Levy payments are a frequent problem for the trustees of body corporates as well as the managing agent. Many trustees and managing agents, in order to recover outstanding amounts, revert to taking the law into their own hands by cutting off the water and electricity supply to members’ residences. Some have even passed rules which allow for such actions. Justifications for these actions by trustees and management agents are abundant, but none of them are legal or will stand in court.

How does it get to this?

In these testing economic times, monthly levy payments are sometimes considered by owners of sectional title sections to be an optional expense in making ends meet on a tight budget. Once an owner has got away with defaulting on one payment, habitual default becomes easy, and more so if the trustees and management agent are slow to react to the failure to pay. The problem is worsened by the fact that the monthly levy is carefully calculated prior to the annual general meeting to be the minimum amount possible, in order to accommodate the owners. However, these small monthly levies could easily accrue over a few months to a significant amount, aggravated by interest and reflected as a substantial outstanding debt.

These non-payers place severe financial restraints on the cash flow of a body corporate which is largely dependent on the timeous monthly payments by all its members to fulfil its monthly commitments to municipalities regarding water and electricity usage, security, and the general upkeep of the property. If the body corporate does not have large financial reserves that it can rely on in the event of default by its members, the impact of the default can be severe and can cause unnecessary hardship for other owners. There are known instances of special levies raised in order to assist the body corporate in its financial hardship.

When cutting the water becomes the last resort.

By withholding the water and/or electricity supply to someone’s residence, whether or not it is allowed in the rules, the trustees and management agent disregard the owner’s constitutional rights to access to water and the provisions of the electricity act. They also disregard specific conditions of the Sectional Title Act, (Act 95 of 1986) as amended and confirmed in case law.

These trustees and managing agents expose themselves to an application by the owner and/or the occupier with a court order for immediate re-connection. The body corporate or management agent may not interfere with water and electricity services rendered to a section or unit. The penalty will be a cost order, if not granted on a punitive scale the result would be red faces and a lot to answer to at the next annual general meeting.

DISCONNECTING THE ELECTRICITY OR WATER SUPPLY TO SOMEONE AS DEBT COLLECTION IS ILLEGAL

MONTHLY NEWSLETTER | ISSUE 01

The Act clearly stipulates in Section 37(2) that trustees must approach by action any court, including the Magis-trate’s court, for recovery of any and all contributions levied under the provision of Section 37(1), which include monthly levies, special levies, interest, and legal costs on attorney and client scale.

Managing debt collection more effectively.

The trustees and managing agent have no choice herein. Prompt debt collection action taken against any owner immediately on default, will be the best defence. Therefore, the trustees must ensure that the appointed manage-ment agent either has a proven track record or a detailed collection policy prior to appointment. We all know that the wheels of justice turn slowly, and that it can take months for the default judgement to be granted and the warrant issued. By delaying the collection process the outstanding levy account increases exponentially, together with the burden on paying owners.

Therefore, the trustees themselves should keep a watchful eye on monthly payments and ensure that defaulting owners are immediately contacted by the management agent and, if they persist in the default, handed over to competent attorneys for collection. The sooner, the better. The old adage “absentee landlords gather no crops” is fitting, and trustees should ensure that the management agents attend to defaulters speedily and effectively in the interest of both their own property investment and that of the other owners in the sectional title scheme. The way that the owner is treated and their outstanding debt collected, will make the difference between a functioning, financially stable sectional title scheme or an impending disaster zone.

For further reading, see the judgement by Blieden J with Serobe AJ concurring in Queensgate Body Corporate vs MJV Claesen delivered on 26 November 1998 in the Witwatersrand Local Division, case number A3076/1998, and case law referred to therein.

Many property owners are still unaware that they should declare their rental income to The South African Revenue Services (SARS). If a property owner rents out his/her property and receives a rental income, it will be subject to being taxed. Whether the owner is renting out a secondary house, guesthouse, holiday home, garden flat or even just a room in his house, the income is taxable.

The rental income (excluding the refundable deposit) should be added to any other taxable income the landlord may have at the end of the year during tax filing season. In instances where the tenant forfeits his deposit, the latter will have to be included in the income tax table.

Fortunately, the taxable amount may be reduced as the landlord incurs expenses during the period the property was let. Some of the expenses include rates and taxes, bond interest, garden service, repairs, levies, estate agency advertisement fees, fixing of broken fixtures and the painting of the exterior property boundary walls. The mainte-nance and repairs should be noted as specific costs and should not be confused with improvement costs. The latter is a capital expense that would be included in the base cost of the property in order to reduce the capital gain on disposal of the property.

Furthermore, expenses must be apportioned where less than 100% of the property is rented out. For example, if

ALL RENTAL INCOME SHOULD BE DECLARED TO SARS

the total area of the house (garages and outbuildings included) is 420 square metres, and the landlord only lets 120 square metres, the area let is calculated as a percentage of the total area of the house is 28.57% (120/420x100). Therefore, 28.57% of the total expenses may be deducted from the total rental income of the tax year. This is a great example in instances where only a few rooms in the house are rented out.

In some instances the negotiations between the landlord and tenant are generally informal and usually no financial records are kept by the landlord as the landlord prefers payment in cash and not by means of bank deposits, which would result in no recorded transactions.

However, should this be discovered by the Receiver when an audit is conducted, it would be met with harsh penal-ties by SARS. In more serious cases of outstanding penalties, SARS could repossess and auction off the property.

References:

• SOUTH AFRICAN REVENUE SERVICES:• www.sars.gov/TaxTypes/PIT/Pages/Examples-for-tax-on-rental-income.aspx • www.sars.gov/TaxTypes/PIT/Pages/Tax-on-rental-income.aspx

A building contractor entered a binding and legal, written building contract with a closed corporation to erect a residential house on land registered to the sole member of the corporation and a third party.

Occupation was taken and the builder released the property (and thus his builder’s lien) to the owners of the land, in spite of the final certificate still outstanding, due, owing and payable.

The building contractor has issued summons in terms of the written building contract against the corporation, which has no assets. The question arose whether the building contractor has an alternative claim against the co-owners of the land for enrichment as the land has been improved with the residence.

The development of the law of enrichment in South African was dealt a severe blow in the judgement of Couws vs Jester Pools (Pty) Limited 1968 (3) SA 563 (T) when Justice Jansen took quite a narrow view on enrichment and claims in terms thereof.

Jester Pools erected a swimming pool on a property under the impression that it was contracted by the owner, whilst in fact they contracted with a third person. The court ruled that the building contractor had no claim against the actual owner of the property based on enrichment either calculated on the increase in value of the property or the actual expense of the swimming pool. Jester Pools had to accept the loss and pay the legal cost of the owner as well.

The keeper of his “brother’s” goods, a person or entity thus acting on behalf or in the interest of another, in certain circumstances, could incur costs or expenses in the process. The recovery of these costs or expenses can be prob-lematic.

MY BROTHER’S KEEPER: THE UNFORTUNATE BUILDING CONTRACTOR AND THE ENRICHED OWNER

Depending on the facts, a claim can be instituted either on enrichment (conditio indebiti or condition sine causa) or based on unauthorised administration (negotiorum gestio).

Any claim based on enrichment, whether conditio indebiti or condition sine causa conditio indebiti or condition sine causa each has four, almost similar essential elements a claimant must fulfil to be successful.

In short, the elements entail enrichment of the other party at the expense of the keeper, impoverishment of the keeper and absence of justification thereof.

A claim in terms of the negotiorum gestio also has four essential elements.

Firstly, the affairs managed by the keeper must be those of another. The keeper can be a company, trust or a natural person and the affairs that of a company, trust or a natural person.

Secondly, the other must be oblivious of the fact that his affairs are being managed.

Thirdly, and a very important element, is that the keeper must have had the intention to manage the affairs of another.

Fourthly, the management of the affairs should be conducted in a reasonable manner. Even if the management was unsuccessful, the caretaker shall have a claim against the other. However, if the management was unreasonable, the caretaker will have no claim.

To succeed in a claim based on the negotiorum gestio, our builder will have to fulfil all of the above essential requirements. The contractual obligations between the builder and the corporation negate the intention to manage and the reasonableness thereof. In terms of the Couws vs Jester Pools judgement the builder will be limit-ed to a claim in terms of the contract, with the risk of an empty judgement with little if any hope to recover any of the outstanding amount.

Luckily for our builder, thirty years after the Couws vs Jester Pools matter, two judgments have paved the way for an extension of the negotiorum gestio or unauthorised administration on behalf of a third party by the “extended” actio negotiorum gestorum or the actio negotiorum utilis. This development will specifically assist the building contractor as he had no intention to manage the affairs of another and it could assist where the reasonableness of his actions is questioned.

In ABSA Bank Limited t/a Bankfin vs Stander t/a CAW Paneelkloppers 1998 (1) SA 939 (C) J Van Zyl detailed the development of South African enrichment law. The judgement will provide any reader thereof with a cursory yet detailed background knowledge of this specific area in our law.

This judgement extends the reach of the enrichment law in that, although a general enrichment action is still not accepted or proposed, the holes caused by Couws vs Jester Pools are at least plugged.

In the second judgement, McCarthy Retail Limited vs Shortdistance Carriers CC, delivered by JA Schutz on 16 March 2001 under case number 110/1990, the Supreme Court of Appeal again carefully considered the position. The judgement refers to the predicament of our builder, but does not make a ruling which would constitute applicable case law. The comments do take the position further and clarify the case law noted.

The perceived injustice of the Couws vs Jester Pools-judgement has been rectified.

The last two cases combined does open an alternative claim to our building contractor against the actual registered owners of the stand on which the residence has been erected. In the event of the corporation not being able to fulfil its payment obligations towards our building contractor, the owners of the stand might just find themselves indebted to their keeper.

Whether you are thinking of helping your son financially to enable him to purchase his first property or donating money towards a worthy cause, there are some things to keep in mind. A donation is defined in the Income Tax Act, 1962, as “any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.” The donor may therefore not receive anything in return from the donee, as this will constitute an exchange agreement.

Types of donations

There are two types of donations, viz. donatio inter vivos (donation between two persons who are both alive) and donatio mortis causa (a donation where the donee will only receive the donation on the death of the donor).

The requirements for both an inter vivos and a mortis causa donation are:

1. The donor must make an offer to donate, which offer must be accepted by the donee;

2. The donor must have the necessary legal capacity to make the donation and the donee must have the necessary legal capacity to accept the donation;

3. Anything that a person can trade (in commercio), can be donated;

4. A donation must be legal and feasible; and

5. A donation must be identified or identifiable.

Can I withdraw a donation?

Donations can also be withdrawn. In the case of an inter vivos donation, the donor can at any time before the donee accepts the donation, withdraw such donation. After acceptance of the donation by the donee, a valid contract has been formed and the donor will only be able to withdraw the donation in the case of gross ingratitude on the part of the donee, e.g. if the donee threatens the donor’s life. A mortis causa donation can be repealed at any time before the donor’s death, as the donation will only be ratified on the death of the donor.

Donations tax

In terms of article 59 of the Income Tax Act, the donor is liable for payment of donations tax within three months after the donation was made. If the donor fails to pay the tax timeously, the donor and the donee will be jointly and severally liable for the payment thereof. An individual can make a donation of R100 000 per annum, free of dona-tions tax.

There are also a few exemptions in terms of section 56 of the Income Tax Act, which should be noted. They include the following:

1. A donation in terms of a duly registered prenuptial or postnuptial contract to the spouse of the donor;

WHAT TO KNOW ABOUT MAKING DONATIONS

2. A donation between spouses who are still married to each other;

3. A donation in the form of donatio mortis causa (this donation occurs in terms of the donor’s will and is therefore not subject to donations tax);

4. A donation that was cancelled within six months after it was made; and

5. Donations to certain public benefit organisations.

Donations and marriage

If any property, which forms part of the joint estate of both spouses, is donated by one of the spouses, such dona-tion will be deemed to have been made in equal shares by each spouse. However, if property that has been donated by one of the spouses belongs to only that spouse (the donor), the donation will be deemed to have been made solely by the spouse who made the donation.

THIS NEWSLETTER IS COMPILED IN-HOUSE BY BYRON WHITE OF ESI ATTORNEYS.

Please contact ESI Attorneys at 021 943 5111 or Byron White at byron@esilaw.co.za should you have any further queries and/or would like to make suggestions for future property related articles!