect that a property cannot be transferred without the consent of the Home Owners Association, provides the Home Owners Association with theright to refuse to grant the consent, until the outstanding levies and penalty levies are paid by the trustees or liquidators.

The levies and penalty levies, were held to be cost in the realisation of the property as set forth in the Insolvency Act and the Home Owners Association is entitled to receive levies and penalty levies from the insolvent estate, as the trustees or liquidator steps in the shoes of the homeowner.

Werksmans Attorneys is of the opinion the aforementioned decision will prevent Home Owners Associations form facing a similar fate as an insolvent homeowner who is unable to pay the outstanding levies and penalty levies, for services which was funded by the Home Owners Association in anticipation of levies to be collected.

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