HOAs may block property sales, says Appeal Court

Homeowners' Associations (HOAs) all over SA - and those who own properties in gated estates - are breathing a sigh of relief in the wake of a decision just handed down by the Supreme Court of Appeal (SCA)

This judgment confirms the requirement for a levy clearance certificate to be issued by the HOA before any property in an estate can be transferred to a new owner, and the liability of the owner for payment of all levies up until the date of transfer.

"And as such," says Andrew Schaefer of property management company Trafalgar, "it brings to an end months of uncertainty and speculation on the financial viability of HOAs after two different and apparently conflicting High Court decisions on the issue."

"It also puts HOAs - which are responsible for the management of estates - on the same footing as local authorities and the bodies corporate of Sectional Title schemes when it comes to the collection of debts for services rendered. This, we believe, is very much in the spirit of the new Community Housing Schemes legislation due to be implemented later this year."

Effectively, he says, the SCA decision means that an HOA can refuse to issue a clearance certificate and so effectively block the transfer of a property to a new owner until the current owner has brought all outstanding levy and other payments up to date.

"This is an acknowledgment of the fact that levies are the "lifeblood" of estates, in that they are needed to enable HOAs to operate and maintain estate infrastructure such as roads, gardens and security systems. The SCA also noted that it is vital to ensure the continued supply of such services for the benefit of all residents and the economic viability and sustainability of estates."

What is more, Schaefer says, the Court also decided that the HOA was entitled to block transfer even if a property owner who had defaulted on levies was declared insolvent and the property then formed part of an estate under administration.

"In other words, if the liquidators want to sell and transfer an estate property to help pay an insolvent owner's creditors, they must first pay the HOA what is outstanding and obtain a levy clearance certificate - or at least negotiate with the HOA before they proceed with the sale.

"The Court did also note that there is nothing to prevent an HOA from waiving its right to block a transfer if it decides that it would perhaps be of more benefit to the other owners in the estate to cut its losses and allow a new owner to move in and start paying levies."

The SCA decision was handed down in December after the Court had reviewed the judgments reached in two similar cases involving the Willow Waters HOA and the Kyalami Estate HOA. In both these cases, the HOAs were assisted by the Association of Residential Communities (ARC) which represents about 45% of all residential estate HOAs in SA, and the National Association of Managing Agents (NAMA), which currently manages the affairs of more than 13 500 estates containing almost 500 000 homes.

Trafalgar Press Release