Legal Costs Explained – Body Corporates and Home Owners Associations
1. A defaulting owner is a common headache for a body corporate or home owners association, we at Coenraad Kukkuk Attorneys make it our business to assist in the resolution of such disputes on behalf of our clients. In so doing we have come across some frequently asked questions surrounding the legal fees, which we will now address in this circular.
2. The general rule is that the defaulting owner is responsible for the legal costs which result from the collection proceedings. This rule is established and enforceable through Regulation 25(4) of the Management Regulations in terms of the Sectional Title Schemes Management Act 8 of 2011 or the equivalent provision in the memorandum of incorporation of a home owner’s association. Regulation 25(4) reads as follows:
“A member is liable for and must pay to the body corporate all reasonable legal costs and disbursements, as taxed or agreed by the member, incurred by the body corporate in the collection of arrear contributions or any other arrear amounts due and owing by such member to the body corporate, or in enforcing compliance with these rules, the conduct rules or the Act.”
3. However, the body corporate remains the litigant. The litigant in any legal proceedings remains responsible for payment of the legal costs as per the mandate between the Attorney and the client unless there is a cost order granted by the Court (refer to paragraph 8 below for further explanation). The above Regulation does provide some relief for the body corporates in this regard but unfortunately does not completely remove the liability of the litigant.
4. As a result of the above, body corporates and home owners associations are ultimately liable for cost of the litigation. There may be some relief in terms of the Regulation 25(4) however, this does not limit the liability of the litigant.
5. Furthermore, it is vital to understand the difference between the varying cost scales. Firstly, we consider “attorney and own client” as a costing scale. This refers to the costs properly incurred by the litigant’s legal representation and agreed upon in terms of the mandate. “Attorney and own client” is also referred to as the costs of remuneration.
6. Secondly we consider “attorney and client” as a costing scale. This refers to the costs recoverable from the opponent as compensation for the loss sustained. With the above in mind, the relief provided by Regulation 25(4) is seen as the recoverable costs. Attorney and client scale is also referred to as the costs of contribution. As a general rule the court can order costs to be paid by either party on attorney and client scale, which is typically lower than attorney and own client. This is generally dependant on the finding of the court.
7. However, due to Regulation 25(4) a court order is not necessary to make the costs recoverable, they are automatically recoverable by the body corporate or home owners association due to the above legislation. This places the Body Corporates or Home Owners Associations in a more favourable position than that of a standard litigant as relief is provided by the regulation. In the event that “attorney and client” scale is less than “attorney and own client” the litigant will be liable for the difference as per the Mandate. As such “attorney and client” is known as intermediate costs as it is higher than party and party scale but lower than “attorney and own client” as a costing scale.
8. Lastly, the “party and party” scale is regulated by legislation and published in the Government Gazette. This scale is outdated and rarely used. However, in the event of taxation, it is the basis for the tax master as it is a form of recoverable costs but lesser than that of “attorney and client”. The principle with this recoverable cost remains the same as above; the litigant is ultimately responsible for the cost of litigation and so the difference between the taxed bill of cost and the cost between attorney and own client as per the mandate.
9. Thus, in the event that the account is taxed, the litigant is liable for the difference, if any, between the taxed bill of costs and the account in terms of the mandate.
10. In terms of the Sectional Title Schemes Management Act 8 of 2011 a body corporate has the duty to reserve funding in order to enable that body corporate to fulfil its obligations. In the current context that would be to collect the levies of the owners. Thus body corporates are not privileged litigants and remain liable for the cost of litigation. The silver lining for a body corporate is the relief provided by Regulation 25(4) as above.
– by Mienke Richter, Candidate Attorney
(With recognition to Albert Reinecke’s article in De Rebus – see here http://www.derebus.org.za/recovery-body-corporates-legal-costs/)