By Prof Graham Paddock

Prof Graham PaddockBelow is an example of two of the questions on the discussion forum on Paddocks Club. We want to show what is available to our Community Members!
Arrear levies for a rented unit


Q1
. If an owner is in arrears with his levies but the unit is rented out, can the body corporate request the tenant to pay his rental over to the body corporate to bring the levies up to date? The outstanding amount on the levies is approximately R19,000. They have started with legal action against the owner.
Paddocks ClubA1. No, this is not possible at the moment. The tenant has a legal obligation to pay the landlord and cannot pay anyone else without the landlord’s agreement.
When the Sectional Titles Schemes Management Act comes into operation (hopefully during 2012), the body corporate will have a legal basis on which to demand this “rental diversion” to offset levies outstanding by the landlord.

Graham

Another member’s input: The professor is right, like always. We had a similar situation where the owner agreed to let us collect the rent for the arrear levies. The bank then informed us that they are the first in line to collect for the mortgage and that we cannot offset the rent for the levies.

Graham: Good point.

If the property is bonded, the mortgage document will almost certainly contain a cession of rental income to the bank.
In this case, if mortgage payments are not made, the bondholder has a contractual right to require the tenant to pay the rental to it in reduction of the amount owed by the owner under the bond.

Graham

Owner worried about HOA insolvency

Q1. What would happen, if anything, to the single-title residential homes if the HOA became insolvent?

Obviously the common property could be transferred back to the municipality, but what becomes of the actual properties belonging to the owners? Would they become liable as members of the now insolvent HOA to pay creditors and so on? Could their homes be sequestrated?

I was asked this by a home owner and I could not really answer him.

A1. It is very unlikely in practice that an HOA could become insolvent, because it can offset its liabilities by raising levies on its members, so my suggestion is that you tell the owner not to worry.
But if the owner persists in his or her query, explain that if an individual owner is not able to pay the levies he or she owes the HOA and does not have sufficient movable assets to cover the amount due, the property could be attached and sold in execution to raise the funds necessary to pay the HOA. But assuming that the HOA is a company or a common law association with limited liability, the HOA’s creditors cannot sue an individual owner or attach an individual property to recover the HOA’s debts.

Graham

Member: Thank you for the answer, I did have an inkling that that was the answer but I needed the clarification.

 
Article reference: Paddocks Press: Volume 7, Issue 1, Page 5

Professor Graham Paddock is now only available to answer questions on the discussion forum for Community Members of Paddocks Club. Get all your questions answered by joining Graham on this community platform. Join Paddocks Club at www.paddocksclub.co.za.

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