Экзамен зачет учебный год 2023 / European Condominium Law

realisation’ envisaged in section 89(1) of the South African Insolvency Act.572 Consequently, the outstanding arrears must be paid as part of the cost of realisation of the insolvent’s assets before the applicable conveyancer’s certificate will be issued in order to effect the transfer of the unit. Only thereafter would Bank A be able to exercise its security right to be satisfied out of the proceeds of the sale. The satisfaction of the debt of the management body as part of the ‘cost of realisation’ of the insolvent estate thus produces the same result as if the rights conferred by the embargo were preferential in the strict sense.573

However, in the case where Edmund is not insolvent and the transfer is not from an insolvent estate, the provisions of the Insolvency Act regarding ‘cost of realisation’ are not applicable. In such a case the Supreme Court of Appeal refused to recognise that the embargo could be construed as a charge, lien or security right, which affords the management body a preferential claim for arrears pertaining to the unit. The Court reasoned that the ‘preference’ created by the embargo under the Act574 was something less than the ‘preference’ under section 66 of the Magistrates’ Courts Act 32 of 1944, and that nothing in those provisions expressly elevated the embargo of the management body above the security rights of the mortgage creditor.575 Section 66 provides that no immovable property (the unit) subject to a preferential right (the security right of Bank A) shall be sold in execution (forced sale) unless the judgement creditor (management body) had informed the preferential creditor (Bank A) in writing of the intended sale, and the proceeds of the sale are sufficient to satisfy the claim of the preferential creditor (Bank A) in full or the preferential creditor (Bank A) confirms the sale in writing. Bank A is unlikely to approve the sale unless the proceeds are sufficient to cover the balance owed to it under the mortgage.

Because of the embargo placed on the transfer of an apartment, unless the management body certifies that all money owed to it has

572Insolvency Act 24 of 1936 s. 89(1); Nel NO v Body Corporate of the Seaways Building 1995

1SA 130 (C) at 136E-F confirmed inNel NO v Body Corporate of the Seaways Building 1996

1SA 131 (SCA).

573See First Rand Bank Ltd v Body Corporate of Geovy Villa 2004 3 SA 362 (SCA) par. 27.

574In Rabie NO v Rand Townships Registrar 1926 TPD similar embargos were said to create ‘a preference’, or ‘something not wholly in the nature of a lien or a hypothec but sui generis’.

575First Rand Bank Ltd v Body Corporate of Geovy Villa 2004 3 SA 362 (SCA) pars. 23–4; See Van der Merwe, Sectional Titles, pp. 9–16 – 9–19 and ‘Restraint on Transfer’, p. 367.

366 c a s e s t u d i e s

been paid (s. 15B(3)(a)(i)(aa)), the situation would not arise where Kenneth could inherit debts owed by Edmund to the management body. This is also precluded by the provisions that upon change of ownership of a unit the successor in title becomes liable only for the pro rata share of the contribution from the date of change of ownership (STSMA s. 3(3)).

Descriptive formants

The above answers are mainly derived from the provisions of the Sectional Titles Act, the model rules (by-laws) for South African schemes, the case law on the interpretation of these provisions and the application of the provisions of the Insolvency Act 24 of 1936 and the Magistrates’ Court Act 32 of 1944.

Metalegal formants

The swift recovery of levies has been immensely facilitated by the authorisation to claim arrear contributions via the newly instituted Ombud Service. Some commentators are of the opinion that a fine added to the arrears would avoid the necessity to institute an action in court and would compel Edmund to pay if he is in a position to do so. Similarly, the sanction holding him liable for interest on arrears, all legal costs, collection costs and expenses and damages incurred by the management body in the collection of arrear contributions is considered very effective to compel the solvent defaulting owner to pay. The suspension of the vote of the defaulting owner (Edmund) to vote at general meetings is, however, considered ineffective, mainly because defaulters are not normally interested in attending general meetings; second, their mortgage creditors are allowed to attend and vote on the meetings as their proxies; and third, the suspension of their votes applies only to majority decisions and not to important decisions affecting their property rights, for which special or unanimous resolutions are required. These limitations of the suspension of the right to vote probably have the result that such suspension is not unconstitutional.

Default on contributions is symptomatic of a larger socio-economic problem in South Africa.576 Many of the purchasers of sectional title units are employees of the State, cross-state enterprises and huge private enterprises, and therefore entitled to housing subsidies. Financial institutions grant bonds of up to 100 per cent of the purchase price

576Body Corporate, Geovy Villa v Sheriff, Pretoria Central Magistrates’ Court 2003 1 SA 69 (T) pars. 6–7.

of units, and the employer quite often automatically credits repayments to the account of the mortgage creditor bank. In many cases the purchasers of the units are unaware of their obligation to pay contributions for the management and maintenance of the scheme, and have made no provision for it in their financial planning. The result is disastrous. Although the bond payments are up to date, the arrear levies and charges remain unpaid from the outset and the arrears increase monthly. As there are few assets against which the body corporate can execute, it is hampered in its function to maintain the building in a good state of repair. If the remaining owners are not prepared to bear the burden of the defaulting owners, the standard of the building as a whole deteriorates, and the market value of the individual units decreases to the detriment of owners and mortgage creditors. This can and does lead to slum conditions.

The metalegal explanation for the priority given to the security rights of mortgage creditors is that the sectional title industry would be severely hampered if the security rights of financial institutions are curtailed. The logical consequence would be that they would be more reluctant to finance sectional title schemes, and this could have a knockon effect on the provision of affordable housing and the economy in general.577

On the other hand the creation of a statutory hypothec (lien, charge, mortgage) in favour of the management body for six months’ arrears, ranking above first mortgage creditors on the model of the United State Uniform Common Interest Ownership Act (s. 3-116)) is suggested as a possible equitable accommodation of the interest of first mortgage creditors and scheme management bodies. This would strike a balance between the need to swiftly enforce collection of unpaid contributions and the security interests of first mortgage creditors. Even mortgage creditors would prefer their units to be part of a well-run scheme inhabited by owners who can afford to pay their monthly levies.578

Spain

Operative rules

The Law on Horizontal Property obliges Edmund to pay a monthly contribution to the cost of the management and maintenance of

577First Rand Bank Ltd v Body Corporate of Geovy Villa 2004 3 SA 362 (SCA) at 368E; Van der Merwe, Sectional Titles, pp. 9–12(3) – 9–15.

578Van der Merwe, Sectional Titles, 9–18(1) and ‘Restraint on Transfer’, pp. 386–7.

Moreover, the Law obliges Edmund to notify the secretary of the owners’ community of any change of owner. If he does not do so, he will remain liable, jointly and severally (in solidum) with Kenneth, for payment of contributions that arise after the contract of sale (art. 9.1.i)).

Descriptive formants

The answers set out above are derived from the Law on Horizontal Property. Most of the responses are based on the amendments that took place in 1999.

Metalegal formants

In all likelihood this set of issues triggered the 1999 amendments. One of their main purposes was to enhance the ability of the owners’ community to recover unpaid contributions from the owners, as stated in the preamble of the Law. This is because regular payment of those contributions is essential for the proper maintenance and management of the condominium scheme. The 2013 amendment has extended the community’s preference from the previous one year to the previous three years. Bearing this in mind, it is not surprising that the amended provision also caters for a reserve fund (fondo de reserva), to which all the owners must contribute in proportion to their quota, to provide for the maintenance and repair of the building (art. 9.1(f)). The fact that there is a defaulting owner (or owners) should not prevent the executive board of the scheme (president, vice-president, secretary and manager) from carrying out necessary works on the scheme building.

Sweden

Operative rules

Edmund, of course, has an obligation to pay his monthly assessments to the real estate cooperative association (bostadsra¨ttsfo¨rening). After a delay of just one week the association has the right to give him notice to leave (Law on Real Estate Cooperatives Ch. 7 s. 18) and if payment is not received within three weeks after the notice, then his right to the apartment can be forfeited (Ch. 7 s. 23). The association has an obligation to inform the mortgage creditor when Edmund is more than two weeks late with payment of his monthly assessments (Ch. 7 s. 31). If Edmund is forced to leave the apartment because of his default then his share can be sold by the enforcement officer (Chs. 7 s. 30 and 8). The cooperative association has a lien on the share of the defaulting

370 c a s e s t u d i e s

member to recover the monthly assessments. This lien gives the association priority concerning its claim for monthly assessments over the security right of a mortgage creditor on the proceeds of a forced sale of the member’s share, provided that the cooperative association has fulfilled their obligation to inform the mortgage creditor about Edmund’s delay (Ch. 7 s. 16a read with s. 31).

Kenneth is not personally liable for Edmund’s unpaid debt (Ch. 6 s. 8). However, in practice, the purchaser, Kenneth, is strongly encouraged to pay Edmund’s debt because he otherwise runs the risk that the association orders the share to be sold by the enforcement office because the debt on the apartment has not been paid (Ch. 7 s. 16a). If Kenneth pays the debt, he has a claim against Edmund for the amount paid for Edmund’s arrears but not for payment of any other claim by the association against Edmund, for example, for damage caused by Edmund (Ch. 6 s. 8).

Descriptive formants

The descriptive formants for the above answer are the applicable provisions of the Law on Real Estate Cooperatives.

Metalegal formants

There are concerns that the priority granted to the associations in respect of arrear payments could have a negative effect on the credit (mortgage) market. The risk is, however, that if the association’s claim is not ranked higher than the claims of secured creditors, such as mortgagees, the association may not have sufficient funds to keep the real estate cooperative in a state of good repair or may even become insolvent, which may make all the shares in the cooperative worthless. This is an undesirable scenario. Participants in the Swedish credit market are familiar with the system. This knowledge combined with a well-oiled enforcement office provides sufficient security to the credit market.

372 c a s e s t u d i e s

interim procedure by virtue of which the owners can request the court to mediate in order to arrive at a provisional settlement of the dispute.

Some statutes make provision for the suspension of an owner’s right to vote at general meetings on ordinary resolutions in the case of persistent transgressions of by-laws. Where the offender ignores warnings against his behaviour, he may well be made liable for all legal costs incurred in the enforcement of by-laws.581 The Portuguese statute allows the general meeting to fix penalties for non-compliance with statutory provisions, resolutions of the general meeting and decisions of the manager.582 Under the South African Criminal Procedure Act, the owners may force Xavier to appear before a magistrate for causing a flagrant nuisance. The magistrate may demand a financial guarantee of R2000 (€190) from Xavier that he would keep the peace towards the complainant for a period of six months.

Most national reporters indicate that the obvious remedy in this scenario is injunctive relief based on abuse of property rights and the tort of nuisance for flagrant and persistent offensive behaviour.583 Failure to comply with a court order to stop behaving offensively will render Xavier guilty of contempt of court.584

The French report suggests that if Xavier does not respond to a written warning, he could be sued on the ground of anti-social behaviour as his actions go beyond the threshold of normal behaviour. The owners could sue Xavier collectively for any damage caused to the assets of the scheme and one or more owners can file for an injunction to put an end to Xavier’s despicable conduct. Similarly, the Catalan report suggests that the doctrine of abuse of law can be relied on to enforce a by-law prohibiting exhibitionism, coercion or abuse of others on the common property. This doctrine allows the management body to claim compensation for damage caused and an injunction to stop the obnoxious behaviour. Court proceedings on the ground of nuisance are, however, time-consuming and expensive because such actions normally fall under the jurisdiction of higher courts. Injunctions are also a blunt remedy, which, once granted, would not necessarily improve the relationships of owners in a condominium.

583Austrian, Belgian, English, Greek, Irish, Dutch, Slovenian and South African reports.

584Spanish and South African reports.

Consequently, some jurisdictions have introduced even harsher remedies against offenders such as Xavier. Thus the German statute provides that an owner whose loathsome behaviour is so intolerable that no apartment owner can be expected to live with the offender in the same condominium may be excluded from the condominium. Once a special resolution is adopted to exclude the offender, the owner is given three months to sell his apartment. If he does not succeed, the apartment is sold by means of a forced public sale.585 The Danish statute requires that the warning given to Xavier must be sufficiently accurate and explicit to serve as a ground for expulsion. The court will only expel Xavier if there is sufficient evidence on the part of other owners that the provocative conduct of Xavier constitutes a gross neglect of his obligations to the other owners. Interestingly, the Estonian report indicates that police reports may be used to provide evidence of extreme misconduct that would justify exclusion from the condominium community. Again, the exclusion could ultimately be achieved through a forced sale of Xavier’s apartment. In Norway, Xavier can be excluded from the community on the ground of a fundamental breach of his obligations towards the other owners. In the case of persistent intolerable behaviour, Polish unit owners may resolve to approach the court for an order that Xavier’s unit may be sold by a bailiff in execution proceedings. If this happens Xavier will also lose his right to alternative accommodation guaranteed by the local authority concerned.

The Irish and Swedish statutes contain similar provisions for forfeiture of Xavier’s lease or share in the real estate cooperative respectively. If the unit leases contain a covenant by the lessee not to create nuisance or annoyance on the premises, the ultimate penalty for persistent breach of this covenant is forfeiture of the lease. Under the Swedish statute the management board must inform Xavier that his conduct may lead to forfeiture of his share in the real estate cooperative. The board must also inform the Department of Social Welfare of Xavier’s unacceptable behaviour, and must

585The Austrian reporter mentions that persons who have a family or business connection with the offender are not allowed to bid at the auction. The Slovenian reporter observes that a similar provision in their condominium statute has not actually been used in practice. The Croatian report indicates that an offender can be excluded from the community on the strength of a majority or even a minority resolution.

374 c a s e s t u d i e s

liaise with them to ensure that Xavier is removed in a dignified manner following the precepts of due process.

It is interesting to note that only one jurisdiction, specifically Norway, makes provision for the direct eviction of an owner or other user whose behaviour creates a risk of destruction or severe deterioration of the condominium property, or causes intolerable nuisance or annoyance. This sanction is resorted to in serious cases where it is not advisable to follow the process that leads to the eventual sale of the condominium unit.586

Both Spanish and Catalan legislation, as well as the Dutch model by-laws, contain a less drastic sanction than the exclusion of an offending owner from the condominium. Under the Spanish statute, the president of the owners’ community (on his own initiative or on the initiative of any owner or occupier) may demand that Xavier stops behaving in the prohibited manner, under penalty of filing court proceedings. If Xavier persists in behaving badly, the president, with the authorisation of the owners’ community, will be able to file an action of suspension (accio´n de cesacio´n) against him. The judge may then adopt provisional remedies, such as an order forbidding Xavier from continuing to behave unacceptably, failing which he will be guilty of the offence of contempt of court. The final judgement may deprive Xavier of his right to reside in the condominium for a maximum period of three years depending on the seriousness of the offence. Xavier may also be required to compensate the members of the community that were adversely affected by his behaviour. This sanction is less severe because the offender is only temporarily deprived of the possession of his unit and he does not lose the other privileges of ownership, such as his right to let the unit. If, however, the offender is a tenant, his lease will be forfeited, followed by eviction. The Dutch model by-laws contain a standard clause, which provides that an owner may be excluded from further use of his unit in the case of serious misbehaviour, but only after less serious sanctions, such as warnings and fines, have been exhausted. This seems a sensible approach and is in line with the view that exclusion is very much a measure of last resort.

By way of a final point, several national reports mention that Xavier may be prosecuted for certain crimes or misdemeanours, with public insult being the most prominent.587 The Catalan report contains

586An action for eviction (ejectment) was denied by South African case law.

587Danish, French, Greek, Dutch and Slovenian reports.