Property

“… had the respondent imposed more moderate penalties, it would likely not have had the desired effect, or put differently, the same persuasive sting for individuals of substantial means.” (Extract from judgment below)

Buying “plot and plan” in a residential complex allows you the freedom to build your own dream house in a secure environment, quite apart from providing what is likely to be sound long-term investment. Just make sure that you will actually be ready to build within the time frame required by the HOA (homeowners’ association). If you don’t, you risk having to transfer the plot back to the developer (a costly exercise), or you could be lumbered with penalty levies many times higher than normal levies.

You can ask a court to reduce the penalty, but…

Our law gives us general protection from excessive “out of proportion” penalties by means of the Conventional Penalties Act, which in the section headed “Reduction of excessive penalty” provides that – “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 consideration not only the creditor’s proprietary interest, but every other rightful interest which may be affected by the act or omission in question.” However, as a recent High Court decision illustrates, you will have your work cut out for you if you want the court to exercise that discretion in regard to penalty levies.

The ‘persuasive sting’ of 5x normal penalties

• The HOA of a “luxury/ultra-luxury” residential estate required in its constitution that –
  • Each owner must start construction within one year of transfer,
  • Should construction not commence timeously the developer had the option to require re-transfer of the erf to it,
  • If the developer did not exercise this option, the HOA could “impose whatever penalties it deems appropriate in its sole discretion” on the owner.
• When several erf owners failed to build within the one-year deadline, the HOA passed resolutions imposing penalty levies on them until they started construction.
• These levies started off at 2x the normal levies, and over an eight-year period were increased in stages to 5x the normal.
• The HOA sued the defaulting owners in the Regional Court to recover these levies, winning both in that Court and on appeal to the High Court.
• It was, held the High Court, up to the owners challenging the amount of the penalty to prove –
  • What prejudice the HOA suffered,
  • That the penalty was disproportionate to that prejudice, and
  • The extent to which the penalty should be reduced.
• In addition to the actual monetary prejudice (damages) suffered by the HOA, it was said the Court necessary to consider the HOA’s other “rightful interests” that might be affected by the failure to build, such as problems with security, nuisance, aesthetics, damage, and value loss caused by extended building activities. In this case, one of the additional reasons for the penalty provision was to discourage speculation in the erven by buyers intending to re-sell the plots for profit rather than build and live in the estate.
• There was prejudice to the HOA even though the penalty provision was intended to create a deterrent rather than compensation for default – the prejudice was to the HOA’s “right to enforce concerted action for the common good, and to its interest in obtaining concerted action”.
• Whether the penalty was “out of proportion” to the prejudice could be assessed in three ways:
  1. By looking at comparable situations where the desired result was achieved (the Court compared another similar matter in which a 10x normal penalty was reduced by the Court to 8x normal, much more than the 5x imposed here),
  2. By looking at the size of this penalty and the penalties in general in relation to the income and expenditure of the HOA, and
  3. “By exercising one’s sense of fairness and justice.”
• The HOA had been fair and reasonable in phasing in the increases over an eight-year period.
• Imposing more “moderate” penalties “would likely not have had the desired effect, or put differently, the same persuasive sting for individuals of substantial means.”

In the end result, the owners must pay the full penalty levies, interest, and costs on an attorney and client scale. 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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“Co-ownership is the mother of disputes” (old Roman law maxim)

There can be big advantages to buying property jointly but be aware of the risks and take steps to lessen them before you put pen to paper. The problem comes if there is a falling-out with your co-owner. Perhaps you come to blows on your usage of the property, or on the incurring of expenses, or on whether it is time to sell, or perhaps you are splitting from each other entirely. That could be a business partnership terminating, or a marriage ending in divorce, or (as in the case we discuss below) a failed romantic relationship. Our courts must regularly resolve bitter joint-ownership disputes between ex-spouses, ex-friends, ex-colleagues, siblings, and close relatives – none of whom dreamed they might ever come to blows when they first hatched plans to buy property jointly. If a dispute does arise, how will you resolve it? And if you split up, who keeps the property? Or do you sell it jointly, and if so how, and when? How will the bond and other property debts be settled? The good news is that by and large the risk of dispute can be reduced with a bit of foresight and planning. Preferably with professional advice and assistance – this is after all likely to be an important asset in both your estates. Let’s have a look at a recent High Court case to illustrate –

A breakup and a fight

• A couple in a “romantic relationship” co-habited in a house of which they were the joint registered owners in undivided half shares.
• When the relationship broke down irretrievably, the partners were unable to agree on a method of ending the property ownership. One partner moved out and the other, after changing the locks, applied to the High Court for an order terminating the joint ownership and appointing a receiver/liquidator to sell it.
• The other party fought this application, contending that the couple had, in addition to being in a personal relationship, also been in a “universal partnership” which still existed.

A co-owner can normally insist on partition of the property at any time

The general rule in our law is this: “No co-owner is normally obliged to remain a co-owner against his will.” Thus “every co-owner of property may insist on a partition of the property at any time. Even if there is an agreement to constitute perpetual joint ownership, the co-owner may demand partition at any time. If the co-owners cannot agree on the way the property is to be divided, then the Court is empowered to make an order which appears to be fair and equitable.” That opens the door to a wide range of options for the court, but often it means an order for sale of the property (possibly by public or private auction) and division of the net proceeds between the joint owners.

But is it “bound” or “free” co-ownership?

But it’s more complicated than that. Our law recognizes two types of co-ownership –

1. In a “free” co-ownership, the co-ownership is the only legal relationship between the co-owners. In this event, the rule above applies – either joint owner can insist on division at any time.
2. In a “bound” co-ownership however “there is a separate and distinct legal relationship between them of which the co-ownership is but one consequence. Co-ownership is not the primary or sole purpose of their relationship”.

In this event, the co-ownership can only be dissolved when the primary relationship is terminated. In this case, the party opposing the court application said that no order of division could be made until the “universal partnership” between the parties had ended. The Court found that there had indeed been a universal partnership in existence, in other words that this had been a case of “bound” co-ownership. But it also held (on the facts) that both the romantic relationship and the universal partnership had ended when the parties stopped living together. The romantic relationship was the ‘tie’ between the parties and when it came to an end, any situation of bound co-ownership became a free co-ownership to which the “end at any time” rule applied. The result – the Court ordered the joint ownership terminated and appointed a receiver and liquidator to sell the property, pay all the property debts, and divide the proceeds between the parties.

The remedy

So the risk is finding yourself in the same unhappy position as the ex-partners in this case, having to ask the High Court to sort out your dispute for you. Happily however there is a simple remedy. Before you buy property jointly, have a professional draw you a full agreement setting out (at the very minimum) –

• The nature of your relationship. In a co-habitation scenario you should probably also have a full “co-habitation” agreement, whilst a business scenario should be linked to your existing arrangement.
• The best vehicle for co-ownership – for some, a simple “let’s put the house in both our names” will be enough, for others a company or a trust may be better.
• Who will own what percentage of the property.
• Who will contribute what to the costs of purchase and to the property expenses and upkeep.
• Who will have what use of the property.
• What will happen if one or both of you wants to leave the relationship, dies, or is incapacitated.
• And so on – every situation will be unique.

If the parties in this case had put such an agreement in place, they might well have saved themselves the stress, wasted time and legal costs of a protracted and complex dispute. The liquidator/receiver’s charges for selling the property and paying out their shares to them will no doubt rub a lot of salt into all those wounds. A final thought: Having a formal contract in place is not a forecast that things will go wrong between you – on the contrary, it should greatly reduce the risk of any dispute or unhappiness arising in the first place. 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.

© LawDotNews

“Risk comes from not knowing what you’re doing” (Warren Buffett)

Don’t risk not knowing what you’re doing when you either sell or buy property. Avoid nasty shocks by budgeting properly for the costs you will incur – some of them can be substantial, and some are less obvious than others. The checklists below are of necessity not exhaustive and you would do well to take specific professional advice and to get cost quotes before you finalise your financial planning.

The costs you will pay as buyer

In the excitement of buying a house (particularly if it’s your first one!) it’s easy to underbudget and forget all the amounts of money you will have to pay over and above the purchase price. One suggestion is to budget for costs totaling up to about 10% of the purchase price, but here’s a list to help you with your own calculations (ignore any items that don’t apply to your purchase) –

• Transfer duty (a government tax payable to the state via SARS unless the sale is subject to vat). You will pay on a sliding scale depending on the purchase price and beware – this can be a substantial cost!
• The applicable transfer fees that the conveyancers will charge for their services in handling the transfer (you must pay these before transfer)
• Deeds Office fees
• Bond registration fees charged by the bank’s attorney
• Bond/Home Loan initiation fee payable to the bank (the bank may also require you to take out a home loan protection life policy)
• Occupational interest, if payable when you move in before the transfer takes place
• Pro-rata rates, municipal charges and levies (some payable in advance)
• If you are buying into a complex (sectional title or Homeowners Association) you may be liable for body corporate or HOA levy clearance fees in addition to pro-rata levies
• Don’t forget other costs like moving costs, redecorating, telephone and internet connections, water and electricity deposits etc
• Also remember to budget for your ongoing monthly costs of property ownership – rates, levies, municipal services, insurance (building and contents), security, building maintenance and the like.

The costs you will pay as seller

Again, ignore any of these items that don’t apply to your particular sale –

• Estate agent’s commission (don’t forget the vat component)
• Certificates of compliance – electrical, water, gas, electric fence, and the like. Provide also for the possibility of repairs and upgrades to ensure compliance with regulations
• Bond cancellation fees (be careful here to give the bank enough notice to avoid having to pay an early termination penalty as well)
• Rates and levies
• If you live in a complex, there may be other fees payable to your body corporate or Homeowners Association.

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.

© LawDotNews

Owning your own property comes with a raft of benefits, including a general right to privacy and control over who can access your property and who can’t. But of course there are exceptions. And apart from the obvious ones, a recent High Court judgment highlights one that is particular to sectional title schemes. It involved a unit owner whose “recalcitrant actions” prevented a body corporate from entering his unit to check for a water leak.

A recalcitrant unit owner blocks access to his unit for a leak test

• A unit in a sectional title scheme had a damp problem and the neighbouring unit owner initially allowed the body corporate access to his unit to conduct a leak test. No leaks were found.
• However three months later the damp problem was still unresolved, and this time the neighbour flat out refused access to his unit for a second leak detection test. Requests for access through the managing agents, loss adjusters, leak detection agents and the body corporate’s attorneys all fell on deaf ears.
• The body corporate applied to the High Court for an urgent order compelling access within 48 hours.
• Although the neighbour had initially taken the stance that there was no reason why a second inspection should be conducted, he had a last-minute change of mind (after taking legal advice) and accepted that the body corporate is entitled to conduct reasonable inspections from time to time in order to properly manage the common property. He made a settlement offer to this effect to the body corporate, which rejected the offer as it still wanted its costs.
• Ultimately the Court rejected the neighbour’s attacks on the body corporate’s standing to bring the court application and held the neighbour liable to the body corporate for both the leak detection costs and the legal costs (only on the Ombud’s tariff – more on that below).

Were the body corporate’s round robin resolutions valid?

At issue was the validity of two body corporate resolutions. The full details of the various legal challenges mounted against the resolutions will be of great interest to industry professionals, but for most bodies corporate and unit owners perhaps the most important practical aspect is the attack on the first resolution because it was signed only by two of the five trustees on a round robin basis. The Court was unimpressed by the neighbour’s argument that the resolution was defective because it was not signed by a majority of trustees and did not record date, place, and time. “It is common practise” said the Court “what with the onslaught and the lagging effects of [Covid 19] that trustees, shareholders, governing bodies and directors meet virtually and sign documents via round robin.” “It is … not uncommon for [trustees] to manage the affairs of the body corporate as they deem fit and in the best interests of the owners. Ad hoc and informal meetings are often held in order to deal with incidents without having to call or convene a formal meeting of the trustees.”

Each case will be different

The particular facts in this case clearly played a significant role in the Court’s ultimate decision, and there is no substitute for legal advice specific to each unique set of circumstances. For example, one of this scheme’s Management Rules specifically caters for a trustee meeting by ‘any other method’ which, said the Court “in my view would encompass and encapsulate the extension of the method of signing resolutions. It would be absurd to consider or apply anything to the contrary.” Important also was the Court’s finding that “throughout the entire process all the trustees were aware of and informed of what was transpiring”.

Finally, a warning from the Court to always approach the Ombud first

The Court once again confirmed the principle that in a matter such as this the parties should in the first instance approach the CSOS (Community Schemes Ombud Service) rather than the High Court. Commenting that “I am of the view that this matter should never have been brought before this court as first instance” and “There are no exceptional circumstances pertaining to this matter, but rather issues that fall squarely within the ambit of the Ombud that can and would have been expeditiously dealt with at no cost as the employ of legal representatives is not permitted” the Court awarded legal costs to the body corporate only “on the tariff applicable in respect of proceedings under the ambit of the Ombud”. Reading between the lines, the body corporate was possibly fortunate that the High Court agreed to hear its application at all. It may well have been saved only by the Court’s expressed displeasure with the neighbour’s “recalcitrant actions” and by his conduct in opposing the application in the first place. 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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“…it is a general rule that a contract impliedly prohibited by statute is void and unenforceable…” (extract from judgment below)

Here’s yet another warning from our courts of the importance of complying with your local municipal zoning laws, whether you buy property to live in, as a capital investment, or to let out. One risk for a landlord is finding yourself with an invalid lease and no claim against your tenant. A recent High Court decision illustrates –

The unlawful coffee shop and the invalid lease

• A landlord rented premises to a tenant for use as a coffee shop, home industry and restaurant. The tenant also resided on the premises, but no rental for the residential component was specified in the lease.
• The business use was contrary to zoning provisions indicating that the property could only be used for dwelling purposes as it was zoned “Single Residential 2”.
• The landlord, although aware of the zoning restrictions, told the tenant that she could operate her business.
• When the landlord sued for arrear rental and payment of municipal charges the tenant’s defence was that the lease was invalid and unenforceable.
• The High Court (hearing an appeal from the Magistrate’s Court) held the lease agreement to be illegal, void and unenforceable. The tenant, it said, could not be expected to establish from the municipality, before entering into the lease agreement, whether the premises could be used for her business. She had seen other restaurants in the same street and had no reason to question the landlord’s right to allow her to trade as she did.
• As to the applicable law, the Court found that “although it is a general rule that a contract impliedly prohibited by statute is void and unenforceable, this rule is not inflexible or inexorable [inevitable].” The Court’s analysis of when this will apply (and when it won’t) will be of great interest to property professionals, but for most landlords the important thing is the fact that your lease will normally be invalid when it contravenes local legislation.
• In that event, you will have no claim against your tenant because, as the Court here put it “this court shall not countenance unlawful conduct by allowing the [landlord] from benefiting from an illegal contract.”
• Bottom line – the coffee shop tenant is not liable for rental, nor even for municipal charges relating to her occupation and use of the premises.

Zoning – what to do when buying or letting out property

The bottom line is that you need to understand all local zoning restrictions before buying property or letting it out to a tenant. If as a landlord you are aware of a possible issue in this regard, take professional advice on whether you may be able to word the lease in such a way as to protect you from losing all your claims against the tenant should worst come to worst. 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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