Real Estate Investor Magazine South Africa November 2013 | Page 35

RESIDENTIAL
Legal entitlement
In terms of various court decisions, courts have
held that a HOA is entitled to impose a penalty.
HOAs are responsible for the formulation and
enforcement of rules and regulations of the
estates or complexes. Generally the constitution
of the HOAs includes the power to charge
levies on members.

Restrictions
The power to impose a penalty on a homeowner
in these instances is not without restriction. The
Conventional Penalties Act 15 of 1962 (“the
Act”), in essence, states that where any penalty
is imposed in case of a breach of contract, the
penalty cannot be out of proportion to the
prejudice suffered.
Section 3 of the Act states:- “Reduction of
excessive penalty: If, upon the hearing of
a claim for a penalty, it appears to the Court
that such penalty is out of proportion to the
prejudice suffered by the creditor by reason
of the act or omission in respect of which the
penalty was stipulated, the Court may reduce
the penalty to such extent as it may consider
equitable in the circumstances:- provided that
in determining the extent of such prejudice the
Court shall take into the consideration not only
the creditor’s proprietary interest, but every
other rightful interest which may be affected by
the Act or omission in question.”
Consequently, the Courts consider three
matters:•

•

•

Is the penalty out of proportion to the
prejudice suffered? If so,
Would it be equitable for the Court to reduce
the penalty? If so,
To what extent?

In the case of Murcia Lands CC vs Erinvale
Country Estate Home Owners Association
(2004) 4 All SA 656(C), the HOA imposed a
levy upon the homeowner equal to ten times
the levy per erf. The Court applied the Act
in determining whether this was excessive or
not. The Court stated that “where one is not
dealing with monetary prejudice, this requires
the Court to make a value judgment in order to
decide whether the penalty is unduly severe to
the extent that it offends against one’s sense of
justice and equity.”
The Court assessed comparative data in
respect of penalties imposed by other estates
www.reimag.co.za

in the area. In most instances, the penalty
imposed was a value equivalent to three times
the monthly levy. The Court also considered
the size of the total penalty imposed and the
income which was received by the HOA as a
result of penalty levies in general. The Court
came to the conclusion, that the penalty was
out of proportion to the prejudice suffered.

“No law may
permit arbitrary
deprivation of
property”
The penalty was “out of proportion to the goal
which it was legitimately seeking to achieve,
namely to compel compliance with the term of
the contract.” In other words, the imposition of
a penalty is not there to provide an additional
income to the HOA but to attempt to act as a
deterrent to enforce compliance with a specific
provision.

Once you decide to build you need to make
sure that you hire a reputable builder. there is
not point spending hundreds of thousands of
rands only to have to fix the finished product.
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