Article by Chantelle Gladwin, Partner and Maike Gohl, Partner
22 June 2020 updated 14 September 2022
When auditing municipal accounts for Sectional Title Body Corporates, Schindlers often discovers that the account is still in the name of the developer. Legally, this is incorrect, and it can cause significant prejudice to all parties concerned.
In Part 1 of this article series, we consider whose responsibility it is to open bulk utility accounts for the Body Corporate and whether it is possible to change the name of the account rather than opening new accounts.
In Part 2 we consider the consequences of not holding the account in the name of the Body Corporate, specifically in terms of how disputes can arise between the various parties as to the liability incurred in relation with the services rendered, and how they can be remedied.
Whose responsibility is it to open the Body Corporate’s bulk water/electricity accounts?
This question is often asked and is quite tricky to answer. However, our view is that it is the developer’s responsibility to hand over the bulk utility accounts to the Body Corporate at the first AGM. This responsibility ends when the developer presents the Body Corporate with the invoices in the developer’s name. After the election of the trustees at the first AGM, it is then the obligation of the Body Corporate to do the necessary to open accounts in the name of the Body Corporate.
It is the developer’s responsibility to hand over everything in a manner that puts the Body Corporate in “the driving seat” and allows the Body Corporate to legally deal with all aspects of the scheme – which entails providing the necessary information to the Body Corporate’s Trustees, in order to enable them to attend to the opening of new bulk utility accounts in the name of the Body Corporate. However, the Body Corporate cannot transact on or manage or sue on the municipal accounts without the assistance of the developer (which might cease to exist at a later stage).
It is the concomitant responsibility of the Trustees to ensure that the scheme is able to transact, manage and sue on their own accounts, and if the developer has not taken the necessary steps to enable the Body Corporate to do this (and no matter how much time has passed since the developer handed the accounts over to the Body Corporate);the Trustees of the Body Corporate are legally obligated to take whatever steps that may be necessary to open new utility accounts in the name of the Body Corporate on its own.
The Blame Game
When a dispute arises several years down the line due to the Body Corporate not opening its own bulk utility accounts, and the municipal charges are inaccurate, inflated and/or on the wrong tariff as a result, the parties get distracted by blaming each other for the predicament that arises. This causes waste in effort done, as it achieves nothing, and ultimately both parties are at fault – because both had obligations to each other. In addition, both parties are prejudiced until such time as the issue is sorted out.
Can’t you just “change the name” of the account from the Developer to the Body Corporate?
In this case, this would not be possible as it would be unlawful. As a result, each owner must have their own account, and when an owner passes transfer of the property to the next person, the old owner’s account must be paid up and closed or if there is any credit to be refunded to the old owner, that credit must be refunded and then the account must be closed.
If you have the new owner “taking over” the old owner’s account, you could have the situation where the new owner is held liable by the municipality for the unpaid debts of the old owner (this is not supposed to happen if the Body Corporate opens its own account when the Body Corporate first comes into existence), and you also find that the credit belonging to the old owner might be utilized unknowingly by the new owner.
Everything is a Mess. Years have gone by. What do we do Now?
The only lawful way to fix the problem is to open new accounts for the Body Corporate, and to have all charges, and payments made by the Body Corporate into the developer’s account since inception of the scheme (or perhaps, since the Body Corporate was established, if these two things did not happen on the same or very close dates), taken off the account and put onto the Body Corporate’s account.
Although this is a perplexing task to achieve in some municipal jurisdictions, it is the only lawful way to ensure that only charges accruing to the developer remain on the developer’s account, on the correct tariff and for the correct periods. Similarly, the correct charges are invoiced to the Body Corporate’s account for the correct period and on the correct tariffs (applying aggregation of units, where applicable, or allocating free basic charges, if applicable, if there is more than one unit in the scheme, which there normally is).
No matter how many years has passed since the mess began, it is possible to unravel messy developer / Body Corporate accounts, with a bit (or sometimes, a lot) of effort. One must never give in to the temptation to allow municipal officials who make generous offers of “fixing things” for a bottle of brandy, to “fix things,” no matter how tempting that sounds. When the municipality is audited the ghosts of that bottle of brandy (and perhaps hundreds of thousands, or even millions, in debt) will come back to haunt you. Contact an expert in municipal service accounts if you require assistance with the mess, and save yourself sleepless nights, time, energy, and jail time.
Partner at Schindlers Attorneys
Phone: +27 (0) 11 448 9678
Partner at Schindlers Attorneys
Phone: +2 (0) 11 448 9679