Prof. Graham Paddock

Do Registrars Of Deeds And Conveyancers Have A Legal Obligation To Ensure That Purchasers Of Sectional Title Units Do Not Buy Into Historic Scheme Debt? Mike Power points out that the Sectional Titles Act requires that, in addition to a rates clearance certificate for the unit, a rates clearance for the land and buildings in the scheme must be lodged when any separately-rated unit is transferred.

 Working as a managing agent at Annette Laing Property Consultants, Mike (C.E.A, M.I.E.A. STSM (UCT)) deals with a number of ‘less affluent’ schemes with a high incidence of levy arrears and bodies corporate that owe the Municipality hundreds of thousands of rands for municipal services.

In a number of instances, unit sellers have not informed purchasers of the body corporate debt, sometimes as high as R240 000. Mike believes that it is immoral that sellers should be able to escape their liability for the body corporate’s debts and that new owners should be legally obliged to pay historic debt for services consumed before they bought into the scheme.

“…Mike believes that it is immoral that sellers should be able to escape their liability…”

 But Mike goes further. He has looked carefully at the Sectional Titles Act and come to the conclusion that transfers of units when the body corporate still owes money to the local authority are also illegal, i.e. in terms of the Sectional Titles Act, Registrars of Deeds and conveyancers have a legal obligation to ensure that they do not occur. He points to section 15B(3) which provides that transfers of units may not be registered without a certificate from the local authority confirming that all amounts due in respect of the land and buildings in the scheme are paid up to date.

THE TEXT OF s15B(3) (highlighted to emphasise the wording that applies in the circumstances Mike describes, i.e. where the body corporate is established and provision is made for separate rating of units.)

 (3) The registrar shall not register a transfer of a unit or of an undivided share therein, unless there is produced to him- 
(a) a conveyancer’s certificate confirming that as at date of registration-  
     (i)  (aa)     if a body corporate is deemed to be established in terms of section 36 (1), that body corporate has certified that all moneys due to the body corporate by the transferor in respect of the said unit have been paid, or that provision has been made to the satisfaction of the body  corporate for the payment thereof ; or
           (bb)     if a body corporate is not deemed to be established, no moneys are payable;
     (ii)  no real right of extension of a scheme as contemplated in section 25 is registered in favour of a developer or the body corporate or, if such right is so registered, that it is disclosed in the deed of alienation to the transferee as contemplated in section 25 (14) or, if it is not so disclosed, that the transferee after the conclusion of the deed of alienation has in writing exercised his or her option in terms of section 25 (15) and that he or she has elected not to annul the alienation on the ground of the said defect;
(b) a clearance certificate from the local authority that all rates and moneys due to such local authority under any law in respect of the land and buildings of the scheme have been paid if-
     (i) provision is made by law for the separate rating of units; or  
     (ii) the transfer will result in the establishment of a body corporate in terms of section 36;
(c) if the transferor is a developer, an affidavit by the developer in which it is declared whether the relevant unit is a unit to which the provisions of section 10 apply or not and, if those provisions so apply, that the transfer is effected in terms of a contract which is not contrary to any provision of that section.

When Mike came to this conclusion, he first approached officials at the City of Cape Town’s Directorate: Finance well over a year ago. E-mail correspondence from April  to August 2008 shows Mike persisting with his query and the City officials  referring the matter to their internal legal advisers and then to their attorneys. Mike says that in the end the City officials told him that they had obtained a legal opinion, but would not tell him what was in it.

“…Mike says that in the end the City officials told him that they had obtained a legal opinion, but would not tell him what was in it…”

In February 2009 Mike sent a letter to the Law Society of the Cape of Good Hope. They also agreed to look into the matter and told Mike that it would be discussed at meetings on 10th and 29th March 2009. He heard nothing more. When he asked for more information, he was told: “The Property Law Committee has taken the matter up with the responsible persons at the City of Cape Town and discussions are ongoing.  We will let you know of the decision as soon as these discussions are completed”. Mike has not heard from the Cape Law Society since.

So Mike brought the issue to my attention. I looked at section15B(3) of the Act with new eyes and came to the conclusion that Mike’s interpretation of this provision is correct.

In essence, section 15B(3) of the Sectional Titles Act, 95 of 1986, specifically prohibits Registrars of Deeds from registering transfers of units where:

(a) the body corporate is deemed to be established, and
(b) provision is made by law for the separate rating of units
unless there is produced to the Registrar:
    (i) a conveyancer’s certificate confirming that all moneys due to the body corporate by the transferor in respect of the said unit have been paid or secured to the body corporate’s satisfaction; and
    (ii) a clearance certificate from the local authority that all rates and moneys due to such local authority under any law in respect of the land and buildings of the scheme have been paid.

The requirement for a rates clearance certificate in respect of the land and buildings in the scheme when a separately-rated unit is transferred is absolutely clear from section 15B(3)(a) and (b), but I do not think that Registrars of Deeds and local authorities have taken this provision into account in implementing the separate rating of units in schemes.

QUESTIONS:
What should be done about this situation?

Is the provision in section 15B(3) unnecessary? Should it be removed by amendment of the Act? But even if it should be removed, how can the Registrars of Deeds ignore this requirement while it remains in the Act?

 

Is the provision, as Mike believes, a necessary and sensible consumer protection provision designed to prevent  the abuses and inequities that Mike complains of? And if it is, why are the local authorities and Registrars of Deeds not applying it?

It is clear to me, if not to the City of Cape Town and to the Law Society of the Cape of Good Hope, that the Registrar of Deeds is legally obliged to require lodgment of a local authority clearance in respect of the land and buildings in the relevant scheme before allowing registration of transfer of a separately-rated unit. I have sent an advance copy of  this article to the office of the Chief Registrar of Deeds, who I consider to be the government official responsible to deal with this issue.

 
This article is published under the Creative Commons Attribution license