Are Liquidators Bound By Restrictions In Title Deed Conditions In Homeowners Associations?
Trevor Simon, a Director with Fluxmans Attorneys, wrote this article exclusively for initial publication by Ecliptic Estate Management, presenting the facts behind a ruling which now sees HOAs enjoying the same level of protection afforded to Bodies Corporate and municipalities in respect of outstanding debts.
- The Supreme Court of Appeal recently handed down a Judgment where they held that Title Deed conditions which were binding on owners of property within the Home Owners Association (“the HOA”) who were similarly binding in the event that the owner is liquidated.
- The relevant case is Cowin N.O. v Kyalami Estate Home Owners Association (499/2013) [2014] ZA SCA 221 (12 December 2014).
- The facts of the case were this:
3.1 Silver Tunnel Investments 7 (Pty) Ltd (“Silver Tunnel”) owned a property (“the Property”) in Kyalami Estate Home Owners Association (“the HOA”).
3.2 The Title Deeds of each of the dwelling units including the one in respect of the application contained the following restrictive title conditions:
“Every owner of the Erf or any subdivision thereof or any unit thereon as defined in the Sectional Title Act, shall automatically become and shall remain a member of the Home Owners Association and shall be subject to its constitution until he ceases to be an owner as aforesaid. Neither the Erf nor any subdivision thereof nor any interest therein nor any unit thereon shall be transferred to any person who has not bound himself to the satisfaction or such Association to become a member of the Home Owners Association”.
3.3 Silver Tunnel were placed into liquidation pursuant to which Cowin and Sekati were appointed as liquidators.
3.4 Prior to its liquidation, Silver Tunnel had registered three mortgage bonds over their property in favour of Absa.
3.5 Absa obtained Judgment against Silver Tunnel subsequent to its liquidation on 8 June 2010 pursuant to which the Property was declared specially executable.
3.6 Thereafter, the joint liquidators concluded an Agreement of Sale of the Property with a third party, Oxter Construction (the purchaser), for a purchase price of R2.25 million.
3.7 The purchaser fulfilled its obligations under the Sale Agreement and the municipal rates clearance amounts were duly settled.
3.8 The HOA refused to issue a Levy Clearance Certificate to the purchaser to facilitate the transfer of the Property due to the fact that there were unpaid arrear levies in the sum of R887, 408.94 due to the HOA by Silver Tunnel at the time of its liquidation.
3.9 The joint liquidators argued that the refusal by the HOA to issue a Levy Clearance Certificate prejudiced the rights of Absa as the secured creditor over the Property and that any amounts due to the HOA by Silver Tunnel could not supersede those of Absa. In other words, the joint liquidators contended that the HOA were confined to proving its claim for arrear levies as a concurrent creditor in the insolvent Estate of Silver Tunnel. The joint liquidators furthermore contended that the title condition which bound Silver Tunnel as a member of the HOA and which accordingly obliged them to adhere to the rules of the HOA including the payment of all levies, did not bind the liquidators of the Estate on the basis that that the conditions in the Title Deed merely created a personal relationship between the parties to the Agreement at the time (i.e. Silver Tunnel and the HOA). In other words, the liquidators contended that as third parties, they were not bound by such a condition and were accordingly not obliged to effect payment of the full outstanding arrear levies to the HOA.
3.10 The Court was called upon to determine two issues:
3.10.1 Was the condition in the Title Deed a real right which meant it could be enforced against the owners’ successors in title or was it a personal right which could only be enforced against a specific person? “the first issue”
3.10.2 Was the HOA merely a concurrent creditor of the insolvent Estate in which case they would only have a concurrent claim against the insolvent Estate for the payment of the arrear levies or did the HOA have a right to claim all levies due to it in terms of the condition contained in the Title Deed? “the second issue”
3.11 With regard to the first issue, the court held that the condition contained in the Title Deed was a real right which meant the condition was enforceable against all successors in title. As a result, the HOA could enforce their real rights against the liquidators of the insolvent Estate.
3.12 With regard to the second issue, the court reasoned as follows:
3.12.1 The HOA had a choice whether to lodge its claim as a concurrent creditor or to claim all unpaid levies in terms of the condition in the Title Deed.
3.12.2 The Court analysed comparable cases where municipalities and Bodies Corporate were afforded legislative protection allowing them to veto registration of transfer until payment of what was due to them had been made.
3.12.3 The Court ruled that Home Owners Associations had acquired similar status by the registration of the condition in the Title Deed of the members. Accordingly, by virtue of the condition of the Title Deed, the HOA could insist that full payment of levies which were due to them be paid to them by the insolvent Estate before the HOA issued a Clearance Certificate.
3.13 The effect of the aforegoing Judgment is as follows:
3.13.1 HOAs now enjoy the same level of protection afforded to Bodies Corporate and municipalities in respect of outstanding debts and they can now withhold Clearance Certificates until such time as the levies have been paid in full.
3.13.2 Liquidators are bound by the conditions of the Title Deed.
Article written 16 May 2015 by:
Trevor Simon
Director
Fluxmans Inc.
