PARTICIPATION IN FRAUDULENT TRANSACTION CARRIES HIGH PRICE

A4_BThe facts pertaining to a case recently heard by the North Gauteng Tax Court make excellent material for a mystery novel …

Mr A, an accountant by profession, was approached by Mr B and Mr C to enter into a business arrangement. The two men are in some way related to a woman who works in the office of Mr A’s family business. Unfortunately there is no further information regarding this woman’s role in the whole affair. Although Mr A is not a close friend of the two men, they did meet socially from time to time. It was perhaps during one of these social gatherings that B and C proposed that Mr A set up XYZ CC as a business supplying seafood. B and C promised to order enough seafood from him to keep him in business.

The plot thickened when B and C requested Mr A to issue fictitious VAT invoices on behalf of XYZ to their own corporation, PQR CC. They contended that they want to raise a loan from a bank and needed the invoices to convince the bank that they required the loan for purchasing stock. B and C gave very specific instructions with regard to the issuing of the invoices, specifying the fictitious supplies and the amounts. According to Mr A, he was “badgered on a daily basis until he relented” and XYZ issued three invoices for a total value of R1 024 397.16 (including VAT) to PQR.

Obviously, no seafood was ordered, purchased or delivered. In the words of Hiemstra JA, Mr B and Mr C “wanted to use the money for some nefarious purpose”. The bank approved the loan on the basis of the invoices and paid the amount into XYZ’s bank account. As per agreement, XYZ then refunded the full amount to PQR by means of three cheques. With the money in their pockets, B and C fled the country, leaving Mr A to deal with SARS.

And why did XYZ have tax problems? Because B and C were not satisfied with only defrauding the bank. They added insult to injury by submitting an input claim in respect of the R125 803.14 VAT included in the amount of the three invoices.  SARS conducted an audit to establish whether the suppliers listed by PQR accounted for the corresponding output tax. As XYZ did not have any stock to begin with, did not supply any stock and was forced to transfer the full amount of the loan immediately upon receipt, Mr A thought it wise to submit a nil VAT return for the relevant periods.

In doing so Mr A, the accountant, failed to take into account one of the most basic principles of the VAT system. Unless a vendor has been granted permission to account on a payment basis, the liability for VAT arises when an invoice is issued.  Whether or not the vendor receives payment is irrelevant, because the person to whom the supply was made is in turn entitled to claim input tax on the basis of that invoice.

The court decided that whatever the background to the transaction may be, XYZ remains liable for the VAT in respect of the three invoices, as well as the 200 percent additional tax imposed by SARS.

There are many lessons to be learnt from Mr A’s experience. We can all strive to be better judges of character and perhaps steer clear of transactions involving seafood. However, the one lesson that all vendors need to take home is this:  SARS does not suffer fools gladly. Whatever the circumstances, a vendor remains liable for output VAT in respect of any and all invoices issued.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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What is meant by real security?

A4_BReal security means that, on the basis of a creditor’s right against the debtor (principal debt), a creditor acquires a limited real right in the property of the debtor as security for the payment of the creditor’s right (principal debt) by the debtor.

Real security differs from personal security in that a creditor does not acquire a limited real right in the property of the debtor in the case of personal security, but only acquires a creditor’s right against a third party as security for the payment of the principal debt by the debtor. Such a third party is normally surety of the debtor.

A requirement for real security is the existence of a valid and enforceable principal debt. The real security is accessory to the principal debt, in other words the real security is terminated automatically if the principal debt is paid in full.

If the object of security is moveable property, real security can be in the form of either pledge or notarial bond. In the case of pledge the object of pledge (corporeal or incorporeal moveable property) must be delivered by the pledgor (debtor) to the pledgee (creditor). Physical control of the pledge object is a requirement for the establishment and continuation of a limited real security right to the security object. The pledgee has the obligation to maintain the pledged property within reason and, on termination, to return the property to the pledgor. A notarial bond can be registered in respect of specified, corporeal moveable property of the debtor (mortgagor) in favour of the creditor (mortgagee) in the deeds registry. After registration of this bond, the mortgagee acquires a limited real right to the encumbered property without delivery thereof to the mortgagee.

Immoveable property of the debtor serves as the object of security in that a mortgage is granted by the debtor (mortgagor) to the creditor (mortgagee) and registered in the deeds registry. A mortgage is a liquid document which grants the mortgagee a limited real right in respect of the immoveable property of the mortgagee without the physical control of the property being passed to the mortgagee. More than one mortgage can be registered over the same immoveable property at the same time. Priority is given, in this case, to mortgagees in the order that the mortgages were registered (prior in tempore, prior in iure).

The pledge of the mortgagee (creditor) can, if the principal debt is not paid in full by the mortgagor or pledgor (debtor), have the security object sold in execution and is entitled to the proceeds of the sale in execution for payment of the principal debt. In the case of insolvency of the pledgor or mortgagor, the pledge or mortgagee acquires a preferent claim to the proceeds of the sale of the security object.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice

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How important is it to read legal pleadings and/or notices?

A3_BOften people only become aware of judgements reflecting on their credit records when trying to apply for loans, cellphone contracts, etc. However, what many of them do not know, is that it is most likely due to their own negligence that they have these judgements against them.

A summons is a document that informs a defendant that he or she is being sued and asserts the jurisdiction of the court to hear and determine the case. A summons can be served for many reasons which include divorce proceedings, traffic fines, outstanding fees, etc.

A simple summons sets out very briefly the details of the case. A combined summons does not set out the details or reasons as to why the action is being instituted, and such details can be found in the particulars of claim. It is important to take notice of the fine print on the summons. This is where you will find the information regarding when and where you should file your Notice of Intention to Defend, should you wish to defend the matter. An attorney usually drafts the notice and files it at court, however, it is not uncommon for people to defend such actions themselves. If you wish to defend the matter yourself it is important to serve it on the opposing attorneys (these details are on the summons) and file it at court.

With regards to any normal summons the time period to file the Notice of Intention to Defend is 10 (ten) days and 20 (twenty) days to file the opposing papers. If the defendant resides or is located in a 160 km radius outside the court, the defendant then has 21 (twenty one) days to file their Notice of Intention to Defend and 20 (twenty) days to file their opposing papers.

Once the ten or twenty days have passed and no Notice of Intention to Defend has been filed, the attorneys will immediately apply for Default Judgement. This may result in a judgement against your name. Once a Judge/Magistrate has granted Default Judgement, a Warrant of Execution can be issued in order to attach property and/or money for the amount as stated on the summons. If the Sheriff finds that there is no property to attach in order to obtain the money, the attorneys will go ahead with a Section 65A (1) Application. This Application requires the debtor to present their income and expenses to the court and provide an amount which can be paid off monthly in order to settle their debt.

A judgement will only be removed from your record once a rescission order is granted and/or proof is provided that the amount cited on the summons has been paid in full. If the amount has been paid in full, you can contact Transunion directly and get the judgement removed for free once proof of payment has been sent.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice

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PROVISIONAL TAX: DID YOU KNOW?

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Provisional tax payments is not a separate tax but pre-payments of income tax for a specific tax year. These pre-payments ensure that the tax load is spread over the tax year and can avoid a nasty surprise when SARS calculates (assesses) the final income tax liability for that specific tax year.

 

  1. There are three provisional tax deadlines:
  • Submission of the first provisional tax return (IRP6) is compulsory for provisional taxpayers even if no provisional tax is payable. Submission of the first IRP6 and payment of provisional tax (if applicable) is due within 6 months of the start of the tax year.
  • Submission of the second provisional tax return (IRP6) is also compulsory for provisional taxpayers even if no provisional tax is due. Submission of the second IRP6 and payment of provisional tax (if applicable) is due within 12 months after the start of the tax year.
  • Submission and payment (if applicable) for the third provisional tax return (IRP6) is voluntary. The due date for the third IRP6 depends on the date on which the tax year ends.
  1. SARS provides guidelines to assist taxpayers in estimating the amount of provisional tax due.
  1. If provisional tax was overpaid, the excess amount will be refunded to the taxpayer with interest. However, SARS will do the refund only after the final income tax liability for that tax year has been calculated (assessed) by SARS and the amount of the final income tax liability is less than the sum of the provisional tax payments for the relevant tax year.
  1. Underpayment of provisional tax will result in the imposition of (avoidable) penalties and interest by SARS.

If you need professional assistance with the calculations, submission or payment of any of the above returns or would like more information on the penalties and interest that can be imposed if you miss one or more of the above deadlines, please do not hesitate to contact any SARS office.

References:

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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Annulment of a marriage

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Consent is an essential element of a valid marriage and the parties to a marriage must confirm before the marriage officer during a civil ceremony that they voluntarily consent to marry each other.[1] There are certain circumstances where it can be said that consensus was not present, and this will be discussed below.

Six months after John marries Laura they decide that they want to start a family. John finds out from the doctors that he is sterile and cannot have children. Laura is distraught and contacts her attorney, saying that she would never have married John if she had known that he could not have children.

Laura’s attorney explains to her the circumstances in which consensus will either be lacking or materially deficient, in which case the marriage can be annulled (set aside).

Firstly, a material mistake will result in a lack of consensus. A material mistake is limited to where there is a mistake as to the identity of your spouse or a mistake regarding the actual act of marriage in that you did not understand that the ceremony in which you took part resulted in marriage with the other party. In these circumstances there is uncertainty as to whether the marriage never came into existence or if it can be set aside. One may also make mistakes regarding the personal characteristics of your spouse. This may only be a ground on which the validity of the marriage can be challenged if these are material characteristics. The decision whether a mistake regarding a personal characteristic is material or not rests with the Court.[2]

Secondly, a misrepresentation by your spouse may justify the setting aside of a marriage if that misrepresentation relates to a material aspect of the marriage. In the scenario above, if John was aware of the fact that he was sterile before entering into the marriage with Laura, then Laura could attempt to prove that she was misled and state that if she was aware of John’s sterility, she would never have married him. However, if John was unaware that he was sterile, this is not a sufficient ground on which to set a marriage aside.[3]

Thirdly, if one of the parties was unduly influenced or placed under duress to marry the other party by any person including but not limited to the party to which they have been married, then there is no consensus and the marriage can be set aside.[4]

Fourthly, impotence, being the inability to have sexual intercourse, may be a valid ground for setting aside a marriage, but this will not be so if it was reasonably foreseeable at the time that the marriage was entered into that sexual intercourse wouldn’t take place based on factors such as age or illness.[5]

Fifthly, if the scenario above was altered to read that Laura was pregnant with another man’s baby at the time that she married John then he could apply to have the marriage set aside on the basis that this state of affairs would most likely result in an unhappy marriage. He may only make this application if he was unaware of the pregnancy at the time that they were married and if he has not waived his right to have the marriage annulled.[6]

Bibliography:

  • Robinson JA, Human S, Boshoff A, Smith BS, Carnelley M, Introduction to South African Family Law, 4th, 2009, 92 – 94.
  • Heaton J, South African Family Law 3rd, 2010, 37.

Marriage Act, 25 of 1961.

[1] Section 30(1) of the Marriage Act, 25 of 1961.

[2] Robinson JA, Human S, Boshoff A, Smith BS, Carnelley M, Introduction to South African Family Law, 4th ed. (2009) 92.

[3] Robinson JA, Introduction to South African Family Law, 4th ed. (2009) 93.

[4] Robinson JA, Introduction to South African Family Law, 4th ed. (2009) 93.

[5] Heaton J, South African Family Law, 3rd ed. (2010) 38; Robinson JA, Introduction to South African Family Law, 4th ed. (2009) 94.

[6] Heaton J, South African Family Law 3rd ed. (2010) 37; Robinson JA, Introduction to South African Family Law, 4th ed. (2009) 94.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice

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Road cyclists vs. motorists

A1_BThe popularity of road cycling as a competitive sport and a form of transportation is on the rise. This naturally leads to major safety concerns and serious accidents among both groups of road users.

Both the National Road Traffic Act1  and the Western Cape Provincial Road Traffic Act2 regulate the rights of and rules for pedal cyclists and motor vehicle drivers on roads in the Republic of South Africa. The National Road Traffic Act has specific regulations pertaining to cycling safety and every cyclist should be alert to these regulations. Regulation 3113 states as follows:

  1. No person shall ride a pedal cycle on a public road unless he or she is seated astride on the saddle of such pedal cycle.
  1. Persons riding pedal cycles on a public road shall ride in single file except in the course of overtaking another pedal cycle, and two or more persons riding pedal cycles shall not overtake another vehicle at the same time.
  2. No person riding or seated on a pedal cycle on a public road shall take hold of any other vehicle in motion.
  3. No person riding a pedal cycle on a public road shall deliberately cause such pedal cycle to swerve from side to side.
  4. No person riding a pedal cycle on a public road shall carry thereon any person, animal or object which obstructs his or her view or which prevents him or her from exercising complete control over the movements of such pedal cycle.
  5. A person riding a pedal cycle on a public road shall do so with at least one hand on the handle bars of such pedal cycle.
  6. Whenever a portion of a public road has been set aside for use by persons riding pedal cycles, no person shall ride a pedal cycle on any other portion of such road.
  7. A person riding a pedal cycle on a public road or a portion of a public road set aside for use by persons riding pedal cycles, shall do so in such manner that all the wheels of such pedal cycle are in contact with the surface of the road at all times.

The Western Cape Provincial Road Traffic Act was passed on the 29th November 2012 and this Act has implications for both pedal cyclists and motor vehicle drivers. The Act empowers the Provincial Minister of Transport to regulate4 certain matters to increase road safety in the Province. Amongst others, regulations requiring all vehicles overtaking cyclists to ensure that there is a safe distance of at least 1.5 metres between them before passing, and law enforcement actions against cyclists who do not ride in single file, or who fail to stop at red traffic lights or stop streets were enacted.

Cyclists have the right to expect motor vehicles to overtake them safely and be on the look-out for them at intersections. The Road Traffic Act is clear where it states that drivers must take other road users into account in whatever they do. Cyclists also have the right to the left-hand side of the road (not the extreme edge of the left-hand side). We tend to forget that there are cyclists around us who are also using the roads as a means of transport. Apart from the recently built cycle-lanes in Cape Town, we do not have dedicated lanes in South Africa for cyclists to use. This means that every day cyclists are fighting for road space amongst often aggressive and ignorant drivers, according to the Automobile Association of South Africa (AA).

While the law states that cyclists must wear protective headgear while riding a bicycle, for many this is a cost that they simply cannot afford, making them almost invisible to the drivers on the road.

Therefore, as a driver, ask yourself what you can do to avoid colliding with a cyclist. The AA provides some safety tips for drivers:

  • Yield to cyclists, especially at intersections and circles.
  • Check your blind spots and make sure the way is clear before changing lanes or direction.
  • Do not drive, stop or park in a bicycle lane.
  • Give cyclists enough room when overtaking – at least 1.5 metres.

Changing the behaviour of drivers will assist in the fight to stop cyclist crashes and deaths on our roads. However, cyclists also have to do their part by following the rules and making sure they are visible. Here are some safety tips for cyclists on the road:

  • Obey the traffic signs and rules.
  • Keep left and keep at least one metre clear of the pavement and parked cars.
  • Ride with the traffic and not against it.
  • Be visible – wear reflective clothing and a bright-coloured helmet at all times.
  • Use lights at night – a white headlight and a red rear lamp.
  • Use hand signals when turning or changing lanes.
  • Always cycle in single file.

In order to reduce the level of carnage on our roads we need to work together as road users, and this means that both cyclists and drivers need to follow the rules. The first step in doing this is to become aware of the rules and regulations in place to protect and serve the interests of both groups of road users.

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1 93 of 1996
2 6 of 2012
3 National Road Traffic Regulations, 2000. Government notice R225 in Government Gazette 20963, dated       17 March 2000. Effective as from 1 August 2000 (page 340/389).
4 Dec 6, 2013 – Province Western Cape: Provincial Gazette 7208.

Bibliography:

  1. aa.co.za
  2. arrivealive.co.za
  3. acts.co.za/national-road-traffic-act-1996
  4. polity.org.za

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice

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COST MANAGEMENT: 7 TIPS FOR CUTTING BUSINESS EXPENSES

A2_BIt is important for every business owner to make a maximum profit, both through sales and by maintaining strict financial discipline within the company. Implement sound practices from the start, and you will reap the benefits later. These seven tips on cost management will be beneficial for your small enterprise.

 

  1. Watch expenses from day one.

You might think that overspending during the first few months after opening your doors is forgivable, but discipline is needed right from the start. Spend money only on the necessary and always look for cheaper alternatives. Money saved now will reap rewards late

  1. Don’t confuse business and personal expenses.

When getting ready for tax season, file your personal and business expenses separately. Be honest and keep your accounting books clean to avoid enquiries from SARS.

  1. Keep detailed and accurate purchasing records.

Accurate recordkeeping helps you manage your business expenses effectively. Record every purchase, from the smallest to the largest, so that it becomes the custom for everyone in the company. In this way you can see where your money is going and you can cut back if necessary.

  1. Shop around for a low-interest credit card.

As a small business there is the possibility of acquiring a credit card with low interest rates, so visit different banks and find the right one for you. Your card should assist you in expanding your business without the worries of growing debt from high interest rates.

  1. Run reports early and often.

Review your expenses on a weekly basis so that any additions will be picked up immediately. Do this right from the start and include every aspect of your business, including salaries and any new expenses you might have incurred. This is easier than having to backtrack later.

  1. Invest in technology that will last.

Don’t try to save money on inferior technology; rather buy better quality and save on repairs and replacement costs in the long run. You will get more value from the better product and it is also tax-deductible.

  1. Continue financial responsibility.

The skill of budgeting effectively and saving money is imperative for launching a business. Don’t stop saving money after a while; continue to do so and expect the same from your employees. Growing a business is only possible when you accept your financial responsibility. By using these cost management tips your business will become financially more flexible as it expands.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

 

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How to avoid the Financial Effects of Dementia

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Letting go of our finances may be unthinkable; yet without adequate planning, dementia may result in our money being taken away at a huge personal and family cost.

Dementia is a general term used to describe a decline in mental ability severe enough to reduce our ability to perform everyday activities. Presently 1 in 20 people over the age of 65, and 5 in 20 over the age of 85, will develop dementia. Whilst Alzheimer’s is the most common form of dementia, it can also occur as a result of a stroke, or specific illnesses such as Parkinson’s disease.

What goes first in dementia?

Research has shown that financial decision-making capacity erodes early even when someone can still function appropriately in social situations. People in the early stages of dementia often feel locked out of the system, as they struggle to remember passwords and bank details needed to manage their affairs.

Should you develop dementia, a long-standing relationship with a trusted independent Investment Planner who not only focuses on your financial affairs, but also gets to know your personal and lifestyle goals can prove particularly valuable.

Are your financial affairs in order?

If you have a family history of dementia, plan early to get your affairs in order. Even if you have no such history, it is advisable to ensure that your financial and legal affairs are kept up to date. This includes having investments and assets consciously and appropriately structured to achieve your long term financial goals, having adequate health cover, providing to keep your partner and/or children financially secure, ensuring that your Will reflects your current wishes, and having a valid Power of Attorney in place.

But a Power of Attorney is not enough

In South Africa a Power of Attorney is only valid while the signatory is of sound mind and able to act. As soon as you are unable to act, the Power of Attorney is invalid and one has to ask the Supreme Court to appoint a curator to act on your behalf. We have found that leaving it this late can be financially disastrous – the court application itself is expensive, the money may already have been misspent and in addition, under a curator any investment strategy may need to be altered to include only cash and fixed interest instruments, which means that your portfolio is then denuded of all essential, inflation-beating growth investments.

What else can you do?

A trust created during your lifetime while you are capable of sound decision-making is a useful alternative to trying to retain control with failing mental ability. It is valuable from a tax and estate planning point of view, and it allows you to appoint trustees who will guard your interests and protect your assets and the investment strategy if you begin to have difficulty making such decisions on your own.

In the absence of a trust, it may be possible to put financial and legal plans in place whilst you are of sound mind that will ensure that should you develop dementia or any other chronic illness, you and your loved ones are not financially crippled or faced with the difficult decisions related to your care.

Debbie Netto

Article by:

Debbie Netto I Financial Planner CFP®

Financial Planner of the year 2001

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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Be acquainted with the law relating to labelling and advertising

A4 Labelling blogWhat is in a label or advert?

Labelling is the transmission of information via letters, figures and artistic characters. Advertising goes a step further as it engages in visual and/or oral creations to endorse or to promote the sale of goods or services through various mediums.

Why is this definitional component of marketing and consumer / business outreach important?

Our laws, in an attempt to protect us against unfair labelling and advertising, require factual and honest labelling and advertising. This principle, which requires honesty in advertising, calls for factual claims and disallows misleading claims, is encoded in the Advertising Standards Authority (ASA) Code of Conduct. The Consumer Protection Act 68 of 2008 (CPA) reinforces this requirement of disclosure of all relevant information and further requires that such disclosure must be in plain language.

Preventing or minimising exposure to legal claims for unfair labelling and advertising

  • Have a proper internal advertising standards protocol. This protocol should set out the legal guidelines for all advertisements in whatever format or media, whether they are above the line or below the line, or for public relations releases;
  • Ensure that marketing panels and public relations teams are correctly trained on this protocol. Once trained, continue to ensure compliance as they are generally the teams that are involved in the crafting or supporting of advertisements or releases. At the same time make sure your external advertising and public relations agency is fully compliant and conscious of the laws relating to your specific market;
  • Take care to ensure that all advertisements, public relations releases and labels are reviewed by internal counsel and by external counsel before release or publication.

Adherence to the above guidelines will:

  • ensure factual and legal review and minimise potential CPA claims, as well as minimise ASA review and potential penalties;
  • counter trademark infringement and identify any unauthorised use;
  • prevent false marking if an advert or product affixes the word “patent” to an unpatentable item;
  • prevent both unfair comparative labelling and advertising that promotes your product as superior to your competitors’ without a factual and objective basis.

We recommend that an advertising register be maintained. The register will ensure that a sense of control and accountability is reached, as all releases are documented in the register.  By including a provision that all material be sent for legal review to confirm whether they have been reviewed or not, no unacceptable items will slip through.

Knowing the law relating to labelling and advertising in your field could save you endless headaches, unnecessary litigation, and money.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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Pay your levies, or else…

A3-levies-blogDear Mr Lawyer

I am the owner of a sectional title, and I have paid my levies every month as required, until the water started seeping through the ceiling of my enclosed balcony into my section when it rains. The leak was clearly emanating from a defect in the common property. I asked the body corporate on numerous occasions to repair the defect, yet after four months of writing letters and sending emails the body corporate still has not done anything to honour this simple request.
As a frustrated owner I resorted to desperate measures and employed a contractor to repair the property defect. I settled the bill myself.

May I withhold my levies for a period to set off the money that is owed to me by the body corporate?

Dear Mr Owner

Although this action may sound reasonable, the right to stop paying or to set off a debt against levies is not legally justified and owners are not, under any circumstances, entitled to simply withhold levies.

There is no provision in the Sectional Titles Act 95 of 1986 or the rules that gives an owner the right to withhold levy payments. Even if an owner incurs expense in performing an emergency repair to the common property, and believes that the body corporate owes him money, the owner may only set off the debt against the levies once it becomes liquid.

An amount can only be liquid once it has been agreed upon. An owner cannot set off the amount he believes he is entitled to deduct. The trustees, judge or arbitrator must have confirmed the amount.

If Mr Owner does withhold his levies without the amount being liquid, he is subject to the following sanctions in terms of the prescribed rules:

  • Firstly, the trustees are entitled to charge interest on arrear amounts at a rate determined by them, and so the defaulting owner may receive a larger account, due to the interest on his arrears, than if he had paid his levies.
  • What is more, The Sectional Titles Act imposes a positive obligation on trustees to recover levies from defaulting owners. Not only does the Act empower them to charge interest, the scheme attorneys will most likely issue summons against the defaulter for all costs that the Body Corporate may incur in recovering any arrears.
  • Secondly, the prescribed management rules provide that, except in the case of special and unanimous resolutions, an owner is not entitled to vote if any contributions payable by him in respect of his section have not been duly paid. Therefore, an owner who withholds his levies is unable to vote for ordinary resolutions in respect of the section that he is withholding levies on.

 Mr Lawyer, how does an owner deal with a situation where he believes the body corporate is liable for payment? 

A dispute must be declared with the Body Corporate by written notice of the dispute or query to the trustees. The trustees or Body Corporate then have 14 days from receipt to resolve the dispute. During this period, the parties should meet to try and resolve the dispute. If there is no resolution after the 14-day period, either party may demand that the dispute be referred to arbitration. The arbitrator must make his/her recommendations in settlement of the dispute within 7 days from the date of commencement of the dispute. The decision of the arbitrator shall be final and binding and may be made an order of the High Court.

It is clear that prescribed processes are in place according to which disputes and related issues can be settled. Not only will this ensure that you act within the legal guidelines, but it will also eliminate unnecessary frustration.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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