The Supreme Court of Appeal (“SCA”) recently handed down an important judgment in regard to the nature of a homeowners association’s right to prevent transfer when an owner is insolvent and unable to pay outstanding levies.The full citation of the case is: Willow Waters Homeowners Association (Pty) Ltd v Koka N.O. and Others (768/2013) [2014] ZASCA 220 (12 December 2014) if you are a Paddocks Club Member, download it from the Paddocks Club Library where it is available under the heading ‘Cases’ with other important sectional title and homeowners’ association case law. If you are not a Paddocks Club member and wish to have a copy of the case emailed to you please send your request to editor@paddocks.co.za.

The judgment in this case confirmed that a title deed condition that restrains an owner from transferring a property until the homeowners association issues a levy clearance certificate gives rise to a real right that is binding all persons, including the insolvent estate of an HOA owner and which in effect gives the HOA the right to prevent transfer until the amounts due to it by the insolvent are paid.In the two cases that the SCA reviewed in the appeal owners in  HOAs had gone insolvent and in each case the trustee winding up the insolvent estate was not prepared to recognise that the HOA’s claim for outstanding levies must be paid in full as one of the costs of realisation of property. The trustees in these cases took the view that the HOA was an unsecured creditor and it’s claim was unsecured. Because there was not enough money in either of the insolvent estates to pay creditors, including the secured creditors like bondholders, this mean that the HOAs were facing a loss that would have had to be borne by the other HOA owners.

So this judgement, in which NAMA and ARC participated and raised arguments as amici curiae (interested parties), brings welcome clarity and confirmation of the position as practitioners have historically understood it. In the context of an HOA, a title deed condition that operates in favour of the HOA, restricting the owner’s right to transfer the property without the lodgement at the Deeds Registry of a HOA levy clearance certificate, has an effect similar to the provisions of section 15B the Sectional Titles Act, 1986: its effect is to restrain the owner’s right to transfer the property and it effectively gives the HOA an embargo on the property until the HOA’s claim has been paid or secured and it has issued a levy clearance certificate.

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Article reference: Paddocks Press: Volume 10, Issue 1, Page 1.

Adjunct Professor Graham Paddock is the author of the Home Owners’ Association Survival Manual and the senior consultant at Paddocks, a sectional title and HOA specialist firm. For more information on the Home Owners’ Association Management course, click here.

This article is published under the Creative Commons Attribution license.

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