Draft law puts sectional title owners at risk

LAST-minute changes to the Sectional Titles Amendment Bill, following representations to the parliamentary portfolio committee on agriculture and land affairs, could rob sectional title owners of a major victory in the fight against levy defaulters.

Owners of sectional title units may now be held accountable for debt racked up by their bodies corporate even though they have paid their levies in full.

According to attorney and sectional title expert Russell Warner, a director of property strategists Courtwell Consulting, the owners run a greater risk of losing their homes because of the insertion of additional wording in the amendment to section 47 of the act.

The change in wording was made by the agriculture and land affairs portfolio committee after consultation with stakeholders, including institutions that lend money to bodies corporate in financial trouble.

Warner questions why the committee passed the amendment with the new wording.

He says the amendment will do the opposite of what was intended, and will actually protect creditors to the detriment of good unit owners.

The original amendment in section 47 aimed to reduce the risks of sectional title owners losing their homes if the development they live is not managed properly.

The amendment stipulated that if unit owners were up to date on payment of levies to their body corporate, they would be protected from losing their homes if the body corporate ran into financial difficulties and ran up debts.

Creditors would be able to sue only those unit owners who had defaulted on levy payments to the body corporate.

Those unit owners run the risk of their units being attached to pay the debt.

But the creditor will have no recourse against those who have paid up fully.

Warner says some money lenders will extend financial help to a body corporate knowing full well there is no way that the poorly managed body will repay its debt.

The new amendment means that when the body corporate defaults on its debt, the money lender can repossess the entire sectional title scheme.

In this situation it will be able to redevelop the scheme and resell it at major profit.

“If the amendment has gone through as was originally intended, it would have upset the apple cart because they could sue only the delinquent owners, not all of them,” says Warner.

He says it appears these money-lending groups and other creditors may have placed pressure on the committee to change the wording of the amendment so that their interests would be protected.

“My concern is why Parliament and the committee allowed these changes to spoil a well- intended amendment.

“It now protects creditors while the initial motivation of the amendment was to protect the owners.”

Article by: Nick Wilson - www.businessday.co.za