Can title conditions of a homeowners association restrict the sale of your property?

You have bought property in a security estate managed by a Homeowners Association (HOA.) The property was expensive but in your mind an investment in your future. However, personal financial constraints have made you not only fall behind on your levies, but also consider selling the property. You may even be staring insolvency in the face. But can the property be sold without you settling the outstanding levies

The first port of call is to look at the title deed conditions of the  property. In the case of a HOA, these conditions usually favour the HOA by restricting the transfer of property until the HOA levies have been paid in full. But how enforceable are these conditions and can they restrict the transfer of property while levies are outstanding?

In the cases of Willow Waters Homeowners Association (Pty) Ltd v Koka NO and Others (768/2013) [2014] ZASCA 220 and Cowin NO and others v Kyalami Estate Homeowners Association and Others (499/2013) [2014] ZASCA 221, the court found that for conditions such as those of the HOA regarding the payment of levies to qualify for registration as a real right, it must meet the following criteria:

Firstly, the condition must take something away from your right of ownership; and
Secondly, if your right to freely dispose of the property is restricted leaving you unable to obtain the full fruits of the disposition of your property then one of your rights of ownership have been restricted. 

The court found that the HOA conditions registered against a property meets these criteria and establishes these title conditions as a real right in favour of the HOA.

The court drew an analogy between the HOA conditions and the restriction of rights contained in section 118 of the Local Government: Municipal Systems Act 32 of 2002 and section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986. These provisions prohibit the Deeds Office to register a transfer of property if there is no rates clearance certificate issued by the municipality confirming that all outstanding rates and taxes have been paid, or in the case of a sectional title, a conveyancer certificate issued confirming that all outstanding levies due to the body corporate have been paid.

These statutory conditions serve to secure debt recovery in respect of municipal rates and taxes and body corporate services regarding water and electricity and basic scheme maintenance, the same objectives the HOA conditions strive to achieve, and likewise the HOA cannot be deprived of this basis to recover outstanding debt in return for the services provided. 

Accordingly, whether it is a normal sale transfer, inheritance or a forced sale in for example the case of insolvency or a court order, transfer will not take place without a HOA certificate stating that all outstanding levies have been paid in full.

May 7, 2015

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