Festive Season Sellers: Start Getting Your Compliance Certificates Ready

“If you don’t like where you are, move. You are not a tree” (Jim Rohn)

It’s that time of year again – summer sunshine, happy holidaymakers in festive mode, and an upsurge in property sales.

Whether seller or buyer, be aware of the various compliance certificates that may be required for your transfer to go through smoothly. These certificates ensure that the property is up to standard in terms of safety, health and building regulations, and can also help prevent any unexpected costs or legal issues from arising later on.

In most cases the responsibility for obtaining these certificates lies with the owner of the property, and failure to do so can result in delays in the transfer process, or even legal action. Also, if remedial work is required, this could take time and delay the whole transfer process. For these reasons, it’s a good idea to obtain the necessary clearance certificates as early as possible (just keep an eye on how long each is valid for). 

So, sellers – here’s a checklist for you of the certificates of compliance you might (or might not) need –

  • Electrical: One of the key certificates required for property transfer is the Electrical Compliance Certificate. This confirms that the electrical installations (distribution boards, wiring etc) in the property meet safety standards and other requirements, and that any necessary repairs or upgrades have been carried out. It does not cover actual appliances like stoves, geysers and the like. The certificate must be issued by a registered electrical contractor, and you cannot agree with the buyer to waive this requirement.
  • Electric Fence System: Additional to and separate from the electrical certificate discussed above, this applies if you have an electric fence system installed (or modified) after 1 October 2012.  It can be transferred to the buyer. Only a registered electric fence system installer can issue it. Again. It can’t be waived.
  • Gas: A Gas Compliance Certificate is only required if you have gas appliances installed and confirms that the installations meet safety standards and are in good working order. A registered professional must issue it, and again it cannot be waived.
  • Beetle Infestation: Required by banks and perhaps insurers in some (mostly coastal) areas of the country, this certificate confirms that the accessible wood of permanent structures is free of wood destroying insects. You can agree with the buyer on whether or not a certificate is necessary, and if so, who must obtain and pay for it. Usually valid for 3 to 6 months.
  • Water Installation: Currently only required by the City of Cape Town and aimed at preventing illegal water connections and stormwater ingress, this certificate confirms that the water system installations comply with the City’s byelaws. It does not confirm that the whole plumbing system is in order even though it may be referred to as a “plumbing certificate”. Only a qualified and registered plumber can issue it. Again, you cannot agree with the buyer to waive this.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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A Costly Case of Buyer’s Remorse

“Caveat subscriptor” – old legal maxim meaning “Let the signer beware!’

A recent High Court decision once again highlights the dangers of signing anything without reading, understanding and fully considering it.

A “Renovator’s Dream” and a case of buyer’s remorse
  • A couple viewed a house advertised as “a renovator’s dream” and they immediately decided to sign an offer to purchase for R550,000 (R20,000 under asking price).
  • The seller accepted the offer that afternoon (after the agent agreed to reduce her commission to R40,000) and the agent emailed a copy of the sale agreement to the buyers with confirmation of the acceptance.
  • Early the next morning the buyers emailed the agent saying that the cost of renovations meant the purchase was not feasible for them “Therefore I hereby decline my offer to purchase and thanks for your time.”
  • After taking legal advice the agent confirmed that a binding sale agreement had been concluded and that the sale must proceed.
  • The buyers’ response was to suggest that the sale was subject to their daughter’s approval, to which the agent countered that had that been discussed, a special condition to that effect would have been inserted into the agreement.
  • The seller thereafter sold the house to another buyer, and the agent (having not been involved in the second sale) sued the buyers for the agreed commission of R40,000 in terms of a standard clause in the sale agreement making the buyer liable for commission on breach by the buyer.
“Let the signer beware!”
  • The Court dismissed the buyers’ objection that they hadn’t realised that they would be liable to pay the commission if they breached the sale agreement. “It is evident”, held the Court, “that the caveat subscriptor [‘let the signer beware’] rule provides that a person who signs a contract signifies their assent to the contents of the document, and they are bound by the document even if it subsequently turns out that the terms are not to their liking. In that event, they have no one to blame but themselves.” In other words, read and understand any agreement before you sign it – once you sign, you are bound whether you read it or not.
  • Nor could the buyers prove that the sale was subject to their daughter’s approval as there was no condition in the agreement to that effect. In other words, make sure that any special conditions you want to form part of the sale are inserted into the signed agreement.
  • Finally, there was no evidence of misrepresentation or fraud inducing the buyers to sign – if they were mistaken as to what was in the agreement and in particular in the commission clause, that was due to their failure to read it before signing.
  • The buyers must pay the R40,000 commission plus two sets of legal costs.

Bottom line – sign nothing without understanding exactly what you are agreeing to.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Selling Your House to a Non-Resident

“Oh, I’m an alien, I’m a legal alien” (Sting’s ‘Englishman in New York’)

South Africa is attractive to overseas property buyers with our world-class lifestyle, depreciated Rand, strong property registration and legal systems, and minimal restrictions against non-resident property ownership.

Which is of course great news for property sellers in any area popular with foreign investors. Coastal and other tourist-friendly areas will appeal particularly to buyers wanting a holiday or retirement destination, whilst those buying purely for investment or business reasons will have a wider focus.

As an upfront note, remember that as the seller it is your right to choose the conveyancing attorney. Don’t ever give that right up, and as always sign nothing without first taking specific legal advice.

But can a non-resident buy your house?

Yes – South Africa (unlike many other countries) imposes few restrictions on non-resident property buyers. Only “illegal aliens” (foreigners unlawfully in South Africa) are totally barred from ownership.

There are however some aspects that both you and your prospective buyer should be aware of –

  • What laws and requirements apply? South African legal and regulatory requirements apply and non-residents should take local professional advice on anything they aren’t sure of to avoid unnecessary delay and to ensure a smooth sale and transfer process.
  • Can the buyer buy in an entity? Certainly, but specific rules and tax considerations apply when an entity like a company or trust is the purchaser – professional advice is essential, and as a seller be aware of possible delays in the transfer process.
  • Signing documents: The sale agreement itself can be signed anywhere and is valid so long as it is in writing and physically signed. However, when it comes to the signing of transfer documents for the Deeds Office and bond documents for the bank (if a bond is applied for) the buyer should if possible sign in South Africa. If that isn’t possible, the buyer can either appoint a local trusted representative via a Power of Attorney, or sign documents overseas with proper authentication (normally by a notary public or embassy/consular official, but the requirements vary by country).
  • Costs: Overseas buyers should understand what costs are payable by them and should consider in particular big-ticket items like transfer duty (or VAT if applicable). Your conveyancer can help the prospective buyer with a cost estimate to avoid any cash flow issues and delays during the transfer process.
  • Mortgage bonds: South African banks offer bond finance to non-residents, generally subject to both their normal criteria relating to affordability and so on, and to a “50/50” limit – the amount of the loan must be matched by an equal cash payment (usually by import of foreign funds). Note that this limit only applies to non-residents, so foreign nationals who are legally resident in the country may, and this varies from bank to bank, qualify for larger bonds of up to 75%, perhaps more in some cases. Compliance with FICA (the Financial Intelligence Centre Act) will require identification of the buyer and proof of residential address.
  • Repatriating the money: When the non-resident eventually resells, they can repatriate the imported foreign funds and any proportional profit. It is essential for the buyer to keep all records relating to the original purchase and the “deal receipt” proving import of funds.
  • What income and capital gains taxes are payable? If the property is rented out, rentals are subject to local income tax. On resale, CGT (Capital Gains Tax) applies.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Security Warning: Property Sale Cybercrime Surges, and a New AI Danger

“The infectiousness of crime is like that of the plague” (Napoleon Bonaparte)

This October marks the 20th anniversary of the globally observed “Cyber Security Awareness Month”, and with cybercrime continuing to surge, here’s a cautionary tale to bear in mind.

You buy your dream house and pay the purchase price to the transferring attorneys (the conveyancers). Excitement builds as you wait eagerly for transfer and call the family together to plan your move. Then comes a call from the attorneys – why haven’t you paid yet? Your heart sinks, and panic sets in as it becomes clear that you just paid into a fraudster’s bank account. You contact the bank but your money has gone, along with the fraudsters.

That’s a nightmare scenario to which an ever-increasing number of property buyers and sellers around the world are being subjected. Property transactions are a natural focus for these cybercriminals because of the large amounts involved, but more and more personal and commercial transactions are also being targeted.

A recent High Court fight over yet another email interception fraud reinforces the need to remain alert in every situation and at all times…

R2.94m stolen – buyers, banks and conveyancers all at risk from email interception fraud
  • A couple bought a house and paid R2.94m into the bank account specified in an email which appeared to come from the conveyancers. It was however a classic case of “email interception and compromise” – somehow the criminals had obtained sufficient information about the sale transaction to enable them to email the buyers, pretending to be the conveyancing firm, and convince them that their payment was being made into a legitimate trust account.
  • As soon as it emerged that the account was in fact a fraudster’s, the buyers contacted the bank which promised to immediately freeze the account. Nevertheless, the R2.94m was transferred out to the fraudsters, and the couple sued the bank in the High Court for negligently allowing that to happen.
  • The bank replied that, if it were indeed found to be negligent, it would allege contributory negligence on the part of both the buyers and the conveyancers.
  • Its application to “join” the conveyancers into the court action failed, the Court holding that the buyers could choose who to sue and who not to, but the practical point of interest to most of us is the clear indication that in a case such as this, everyone stands to lose – property buyers (sellers are equally at risk), banks and conveyancers.
How to stay safe

“Forewarned is forearmed”, so follow these procedures strictly –

  • Never fully trust anything you access or receive electronically. Everything electronic is potentially unsafe – think emails, SMSs, WhatsApp messages, websites, social media pages, online forms and anything similar. Don’t click on links without checking first for suspicious URLs and even then, be careful if asked to submit information, don’t download attachments unless you are certain they are safe, never disclose login details, passwords or other sensitive or personal information. Keep reminding yourself, your family and your staff of the ever-present dangers.
  • Secure all your email, network and online systems against viruses, malware, breaches, hacking and compromise. Make sure all devices, servers, domains etc are protected. A good start is to install strong anti-malware software and firewalls, to ensure that all software and browsers are constantly updated with the latest security patches, and to use data encryption where you can. Use strong passwords and change them regularly.
  • Use an online resource like the South African Fraud Prevention Service’s YIMA to security check websites. Download the U.S. Cybersecurity and Infrastructure Security Agency’s “Tip Cards” on its “Stop.Think.Connect. Toolkit” webpage.
  • Pay particular attention to all banking and investing channels, and under no circumstances trust any email, SMS or other communication purporting to advise banking details or (a particular risk area) a change of banking details.
  • If you are a business that regularly requests payments from customers or clients, add a suitable warning to every communication and a disclaimer against liability if a loss occurs (legal advice specific to your circumstances is essential here). Consider using a secure payment portal with 2FA (2 factor authentication) protection. If you email invoices with banking details, secure them from alteration (don’t put all your faith in PDFs, it’s a myth that they can’t be changed).
  • Perhaps most importantly – always check directly with the account holder before paying anything. Contact the account holder only on its real and confirmed contact details – fraudsters are adept at creating look-alike emails and email addresses, telephone numbers, WhatsApp and cell numbers, and website addresses. Which brings us to …
A new and substantial danger – AI voice cloning

As AI explodes into every aspect of our lives, an increasing number of reports are made of “voice cloning” frauds.

Perhaps you get a call from “your attorney”, or your attorney gets a call from “you”.  Or your “boss” or your “HR department” phone you. Perhaps the call is to ask for sensitive information or perhaps it is to ask for money. A particularly successful fraud here, because of its emotional content, could be a variation on “Hi Mum and Dad, I have a problem, can you send me R10k urgently please? Send it to…”.

You know the voice so you trust the call, but the reality of course is that a criminal has fed a sample of someone’s voice into an AI program and duplicated it perfectly (or at least perfectly enough to fool you in the heat of the moment). No doubt cloned video calls and other AI powered scams will proliferate soon if they aren’t already doing so.

Once again, constant awareness is the key to protecting yourself from this sort of scam. Never let your guard down!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Landlords: You Cannot Cut a Defaulting Tenant’s Water and Electricity

“A fundamental principle in issue here is that nobody may take the law into their own hands. In order to preserve order and peace in society the court will summarily grant an order for restoration of the status quo where such deprivation has occurred, and it will do so without going into the merits of the dispute.” (Excerpt from judgment below)

Many a landlord is tempted to go the “self-help” route when non-paying tenants refuse to pay up and also refuse to leave. Holding costs mount with not a cent in rental income to show for it, the landlord gets desperate and locks are changed, access codes blocked, electricity and water cut off.

But what if, instead of meekly packing up and vacating, the tenant rushes off to court? As we shall see from our discussion of a recent High Court decision below, now the landlord has a real problem, regardless of whether or not the tenant has lost its legal right of occupation.

You cannot take the law into your own hands
  • A tenant under a verbal lease dating back some 27 years, and in terms of which the rental included payment for water and electricity, stopped paying rental in January 2021.
  • The landlord, citing both failure to pay rental and allegations of unlawful sub-letting and overcrowding, gave the tenant notice of eviction. The tenant refused to vacate, and had her attorney warn the landlord against evicting or cutting services without a court order.
  • When the landlord nevertheless went ahead and cut the electricity and water supplies, claiming this to be a lawful attempt to reduce its losses since the (unpaid) rental included the supply of electricity and water, the tenant asked the High Court to (among other things) grant it a “spoliation order” (an order giving possession back to someone deprived of it without due legal process) restoring services immediately to the premises.
  • The case didn’t go well for the landlord, and it is now back to square one after eighteen months of no rental income, with the added costs of two sets of legal bills to pay. Landlords, said the Court, must pursue the remedies at their disposal to enforce payment of rental in accordance with the law. “Landlords are not entitled to take the law into their own hands.”
  • A vitally important factor to bear in mind here is that at this stage of proceedings a court will not enquire into whether or not the tenant has a legal right to be in possession: “Irrespective of the lawfulness or otherwise of the occupation, a landlord may not disconnect water and electricity without the intervention of a court.” (Emphasis supplied).
  • Relevant to the Court’s decision was the fact that on the facts of this case, supply of services was not a “personal right” between the parties but part of the tenant’s possession of the property: “To my mind, the supply of electricity and water is not merely contractual, but an incident of the possession of the property.” That can be a fine distinction, so specific legal advice is essential if you are a landlord (or a tenant) embroiled in a dispute of this nature.
  • The end result – the landlord was ordered to restore electricity and water immediately to the tenant and must pay the tenant’s legal costs.
Lessons for landlords
  1. You are playing with fire if you take matters into your own hands when dealing with problematic tenants. No matter how intransigent they may be and no matter how unlawful their occupation, the only safe route is to follow the appropriate legal channels with specific legal advice and assistance –

    • All a tenant needs to prove to get a spoliation order against you (with costs) is that they were in “peaceful and undisturbed” possession, and that you unlawfully deprived them of that possession. Nothing more.
    • And that’s by no means your only risk – you could also be charged criminally in terms of the Rental Housing Act, which provides that anyone who “unlawfully locks out a tenant or shuts off the utilities to the rental housing property” faces a fine and/or two years’ imprisonment.
  2. Secondly, it is clear that one of the landlord’s practical problems in this matter was the fact that (amazingly after 27 years) it had no written lease in place. That made it difficult to prove the terms of the lease, the parties’ rights and duties, duration, grounds for termination, and notice periods. Although a verbal lease is valid in law (for now anyway; change is in the wind on that one), a properly drawn written lease is vital to protect your rights!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Your New House Leaks Like a Sieve – Can You Sue the Seller?

“There is no sound more peaceful than rain on the roof, if you’re safe asleep in someone else’s house.” (Anne Tyler)

You move into your new dream home, excited and happy. Until it rains, and the roof leaks. As the repair teams tramp around on your roof and the bills start piling up whilst you weave around buckets and tarpaulins and sodden carpets, you go back to the seller and demand recompense.

“Sorry”, says the seller, “read the sale agreement. I sold the property “voetstoots” and without liability for any defects. I sympathise, but it’s actually your problem not mine. Good luck, and goodbye.”

Can that be correct? Let’s address that question with reference to a recent Supreme Court of Appeal (SCA) decision over a flooded-out guest house.

A leaking roof puts a real damper on a guest house dream
  • A couple bought a guest house for R1.3m to fulfil their dream of running one.
  • Barely three months after they moved in, heavy rain caused extensive leaking of the entire roof. The guesthouse was flooded and furniture, carpets, linen and luggage soaked. Guests were, unsurprisingly, unhappy.
  • The buyers had to take out a loan to cover the repair costs, plus they lost 2 months’ income during the repairs.
  • They successfully sued the seller for a total of R240k in damages (a combination of repair costs and lost income), an award confirmed by the High Court and then by the SCA on appeal.

To understand that outcome, let’s take a look at our law’s requirements for such a claim to succeed.

Fraudulent non-disclosure of latent defects – 3 things you must prove

As a buyer claiming damages on the basis of “fraudulent non-disclosure in respect of latent defects” (we deal with the alternative of an “implied warranty” claim below), you will, as the Court set it out, have to prove that –

  1. The seller was, at the time of the sale, aware of the “latent” defects (defects that “would not have been visible or discoverable upon inspection by the ordinary purchaser”), and
  2. The seller deliberately failed to disclose those defects to you, and
  3. The seller’s aim was to induce you to conclude the sale.

The buyers in this case had, before buying, noticed water staining in several places. The seller had assured them that although he knew of one roof leak, it had been fixed by his handyman and that he didn’t believe leaks would reoccur.

The Court however preferred the conclusion by an expert witness (a civil engineer) that “any claim by the previous owner that no problems with roof leaks were experienced in the past [would] simply be impossible and untruthful”. The roof, said the engineer, was defective both in respect of inferior design (“the entire roof speaks of negligent design, inferior workmanship and bad maintenance”) and inferior workmanship (“it is evident that [the builder] of the roof was not a skilled artisan … the roof under investigation was prone to leak from the day that it was built.” The engineer also found evidence of past efforts to seal the roof and believed that the problem had escalated over time.

The Court’s conclusion – the seller had fraudulently misrepresented the true condition of the roof and had failed to disclose it to the buyers. “On the probabilities, the only reasonable inference to be drawn …. is that the non-disclosures and misrepresentation were made deliberately in order to induce the sale of the guesthouse, and this constituted fraud.” Hence its confirmation of the damages award to the buyers.

Another way to claim: Breach of the “implied warranty”

The buyer in this case sued on the basis of “delictual liability” which requires you to prove a list of factors, including both wrongfulness and fault. Fortunately, you also have an alternative avenue available to you. Our law is that a seller (of anything) automatically gives the buyer an “implied warranty” that the thing sold has no latent defects. Prove that the seller has breached that warranty and you have the basis of a claim.

You are very likely, however, to come up against the seller protections in a voetstoots clause (common in sale agreements). That clause transfers the risk of latent defects to the buyer by providing that the property is sold “as is” and without any warranty.

To defeat the seller’s protection under voetstoots you can either –

  • Prove fraud by the seller. To be protected, the seller must have been genuinely unaware of the latent defect in question at the date of sale; or
  • You can show that the protections in the CPA (Consumer Protection Act) apply to your sale. The CPA, where it applies, protects buyers from defective or not-fit-for-purpose goods, regardless of what the sale agreement says. There are grey areas here, so specific legal advice is indispensable, but in broad terms the CPA does not protect larger “juristic person” buyers (those with an annual turnover of R2m or more), nor will it generally cover one-off “private” sales between individuals – normally it is developers, estate agents and others acting “in the ordinary course of business” who will be bound by the CPA.

Sellers: Disclose all possible defects of which you are aware in the “mandatory disclosure form” which, since February 2022, must be attached to and form part of the sale agreement.

Buyers: Inspect the property thoroughly before putting pen to paper – you cannot complain about any patent (“obvious on reasonable inspection”) defects that you should have seen yourself. To cover yourself against any latent defects, get expert reports in any doubt.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Leaving Anything Important Out of Your Property Sale Agreement Will Sink It

“No alienation of land … shall … be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority.” (Alienation of Land Act)

Ensure that all the important terms of your sale agreement are recorded in writing and signed.

Leave out anything “material” and, as we shall see from the Supreme Court of Appeal case discussed below, your entire sale could well collapse. At the very least, you face significant legal consequences, delay and cost.

The omitted term that sank a R4.5m sale (after 7 years’ delay)
  • In 2016, liquidators of a property-owning company sold several pieces of land (including a “private ring road” erf) to a buyer for R4.5m plus vat.
  • A saga of delay and confusion followed, including changes to the original sale agreement such as an addendum changing the date of transfer, and another correcting a mistake in the ring road’s erf number.
  • Eventually it became clear that a subdivision of the ring road erf would be necessary to save the sale, and the parties started negotiating in an attempt to do so.
  • Whilst it was not clear to the Court whether or not the buyer and seller did actually reach any agreement on the matter, the critical issue was that at best there was only an informal arrangement or an oral agreement – “no formal written agreement or addendum was ever concluded and signed by or on behalf of the parties”. Nor was it clear that they were agreed on what exactly was being sold, the buyer claiming to have had no intention of buying the whole ring road erf as set out in the original agreement.
  • That rendered the whole sale agreement null and void.
The formalities required for validity
  • Property sale agreements must be in writing and signed. Whilst generally our laws hold us to even our verbal agreements, there are exceptions where only written agreements are binding. A vitally important one is the sale of land. The Alienation of Land Act requires that the whole contract of sale be reduced to writing and signed by or on behalf of both buyer and seller.
  • That written sale agreement must include all “material terms”, incorporating both –
    • “Essential” terms, which must set out the identity of the parties to the contract, the identity of the land sold, and the amount of the sale price; and
    • Any other term that is “material … determined with reference to its effect on the rights and obligations of the parties.” That’s an imprecise and wide definition so each case will be decided on its own facts, but for example a subdivision would clearly fall into that net.

      In this case, the omission of a subdivision term had created uncertainty about the parties’ rights and obligations concerning the subdivision process, including responsibility for costs and potential consequences if approval was not granted. Their failure to record in writing their agreement on these issues (if indeed they ever reached one) rendered the whole sale invalid.

Note that your written agreement must be clear in itself, sufficiently accurate and comprehensive to avoid any need for oral evidence on any of those critical issues.

Takeaways
  1. Even when our law doesn’t require your agreement to be written and signed to be valid, put it in writing! Always insist on a written agreement that covers all the material terms of your sale. That’s make or break with property sales, but in all cases verbal agreements are a recipe for uncertainty and dispute.
  2. Seek legal advice before you sign anything: Engaging an experienced property lawyer upfront will ensure that your interests are protected throughout the process.
  3. Clarify anything important like subdivision: If your transaction involves subdivision (or indeed any other important aspects), make sure that all obligations, cost liabilities, and potential outcomes are clearly stipulated in the written agreement. It’s the only way to ensure the validity of your sale, avoid ambiguity, and reduce the risks of any unforeseen circumstances and dispute.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Property Buyers: The Danger of Not Doing Your Financial Homework

“Look before you leap” (wise old proverb)

Don’t let the excitement of buying a property blind you to the necessity of doing your homework before you agree to anything. Look before you leap!

It’s not just a matter of buying the right property at the right price – make sure that your finances (and particularly your cash flow situation) won’t stop you from fulfilling the financial obligations your signature on the sale agreement binds you to.

Otherwise, you could find yourself in the same unenviable position as the property buyer recently ordered by the High Court to pay substantial damages after she couldn’t pay the required deposits.

Three sales, and the seller claims damages
  • A trust sold a property to a buyer for R750,000.
  • The buyer failed to pay the two required deposits totalling R280,000, the trust cancelled the sale and put the property up for resale.
  • It resold the property for R500,000 and sued the buyer for its R250,000 loss on the sale, plus the estate agent’s commission of R22,500 it paid for the new sale.
  • The buyer fought the claim on a variety of grounds, none of which found favour with the Court. It ordered the buyer to pay, in addition to legal costs on an attorney and client scale, a total in damages of R235,875. That’s a figure seemingly arrived at by the Court by taking into account an amount of R40,000 already paid in by the buyer, which presumably leaves the buyer down a total of just under R280k plus two sets of legal costs.
Important lessons for buyers and sellers 
  1. Buyers: Before you sign…

    Of course, the big lesson here for buyers is to make sure they can comply with the terms of the sale agreement they sign, with particular emphasis on their ability to make payments as and when due.

  2. And sellers: Before you sign…

    Sellers on the other hand will want to avoid all the risk, delay and cost that the trust in this case was put to by investigating upfront the financial position of all potential buyers before accepting any offer. Make sure also that the terms of your sale agreement protect you adequately in the event of any default by the buyer.

  3. Seller: Mitigate your damages

    Our law requires that if you want to sue for losses you incur as a result of someone else’s breach of contract (or wrongdoing), you must first take reasonable steps to minimise your losses.

    As the Court put it: “… the mitigating rule is a rule where a breach of contract has occurred. The innocent party cannot merely sit back and allow their losses to accumulate; the party must take reasonable positive steps to prevent the occurrence or accumulation of losses. The rule does not require the innocent party to do anything more than a reasonable person could do under the same circumstances. Reasonable expenses incurred in carrying out the mitigation steps may be claimed as additional damage suffered. The onus of proving what steps could reasonably have been taken, or that the expenses incurred were unreasonable, rests on the party in breach.” (Emphasis added) 

    As the seller, therefore, be sure to actively seek alternative buyers, use professionals to assist only as reasonably necessary, and accept only a reasonable resale price. In this case the evidence had established that the trust had acted reasonably both in reselling the property at the price it did, and in using the services of an estate agent to do so.

As always, agree to nothing without professional advice!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Losing Your Property to Acquisitive Prescription

“… a person shall by prescription become the owner of a thing which he has possessed openly and as if he were the owner thereof for an uninterrupted period of 30 years or for a period which, together with any periods for which such thing was so possessed by his predecessors in title, constitutes an uninterrupted period of 30 years.” (Prescription Act)

Here’s another warning to be vigilant when it comes to someone else occupying any part of your property for 30 years or more – you could wake up one day to find you’ve lost your ownership altogether. With not a cent’s purchase price to show for it.

And whilst 30 years may seem like a long time, judging by the cases that come before our courts it does regularly take property owners by surprise.

A feature of our law since Roman times, “acquisitive prescription” is a legal process that allows a person to acquire ownership of a property through long-term occupation.

The requirements for acquisitive prescription

To succeed in such a claim under our Prescription Act, the possessor must prove at least 30 years of continuous “possession” both openly, and as if the owner. “Possession” in this context refers to “civil possession”, a concept which (to put it as simply as possible) means physical possession with the intention of owning the property. Whether or not you think you are the true owner or know that you aren’t, is irrelevant here.

Somewhat more colourfully, you may also come across the Latin phrase (beloved in legal circles) “Nec vi, nec clam, nec precario” – meaning in essence that your possession must be “without force, without secrecy, without permission.”

Let’s have a look at a recent and illustrative case in which a property owning company’s attempts to retain ownership of a piece of its land came to nought.

The buyers who didn’t notice a nursery and park on their land – for 31 years
  • In 1993, two individuals bought a property-owning company and were appointed directors. Their plan was to develop and sell the thirty-nine plots owned by the company.
  • Unknown to them, a neighbour had since 1990 occupied a portion of the (then undeveloped) property. The possessor had at her own cost transformed the land into a nursery and community park, using water and electricity from other neighbours and reimbursing them.
  • The directors had never noticed the nursery and park as they drove past because neither was visible from the road, being hidden by dense vegetation. They assumed the nursery was on neighbouring land.
  • After 31 years of continuous occupation the possessor asked the High Court to order registration of the occupied land into her name.
Was the possessor’s illegal use of the property a factor?
  • One can imagine the directors’ shock at learning that they stood to lose a portion of their property, with zero compensation.
  • One of the defences they raised was that the possessor’s illegal use of water and electricity on the property, her failure to apply for rezoning, and her unauthorised use of the property as a nursery all prevented her from meeting the requirements for acquisitive prescription.
  • Not so, held the Court, her possession was in itself not unlawful and her illegal usage did not affect her possession of the land as owner.
  • The property will now be registered into the possessor’s name.
Owners – monitor your property!

As a registered owner monitor your property and take action against any occupiers. Or indeed against anyone using your property for anything, because “servitudes” (rights of use or access over your property) can also be acquired by prescription.

Before you buy…

The losers in this particular case would have saved themselves a lot of pain if back in 1993 they had checked properly for occupiers on the company’s land – don’t fall into the same trap!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Buying Property as an Investment – Some Strategies for Success 

“The only bad time to buy property is later.” (Steve Bolton)

Buying property – whether to live/work in or on a buy-to-let basis – could be one of the most important investments you make.

Here are some strategies to help you on your way.

Twelve strategies for success
  1. Map out your investment goals: Do you plan to “buy-to-let” to provide steady income? Or as a wealth-builder to hold for long-term capital growth? Or to “flip” (quickly resell, with or without renovation)? Formulate your strategy accordingly.
  2. Do your homework: Before making any big property investment decisions, research the property market, the area where you want to invest, and the type of property you want to buy (see below).
  3. Choose what type of property you want to buy: You have a wide choice here – vacant land (to develop or to hold), residential property (to live in or to let out), commercial/industrial property, agricultural land etc. You might also consider an indirect property investment via for example a REIT (Real Estate Investment Trust).
  4. Location, Location: Look for properties in areas with a high demand for rental properties (even if you are buying a house to live in, the time may come when you decide to rent it out), good infrastructure, and potential for capital growth.
  5. Consider diversification: If you plan to go big on this, you could invest in different types of properties and in different locations to spread your risk.
  6. “Buy Low”: It seems self-evident, but more than a few investors lose sight of the fact that a big part of success when it comes to property investment is “buying low”. Some ways to achieve that –
  1. Negotiate: Don’t be shy to negotiate on price, or to bring in a professional if your negotiating skills aren’t up to it.
  2. Consider a “renovation” property: Properties in need of renovation can be bought at a lower price and renovated to increase their value and rental potential.
  3. Look for bargains: Repossessed properties, properties in insolvent estates, distress auctions, sellers wanting to sell quickly (perhaps for financial or personal reasons) – all could be a source of well-priced property. But tread with care because this type of property can come with more pitfalls than normal.
  1. Take professional advice: For most of us, property should be just one element in a balanced investment portfolio, structured to meet our particular needs and goals, so ensure that you take competent financial advice upfront. Then go to the property professionals in your target area and market. Your first port of call in this regard should be your lawyer who can share valuable insights into the local property market and can in need refer you to other trusted professionals in the area.
  2. Choose wisely when it comes to financing options: Using mortgage finance to purchase property can provide leverage and enable you to invest in more properties than you would be able to with cash.
  3. Manage your cash flow: Ask your lawyer to help you draw up a full budget for your purchase costs so you plan properly both for your cash flow and for profitability.
  4. Manage the risks: If you have a bond, build into your calculations the possibility of interest rate increases in the future – a highly-leveraged property leaves you little room to maneuver if the market turns against you. If you are letting out to tenants, provide for vacancy rates and periods of low demand for rental property. Budget for worst-case scenarios!
  5. Property management might pay for itself: Consider using a property management company to manage your rental properties, as this can take the stress and workload off you and provide a more professional service to your tenants.
  6. Don’t forget the tax implications: This is vital – there are both potential tax benefits and tax pitfalls awaiting the property investor, and taking upfront professional advice to structure your investment for tax efficiency could make all the difference between an acceptable return and an exceptional one.

Investing in property can be a great option for you if you are looking for long-term growth and a steady income. However, it’s important to do your research, to seek professional advice, and to consider all the available options before making any investment decisions.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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