Penalties on arrear levies in a body corporate scheme
Question:
Salaams, in a sectional title body corporate, any levy in arrears gets charged a 2% interest rate every month. Is there a shariah compliant solution to arrear accounts, that can charge a halal penalty rather than interest?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
The sectional title body corporate concept is regulated in South Africa by the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the regulations of the conventional penalties act 15 of 1962. The STSMA allows for the charging of interest on arrear amounts. In terms of the prescribed Management Rule 21(3)(c) (contained in the Regulations to the STSMA, and which would apply unless the body corporate has taken a unanimous resolution to amend it as per Regulation 6(6))) the trustees of a sectional title body corporate are entitled to charge interest (as they may determine from time to time) on arrear amounts. This interest may only be charged on the authority of a written trustee resolution, and the rate may not exceed the capped rate prescribed by the National Credit Act 34 of 2005 (as amended) (“the NCA”). This interest may be compounded monthly in arrears.
According to Shariah, a monetary penalty/fine1 and interest for arrear levies is impermissible. Monetary fines and penalties (Ta’zeer Maali) have not been permitted in Shariah. However, this ruling may lead to financial and monetary abuse by members of the Public. We advise you to provide a leeway period in which a slight delay in payment is tolerated by the body corporate as this is also the Sunnah practice. However, if the payment has been delayed further despite the leeway period, then we advise for you to consider the adoption of a special penalty fee to be used to cover justifiable administrative expenses and the remainder dispensed in charity. This could be done via the following clause “I hereby confirm that in the event of a default in fulfilling my levies towards the sectional title body corporate by this date every month, agree to pay a penalty of XYZ to cover justifiable administrative expenses and the remainder to be dispensed in charity ABC based on mutual understanding and agreement”.
Alternatively, the body corporate may develop a tiered levy fee to be amended and charged within reasonable limits at its discretion on a month to month basis. In this manner, the body corporate could independently adjust the levy higher in the event of a default. This could be done via the amendment of the scheme’s rules and the mutual understanding of the body corporate members upfront upon signing and adopting the amended body corporate scheme rules.
We also understand that according to the STSMA it is not permitted by law to charge administrative fees or penalties unless authorized by the scheme’s management rules or constitution. The adoption of such administrative fees or penalties should be adopted by a legal resolution and the relevant amendment registered with the Deeds Office.
You can also listen to a weekly programme called “Shariah Compliant Business Campaign” which addresses contemporary business matters on Channel Islam International to learn more here: http://ciiradio.com/listen-live/
You are welcome to contact us directly at the Darul Iftaa for any advice to review the specific body corporate constitution to ensure shariah compliance at: https://www.shariahbusiness.com/about-us/ask-a-question/
The Darul Iftaa is open from 9 AM to 9 PM Monday to Friday and 8 AM to 12 PM on Saturday.
and Allah Ta'ala Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa
Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
Browse next Fataawa