Property Law - Payment provisions for disputed sectional title debts when wishing to sell

A sectional title unitholder wants to sell his unit. The body corporate won’t issue a clearance certificate. It says he owes it moneys due. He says he does not, but without that certificate the transfer is a non-starter.

Most, if not all, unitholders pay under protest, get the clearance certificate, and then claim the payment back (the ´protest payment´ route).

However, the relevant section, s 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986, provides another way –

´The registrar shall not register a transfer of a unit or … undivided share …, unless there is produced …

(a) a conveyancer’s certificate confirming that as at date of registration-

(i)(aa) …[the] body corporate … has certified that all moneys due to the body corporate by the transferor in respect of the … unit have been paid, or that provision has been made to the satisfaction of the body corporate for … payment …;´ (my emphasis)

The unitholder can provide for payment (the `payment provision´ route) rather than actually pay and reclaim.

Christo Botha (Statutory Interpretation, Cape Town, Juta, 4th ed, 2005, at 69), points out `legislation should generally be interpreted [so] that no word or sentence is … redundant of superfluous´.

Payment provision could be made by, say, providing some sort of conditional guarantee or depositing it into the trust account of an attorney, accompanied by his undertaking to pay the body corporate the amount eventually found, or agreed, to be due.

What if the provision does not satisfy the body corporate? Section 15B(3)(a)(i)(aa) ensures that unitholders settle their outstanding commitments before selling their units. It assists the financial soundness of a sectional title scheme. However, bodies corporate can be mistaken or unreasonable, like everybody else.

The body corporate´s discretion as to whether it should be satisfied with the unitholder´s payment provision is not unfettered. When a statute requires an act to be `to the satisfaction´ of some entity or authority, it confers a discretion. Where the payment provision is objectively reasonable and the unitholder´s dispute is bona fide, the law obliges the body corporate to be satisfied.

`A discretion must be exercised according to the rules of reason and justice, not according to private opinion. It must not he arbitrary, vague and fanciful but legal and regular …´

[Sharp v Wakefield 1891 AC 173, at 179; Casser & Casser v Bellville Municipality 1958 (3) SA 318(C) at 325 and Pretoria North Town Council v A. I. Electric Ice-Cream Factory (Pty.) Ltd., 1953 (3) SA 1 (AD) at 12.]

Apart from being illogical, clumsy, costly and time-consuming, protest payments are unnecessarily litigious. Public policy eschews unnecessary litigation. In Lawyers for Human Rights and Another v Minister of Home Affairs and Another 2004 (4) SA 125 (CC), the Constitutional Court, per Madala J at 150 [75], commended inter alia the following principles:

(i) [to] avoid opening … the floodgates to unnecessary litigation;
(ii) to ration scarce judicial resources by applying them to real rather than hypothetical disputes;
(iii) to place limits on the exercise of judicial power by precluding rulings … not needed to resolve disputes; …´

There is also a duty on practitioners to avoid useless litigation, as Lewis on Legal Ethics stresses (Juta, 1982, at 106). Throughout the case law it is assumed axiomatically that unnecessary litigation is to be avoided (eg, Combustion Technology (Pty) Ltd v Technoburn (Pty) Ltd 2003 (1) SA 265 (C) at 269 [15]; South African Bureau of Standards v GGS/AU (Pty) Ltd 2003 (6) SA 588 (T) at 592 [8] referring to Ebrahim v Excelsior Shopfitters and Furnishers (Pty) Ltd (II) 1946 TPD 226 at 236).

Where practitioners advise their clients to make protest payments, they could even be violating this duty. Litigation is inevitably needed to recover such payments.

Litigation may, of course, be necessary either way. If parties are not able to settle their dispute, either the unitholder will need to sue the body corporate (after a protest payment), or one of the parties will have to sue the other (after a payment provision). There could be important differences, though. The matter will more likely be settled where the funds are held by a third party itself, possession of the disputed funds being the self-encouraging factor that it is.

There is also the question of the onus of proof. Schwikkard & van der Merwe, Principles of Evidence, 2nd ed, Cape Town, Juta, 2002, at 538 point out that,

`the guiding principle … is that the person who makes a positive assertion is generally called upon to prove it, with the effect that the burden of proof lies generally on the person who seeks to alter the status quo´.

If the unitholder `protest pays´, he will be seeking to alter the status quo. The onus will be on him to show that he is entitled to the return of the disputed amount. On the other hand, if the unitholder makes a payment provision and the body corporate sues for the amount it considers due, the onus is on the body corporate.

Zeffert et al, The South African Law of Evidence, Lexis Nexis Butterworths, 2003, chap 3 (pages 45 – 92) set out what they call `a sustained analytic questioning of almost everything´ about onus of proof. They call the law in this area `mysterious, enigmatic, elusive…´(page 46) `where obfuscation has been the norm´(page 59). Therefore Schwikkard & van der Merwe´s assertion may not hold. It is beyond this article to enter these mysteries, but if Schwikkard & van der Merwe´s assertion applies, whether the unitholder `protests´ or `provides´ could be crucial in deciding on where the onus lies.

For all the above reasons, unitholders obstructed from selling their units by monetary disputes with their bodies corporate should not be cowed into protest paying. Payment provision is an equally valid and otherwise better route. Bodies corporate cannot refuse a clearance certificate just because the unitholder takes the latter course. The unit seller will be in a much better position to resolve the remaining `moneys due´ dispute with the body corporate – without being blocked from passing transfer to the purchaser of his unit.

By Roland Darrol
First published by: De Rebus – The SA Attorneys´ Journal


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