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Levy clearance certificates and arrear levy amounts – what happens when a unit is sold?

When it comes to selling a unit in a sectional title scheme and the levies are in arrears for that particular unit, the body corporate is in the powerful position of being able to withhold a levy clearance certificate until the full amount is paid.

This is stipulated in section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 (“the STA”) and is the “power card” to force the person in arrears to pay his debt.
 
Many think it is the levy clearance certificate from the body corporate that is needed by the Registrar of Deeds for the transfer of the unit to go through, but it is actually a certificate from the conveyancing attorney which confirms that all monies due has been paid in full or a satisfactory arrangement has been made to resolve the debt, says Michael Bauer, general manager of property management company IHFM.
 
When a unit is in the process of being transferred, the conveyancer usually asks for the clearance figure from the body corporate, which will include normal and special levies due up to the estimated date of transfer.  The figure will also include any arrear levies, interest, legal fees and any other costs incurred in collecting arrears, and the managing agent’s administrative fee (if applicable). Buyers will be responsible for the pro rata levies for the remainder of the month, which is calculated from the date they take transfer.  In addition, Section 3.3 of the Sectional Title Schemes Management Act (STSMA) stipulates that if a special levy is still payable the buyer becomes liable pro-rata from the date of transfer. This provision differs from the old Act in which the seller had to settle the full amount owing in the case of a special levy.
 
If the member selling the unit needs the funds from the proceeds of the sale to pay his debt to the body corporate, he can make arrangements with the trustees in order to do so. A typical example would be either payment of the outstanding levies or an irrevocable undertaking from the conveyancing attorney dealing with the transfer stating that when the registration of transfer to the new owner takes place, he releases the amount due to the body corporate before he pays the proceeds of the sale to the seller, said Bauer.
 
If the levy clearance certificate is issued by the managing agent of the scheme, who is authorised to sign the certificate in terms of Prescribed Management Rule 10(1)(a) of Annexure 1 of the Regulations to the STSMA, he might charge an administration fee for doing so, so this needs to be budgeted for. Usually, if there is no managing agent in place, the certificate will be signed by two trustees who have been given the authority to do so. 
 
If there is a large arrear amount that needs to be cleared, the owner and trustees should deal with how this amount will be settled as soon as the unit it put on the market, as this will help in speeding up proceeds later when the transfer has to go through, advised Bauer. 


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