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Saturday Jan 25, 2014

Interest on overdue levies encourages defaulters to settle arrears

The debate continues on whether the interest rate charged on overdue levies should be capped or whether bodies corporate should be able to continue charging the rate they feel is necessary, says Propell operations manager Mandi Hanekom.

There has also been debate about whether the prescribed rate of interest (PRIA) - which is now 15.5 percent a year - applies in cases such as these. Previous case law shows the PRIA rate does not apply to interest amounts for sectional title scheme levies.

'When trustees are determining what interest rate to charge, it would usually be the rate they would have to pay if they borrowed money in lieu of the levies due,' Hanekom said.

'If you compare the PRIA rate with what is charged commercially, it is not high enough.

'Prescribed Management Rule 31 (6) allows the trustees to determine the interest rate charged on overdue levies in their schemes, and to recover the amounts due by all means necessary.

'In normal circumstances, the interest rates are decided when the levies are set for the year.

Nothing prohibits the trustees from increasing the interest charged at any time. All that is needed is a resolution passed by the trustees at a special general meeting.

'Interest charged on overdue amounts is not designed to earn an income for the body corporate, but is there as a mechanism to prevent people from allowing their levy accounts to go into arrears.

'Where there are habitual underpayers or non- payers, there has to be a tool to recover the costs of their bills being outstanding for extended periods.'
The principle of charging interest on overdue levies was sound as those who didn't pay their levies should be penalised in some way.

If the interest rate was particularly high, those who were in arrears would try to avoid the high penalty by paying up, Hanekom said.

'I believe that interest should be charged and that the rate should be determined by the trustees of the bodies corporate and not by another body which might not know what their particular circumstances are.

'The only limitation on interest levies that should be applicable is the in duplum rule, where the interest charged cannot exceed the capital amount.'
Call Mandi Hanekom on 086 1333 435 or email

Weekend Argus (Saturday Edition)

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