Author: Maryna Botha
22 October 2021
Financially struggling unit owner: May trustees agree on settlement amount?
Zikalala v Body Corporate of Selma Court and Another (AR255/2020)  ZAKZPHC 81 (23 September 2021)
This judgment is very important for trustees and managing agents. It explains why trustees and managing agents, whether or not out of goodwill, will fall foul of their statutory responsibilities if they accept, without more, a settlement amount from an owner who is unable to pay the full outstanding levy debt. Although it may appear overly harsh, it protects the other owners who would otherwise be carrying the shortfall. Strict measures are prescribed in the legislation for dealing with such instances.
SUMMARY of the Judgment
Mr Zikalala is an owner of a unit in Selma Court, a sectional title scheme in Durban. He fell into arrears with his levy payments and in February 2018, the body corporate obtained a default judgment against him for some R24K. The matter thereafter landed in the magistrate’s court to be processed in terms of that court’s debt collection measures.
It was at this stage that Mr Zikalala approached the attorneys acting on behalf of the body corporate (‘the Attorneys’). He advised that as he could not pay the full amount at once, he would offer to pay off the debt by way of instalments in the sum of R1,000 per month, which amount would be inclusive of the existing monthly levies. The offer was rejected and the attorneys were instructed to proceed to obtain a warrant of execution. This came to naught as the Sheriff could not attach adequate assets of value at Mr Zikalala’s residence.
In subsequent proceeding in the magistrate’s court, Mr Zikalala made a further written offer of settlement. Stating that he managed to get a loan from his family, he offered to pay R30,000 in ‘full and final settlement’ of the debt. The trustees accepted the offer.
While Mr Zikalala was liaising directly with the trustees, the Attorneys for the body corporate liaised with the managing agent. The total amount owing in respect of the arrear levies and the body corporate’s legal costs as at 1 April 2019 far outstripped the amount tendered as a settlement. Unbeknown to Mr Zikalala, the managing agent informed the Attorneys that whilst the trustees had accepted Mr Zikalala’s offer, they ‘had not looked at the bigger picture’ in that the total owing to the body corporate including legal expenses was R58,619.85. Having regard to the offer made by Mr Zikalala, the body corporate would still have been left with a shortfall of R28K which would take approximately five years to be paid off by Mr Zikalala based on his proposals. This eventually culminated in the Attorneys writing to Mr Zikalala informing him of the decision to revoke the offer of settlement on the basis that acceptance of the offer would prejudice the body corporate.
In court, and on appeal, Mr Zikalala contended that he had not breached the terms of the agreement and that the revocation by the body corporate was unilateral. He stated that he had communicated his offer of settlement not only to the Attorney, but also emailed two of the trustees. Both trustees responded that the offer of settlement was acceptable.
The body corporate raised the question whether it was competent for its trustees to compromise its claim for levies, costs and interest due and payable by an owner (Mr Zikalala) in as much as the actions of the trustees are outside the legal scope (ultra vires) of their powers in terms of the Sectional Titles Schemes Management Act (‘STSMA’) and the regulations. It argued that the two trustees were not entitled to accept the settlement as there was no resolution authorising them to do so, and in any event, that their duties under the Act are to collect levies and they are not, unless in exceptional circumstances, entitled to write-off parts thereof in this manner.
- Section 10 of the STSMA provides that the affairs of a body corporate must be regulated and managed in accordance with certain prescribed management rules. (These rules are contained in annexures to the regulations to the Sectional Titles Schemes Management Act.)
- The structure regarding the collection of levies is as follows: Management Rule 25 provides that once a budget has been approved, the body corporate must give notice to each owner of the contributions that will become due and payable. These must be collected by the body corporate. Where such contributions or levies have not been paid, the body corporate in pursuing any claims is entitled to receive from such owner any charges and interest due on any overdue contributions.
- Mr Zikalala argued that, in the circumstances in which he made the offer, in full and final settlement of the body corporate’s claim, there was no uncertainty as to what the offer entailed and the compromise which it was intended to achieve. Reliance was also placed on Management Rule 10 pertaining to the validity of acts performed by trustees: In this case, two trustees confirmed in writing that the offer was acceptable. Mr Zikalala argued that as two trustees had consented to his settlement offer, their acceptance was binding on the body corporate.
- The argument had to fail. Firstly, because Management Rule 10(1) refers to a ‘document’ signed on behalf of the body corporate being valid and binding where it is signed on ‘the authority of a trustee resolution’ by two trustees, or one trustee and the managing agent. It is common cause that both trustees agreed to accept the offer from Mr Zikalala. However, there is nothing in the record to point to the trustees acting pursuant to a resolution authorising them to accept such offer, assuming in law they were permitted to do so. The latter speaks to the second reason why the argument of Mr Zikalala had to fail. According to the STSMA, the basis for the liability of owners for levy contributions cannot be modified without the written consent of any owner who is adversely affected by such modification. The body corporate was correct to argue that acceptance of Mr Zikalala’s offer would necessarily have entailed the remaining portion of the unpaid levies being paid by the remaining members of the body corporate, as a result of the compromise. To that extent, those members would be ‘adversely affected’ by a decision taken by two trustees to the exclusion of the managing agents and all of the remaining owners. There is no record of such written consent or resolution by the owners permitting the two trustees to encumber the body corporate with the unpaid portion of levies and contributions amounting to R28K. Thus, even if the two trustees did give their consent and accepted the offer, such acceptance was invalid for want of compliance with their statutory duty under the STSMA. (The only manner in which the trustees could have been so authorised was by way of a unanimous resolution of all the members of the body corporate, giving their consent to compromise the claim.)
- It follows therefore that absent any express or implied power that is accorded to a body corporate in the STSMA, the trustees may not conclude an agreement outside the ambit of the powers given in terms of the STSMA. To the extent that an act is outside the powers given in the STSMA, the body corporate as a creature of statute, will be construed to have acted ultra vires. Likewise, it would not be competent for the body corporate to sanction an act which is ultra vires by way of a special resolution.
In the result, the appeal failed.
The Judgment can be viewed here: