Leveraging Levy Clearance Certificates: Where the line is drawn

A recurring issue in community schemes is whether a body corporate can withhold a levy clearance certificate to enforce compliance with conduct rules, building regulations, or other legal obligations.

This question was definitively addressed in the High Court decision of Tapuch v Trustees of S.H Body Corporate, which provides critical guidance for unit owners, managing agents, and collection practitioners.

The starting point is the so-called “embargo provision” contained in the Sectional Titles Act 95 of 1986. In essence, a property transfer cannot be registered unless the body corporate certifies that all amounts due by the seller have been paid, or that satisfactory provision has been made.

This mechanism is designed to protect the financial integrity of the scheme by ensuring that bodies corporate are not prejudiced by owners transferring units without first settling their arrears.

Complementing this is the Sectional Titles Schemes Management Act 8 of 2011 (“STSMA”), which places a duty on the body corporate to enforce compliance with laws relating to common property and improvements.

The tension arises where these two frameworks intersect, and we must ask ourselves whether the clearance process can be used to enforce non-financial compliance?

In Tapuch, the unit owner had settled all amounts owing to the body corporate. Despite this, the body corporate refused to issue a levy clearance certificate on the basis that the owner had failed to submit approved “as-built” plans for a roof structure erected years earlier.

The body corporate argued that:

•  It had a statutory duty to ensure compliance with building laws; and
•  It was entitled to withhold the certificate until such compliance was achieved.

The court rejected this argument outright.

It held that the purpose of the embargo provision is strictly financial in nature. Once all monies due to the body corporate have been paid (or provision has been made), the body corporate is legally obliged to issue the clearance certificate. To do otherwise would undermine the clear wording and intent of the legislation.

Importantly, the court found that using the clearance certificate as leverage to enforce rule compliance constitutes a misinterpretation of the body corporate’s statutory powers and fiduciary duties.

For industry stakeholders, several practical principles emerge:

a) Clearance Certificates Are Not Enforcement Tools:
The levy clearance process cannot be weaponised to compel compliance with conduct rules, building regulations, or municipal requirements. Its purpose is limited to confirming that financial obligations have been met.

b) Proactive governance is required:
Bodies corporate cannot “wait in ambush” for a sale to enforce compliance. If an owner is in breach, whether through unauthorised alterations or rule violations, the trustees must act timeously through the appropriate legal or administrative channels [e.g. enforcement proceedings or applications to the Community Schemes Ombud Services (“CSOS”)].

c) Separation of remedies:
Financial recovery and rule enforcement are distinct processes. Attempting to merge them by withholding a clearance certificate, creates legal risk and may expose the body corporate to adverse cost orders.

d) Managing Agents and Conveyancers must exercise caution:
Managing agents, often acting on trustee instructions, should be careful not to participate in unlawful refusals. Similarly, conveyancers should be alert to improper delays in issuing certificates and advise their clients on available legal remedies where necessary.

a) For unit owners:
If all levies and related charges are settled, you are entitled to a levy clearance certificate. A refusal on non-financial grounds is likely unlawful and may be challenged on an urgent basis where transfer is delayed.

b) For collection agents:
The embargo provision remains a powerful debt recovery mechanism, but only within its proper scope. Attempts to extend its reach beyond financial obligations risks undermining both its enforceability and the credibility of the collections process.

c) For managing agents and trustees:
Governance discipline is critical. Non-compliance issues should be addressed when they arise and not deferred until transfer. Relying on the clearance certificate as leverage is both legally unsound and strategically flawed.

While Tapuch provides clarity, several practical challenges remain:

a) Enforcement inefficiencies:
Bodies corporate often lack the resources or appetite to pursue timely enforcement, leading to the temptation to use the clearance process as a “last resort” before the liable owner moves on.

b) Misinterpretation of statutory duties:
The duty to ensure compliance with laws relating to common property is sometimes overextended beyond its intended legal scope.

c) Operational risk for agents:
Managing agents frequently operate under trustee instruction, creating tension between compliance obligations and client directives.

Since the judgment, there has been no legislative amendment or subsequent case law that materially alters the position established in Tapuch v Trustees of the S.H Body Corporate, and therefore it

continues to carry significant persuasive authority. That said, it’s evident that the principles are not yet consistently applied in practice, highlighting a need for improved industry understanding and alignment.

The levy clearance certificate is a powerful instrument, but only within its intended purpose and defined limits. Its purpose is to secure the financial interests of the body corporate, not to enforce broader compliance.

Attempting to use it otherwise is not only legally indefensible, as established in the Tapuch Case, but may expose the body corporate to reputational harm, transactional delays and adverse cost orders.