How to stop HOA levy arrears
MAIN IMAGE: Gerhard Kotzé, managing director RealNet estate agency group
In an estate there are always those who are reluctant and slow to pay their monthly levies – and a few who won’t pay at all until the homeowners’ association (HOA) has already started to take legal action against them.
It seems unfair that these owners should continue to enjoy all the benefits of living in a gated community without paying their share of what it costs to provide those benefits.
And because HOA budgets tend to be lean, the failure by one or more owners to pay their levies is not only conceptually unfair. It also makes it increasingly difficult for the directors to ensure that the HOA can continue to provide the security, services and facilities that its paying residents deserve.
This situation has also been exacerbated in many estates recently because of the severe economic disruption brought about by the COVID-19 pandemic and the various measures imposed to try to curb the spread of the virus. Lockdown saw HOA directors being inundated with requests for temporary levy reductions or levy payment holidays of a few months and in most cases they did their best to assist residents facing a sudden loss of income or employment.
But this has of course put HOA budgets under even more pressure than usual, and increasingly, directors need those owners who were given a payment break to start honouring whatever agreements they made to catch up on their levy arrears before the end of the financial year.
At the same time, COVID-19 has made many boards of directors take a closer look at their HOA finances, at the management of levy payments in ‘normal’ times, and at ways to speed up the collection of arrears from defaulting owners.
And in this regard, prevention is always better than cure. Of course the HOA can take levy arrears matters to the office of the Community Schemes Ombud, or take conventional legal action through the courts to get a debt judgment against a levy defaulter, but both courses of action are likely to take a considerable time, during which the levy debt continues to mount up and the delinquent homeowner usually continues to enjoy the amenities and facilities that are being paid for and maintained by other HOA members.
In addition, the costs of legal action are likely to put a further strain on the HOA budget, so as an alternative, we believe the HOA should put certain measures in place to give it the leverage to make defaulters pay up without the need to go to court or to the Ombud.
One such measure is to add a “suspension of access” provision to the HOA’s Memorandum of Incorporation (MOI) or Constitution. Of course, the HOA cannot legally stop any owner from driving through the estate to their home or enjoying the protection of the security system. It can also not disconnect the electricity or water supply to any home.
However, it can deactivate access cards and stop owners who are in arrears with their levies from using any automatic or biometric entrance systems, for example, so that they have to sign in and out of the estate like visitors. An amended MOI might also provide for defaulters not to be allowed the use of communal facilities such as a clubhouse, a gym, tennis courts, swimming pool, playgrounds, running or walking trails and visitor parking, until such time as their levies are up to date. This kind of inconvenience will often induce defaulters to quickly get their levy payments up to date.
Any such change to the MOI that is proposed by the board of directors will need to be approved at a meeting of all HOA members (shareholders). To be fair, they must also make sure that the defaulter will be given adequate notice and the opportunity to get his levy account up to date before his access to common facilities is suspended, and that the MOI provides for its rules to be applied consistently to all owners.
In addition, to ensure that any changes made to the MOI are legal and enforceable, they will then need to be registered with the Companies and Intellectual Property Commission (CPIC).
About the author: Gerhard Kotzé is the managing director RealNet estate agency group.