PROPERTY BUYERS: BEWARE UNLAWFUL OCCUPIERS!

You are it seems in good company if you view times of depressed property prices and general uncertainty as a great buying opportunity.

Just be aware that if it is a house you are after, whether as an investment or to live in, you should do your homework if the property is (or might be) occupied. Generally speaking, buying a property with occupiers is fine if you know about them and have a binding deal in place with them.

But, as a recent High Court decision illustrates, if you aren’t aware of occupiers and/or don’t have a proper agreement in place with them, you could find yourself unable to evict them even if you buy the property “free of lease”.

Before we discuss the case itself, it is important to know that to get an eviction order from a court, you need to prove in terms of PIE (the Prevention of Illegal Eviction From and Unlawful Occupation of Land Act) both –

  1. That the occupants are “unlawful occupiers” and
  2. That it is “just and equitable” to grant such an order after considering all the relevant circumstances.

The Bo-Kaap flat, the sale in execution, and the occupiers

  • A property investor bought a flat in a sectional title development on a sale in execution. As we shall see below, the history of the flat’s ownership, and its location in Cape Town’s historic Bo-Kaap area, were relevant to the outcome of this matter.
  • The Sheriff of the High Court sold the flat for R375,000 “free of lease”, but also with “no warranty that the Purchaser shall be able to obtain personal and/or vacant occupation of the property or that the property is unoccupied and any proceedings to evict the occupier(s) shall be undertaken by the Purchaser at his/hers/its own cost and expense….”
  • The people living in the flat refused to leave or to “legalise … their rights to the property”, and the investor applied to the Court for their eviction.
  • The eviction order was refused firstly because the investor was unable to prove that the persons it was trying to evict were “unlawful occupiers” for lack of information as to –
    • Who the occupants of the flat actually were, with the result that “the court has scant knowledge of essential details of the occupiers of the property in circumstances where these are material to the exercise of the court’s discretion under the provisions of PIE”. Crucially, there was nothing before the court as to the ages or circumstances of the occupiers, so it was unable to consider “all the relevant circumstances including the rights and needs of the elderly, children, disabled persons and households headed by women”.
    • When and under what legal right the occupiers originally took occupation (lease, right of habitation, usufruct etc), when that right was terminated and under what circumstances. Note that timing is important here because once unlawful occupation has lasted for more than 6 months, the question of relocation to land supplied by the municipality or government becomes relevant.
    • Whether or not the occupants had any form of written or verbal lease. That’s important because of our law’s “huur gaat voor koop” principle – literally “lease goes before sale”, meaning that you are generally bound to honour an existing lease (there are a few exceptions – take specific advice).
  • Secondly, the investor failed to convince the Court that it was “just and equitable” to grant the eviction.

Again, the lack of information as to the occupiers was relevant, and the Court’s comments on the particular facts of this matter are worth noting in full (our emphasis): “The residents of the area are, generally speaking, not wealthy and Bo-Kaap is home to many poor and working-class people. An eviction of the type sought in this matter, in which a group of related persons appear to occupy a family home that was acquired from the City of Cape Town some time ago, might well render them homeless or at the very least require them to relocate to one of the outlying suburbs that are now home to the many who fell foul of the Group Areas Act. If those circumstances obtain, a court would be required to think long and hard about the justice and equity of ordering people to vacate a dwelling, long occupied, which has been snapped up by a buyer distant to the neighbourhood for investment or development potential. Certainly, it is to be expected of such buyers that when they seek to move established families out of their homes, they do their homework properly and place all relevant facts before the court.”

Do your homework, and do it properly!

Investor or not, the Court’s warning to do your homework applies to you. Establish whether anyone is living in the house, exactly who they are, how long they have been there, and on what basis.

Bear in mind that because leases need not be in writing, you could find yourself battling occupiers who claim to be tenants under a verbal lease. Without a written record they could well claim to be entitled to pay minimal rent and to have many years left on their “verbal lease”.

Credit: Law Dot News

So first prize will always be to reach a written, water-tight deal with any occupants before buying – Phone Tracey Watson-Gill at Goldberg & de Villiers on 041 501 9800 for professional legal assistance.

PROPERTY DEVELOPERS BEWARE: DEEMED ACCRUALS CAN SERIOUSLY DISRUPT YOUR CASH FLOW

 

“Never take your eyes off the cash flow because it’s the lifeblood of business” (Richard Branson)

A recent Supreme Court of Appeal (SCA) judgment has confirmed that when a property developer enters into an agreement with a buyer to transfer the property, even if the developer only actually gets paid in a subsequent tax year, the income is deemed to have accrued to the developer at that date. The developer must therefore include the full proceeds of the sale in its income tax return for the year the agreement was signed.

This has the effect of the property developer paying tax before receiving the proceeds of the sale, putting the developer out of pocket until transfer to the purchaser takes place.

A R1.9m tax assessment challenged

A property developer in Cape Town entered into sales agreements for 25 units. Each agreement called for a deposit of R5,000 with the balance of the money to be paid on completion of the development. Purchasers could take possession once the full sale price had been secured or within 60 days of the sale. By the end of the first year 18 purchasers had taken possession and in all 25 cases the purchase price had been fully secured.

Transfer of the properties took place in the next tax year. The developer did not include the sale proceeds in his tax return for the year of concluding the agreements but showed the proceeds in the next tax year.

The Court upheld the decision by SARS to tax the developer in full in the first tax year. The assessment at just under R1.9m was based on taxable income of R6.8m.

Why the developer lost

Property developers assume a substantial risk when they undertake a development – they spend millions of Rand upfront and if they can’t sell the developed properties they make a considerable loss. They mitigate this risk by selling the properties upfront – usually before they commit to building. Clearly they will not get paid until the property is transferred, so they accept a deposit plus a guarantee (usually from the purchaser’s banker) for the balance of the selling price, or alternatively the buyer placing the funds in the conveyancer’s trust account.

Once the developer is assured of selling the properties it then proceeds with the development. On this basis, banks will advance the cost of the development to the developer.

However, in terms of the law as now confirmed by the SCA, the proceeds of the sale of the properties are deemed to have accrued to the developer and are taxable in the year the agreement is signed.

Developers need to be aware of, and plan for, the cash flow implications.

For more information, contact the professional legal team at Goldberg & de Villiers Inc on 041 501 9800.

BEWARE THE BUILDING DEADLINES WHEN BUYING-TO-BUILD

Here’s yet another warning from our courts to take seriously the building deadlines commonly imposed on buyers of plots in residential estates.

Failure to comply with them could expose you to heavy fines, recurring penalties and even the risk of losing your plot altogether.

  • A Home Owners Association (HOA) imposed “double levy” penalties totalling R105k on the owners of a plot when they failed to start development before deadline.
  • Taken to court, the owners challenged the validity of the penalties on a variety of technical and other grounds, but failed on every count.
  • The end result is they must now pay the penalty levies, late payment penalties, and attorney-and-client legal costs for both the original magistrates’ court hearing and for the unsuccessful appeal to the High Court.

3 lessons for HOAs and buyers

The HOA’s victory in this case highlighted several important factors that both HOAs and buyers would do well to take note of –

  1. The HOA’s power to raise “recurring penalties” was upheld only because of the wording of its articles of association. They specifically gave the HOA the power to “impose a system of fines or other penalties”. Had the wording only allowed “a fine”, its attempt to impose a recurring penalty would have been shot down (exactly that happened to another HOA in an earlier case).
  2. Penalties must be proportionate to the prejudice suffered by the HOA, but courts are unlikely to interfere unless “the penalty is unduly severe to an extent that it offends against one’s sense of justice and equity”. Here, the double-levy penalties were upheld because the “ongoing delay in developing their property in accordance with their obligation … prejudiced the underlying rights of other owners … to enjoyment of a fully developed estate.”
  3. The title deed gave the HOA the right to claim the plot back for breach of the building clause, but, held the Court, that right did not replace the right to claim penalties; it was an additional right available to it.

The bottom line for “buy to build” plot purchasers is this – make absolutely sure before buying that you will actually be able to build by deadline.

Before entering into any contract, contact the team at Goldberg & de Villiers Inc on 041 501 9800.

Credit: LawDotNews.

TEN THINGS TO LOOK FOR WHEN BUYING A HOUSE

Buying a house is a bit like planning for your wedding day — there are months packed with excitement, stress, planning, and then, finally, the big payoff.

1. Recognise a roof in need of repair

Before you ever set foot inside, check out what’s happening on top. Does the roof look relatively new or is it caving in? If the roof is eye-catching (as in, “My, look at that gaping hole”), chances are it could end up costing you.
A newer roof, on the other hand, could mean a lower homeowners insurance rate. Likewise, a roof made of an especially sturdy material is better equipped to defend against wind and hail (and can save you from a potential claim).

2. Don’t judge a room by its paint job

When you step inside your prospective abode, focus on the structural stuff — aging appliances, loose wires — and tune out any freshly painted walls or upscale decor. The foundation will be there long after the paint has started chipping and you want that to be what lasts.

3. Look at the municipal plans

Get a copy of the approved building plans from the municipality or the owner and check that all structures on the property are on plan. This could save lots of money in the future if you decide to do renovations and find that there are structures which are not approved and may possibly never be approved.

4. Decide on your dealbreakers

Aside from the basics, like quality windows and countertops, think about the purpose of your home and the requirements for your lifestyle, like storage for a large book collection or a big entertainment area.
It can also be smart to spring for a home with an extra bedroom if you’re planning on kids or guests. And if your significant other is a night owl while you’re a connoisseur of cat naps, it might be a good idea to look for a house with an entertainment area set far away from the master bedroom.

5. Plumbing: what lies beneath

When you’re poking around a new kitchen, don’t stop at eye level — get underneath the sink and examine those pipes. Check for leaks, water damage, and mold.
Not only is mold unsightly and foul-smelling, but it can also cause health problems. If you live with a baby, an elderly person, or someone with asthma, you’ll want to be especially careful before moving in with mold.

6. Check out the land beforehand

Don’t just look at the building — examine the area around it. Is the house in an area prone to flooding or wildfires? Is the driveway shared with another property? If there are fences, have they been built and positioned properly? It’s a lot to take in, but when you buy a house, you can’t ignore its surroundings.

7. Smell the roses (and more)

Do you smell sewage, gas, or anything equally unpleasant? Sewage systems in older homes can sometimes get clogged or damaged by tree roots. Luckily, some sewer or plumbing companies can send a camera through the pipes to detect any breaks or blockages.
Also worth noting: pet odors, cigarettes, and mildew.

8. Invest in a well-insulated house

Above all else, your home should be comfortable. Check the ceiling, water pipes, and heating ducts to make sure they’re properly insulated. This can reduce heating and cooling costs and keep you comfortable in summer and winter. Double-paned windows can also save you money down the road. Plus, they can help soundproof your place from outside noise.

9. Get your hands on everything

I mean that literally. Turn on every tap and light switch, open every window and door, flush the toilets, even taste the water. Buying a house is a big step — maybe one of the biggest — and you need to know how everything works firsthand. That way, you can address problem areas and see if there’s a cost-effective solution.

10. Have a home inspection done

There’s only so much you can do with your own 5 senses. You’ll also want to enlist a professional to ensure the foundation is solid. If there is a lot of wood in the building/s, make sure that you request a borer beetle certificate and ensure that the relevant clause is incorporated in your offer to purchase.

For professional legal advice, contact Goldberg & de Villiers Inc on 041 501 9800.

 

CAN I TERMINATE MY LEASE EARLIER?

Life is unpredictable and sometimes it becomes necessary to terminate a lease agreement entered into for a fixed term earlier. Can a tenant give notice to the landlord to cancel the lease before the agreed fixed term of the lease has run its course?

The first point of departure is to read the lease agreement. Sometimes leases have clauses providing for an early termination notice period. If there is no such clause the lease may only be cancelled in situations where the parties agree to the termination or in the situations where the Consumer Protection Act applies.

The Consumer Protection Act (“the Act”) applies to the supply of goods and services within South Africa. Residential leases fall within the definition of services where the landlord leases the property in the ordinary course of business.

Unfortunately it is not yet clear how our courts will interpret this definition in respect of residential leases.

If your landlord is a property developer with a letting business with a whole selection of apartments or houses, the lease will definitely fall under the Act. It is not so clear whether a private homeowner who rents property on a temporary basis will fall within the definition.

When the Act applies

The application of the Act is further excluded where the lease is concluded between to juristic entities and where the tenant has an annual turnover or asset value of more than R2 million Rand.

If the Act applies to the lease, the tenant may cancel a fixed term lease for any reason by giving the landlord 20 business days written notice of the cancellation.

“Business days” means weekends and public holidays are not counted. If the tenant cancels the lease before the lease would have ended in the ordinary course then the landlord is entitled to a reasonable cancellation penalty.

In order to determine a reasonable penalty the following factors must be considered:

  • the rental amount which the tenant stills owes the landlord up to the date of cancellation;
  • the value of the lease transaction up to the date of cancellation;
  • the duration of the lease agreement as initially agreed upon by the parties;
  • losses suffered or benefits accrued by tenant because of the tenant entering into the lease agreement;
  • the length of the notice period given by the tenant
  • the length of the period within the land lord would be able to find a new tenant
  • the industry practice

Between one and two months rental would probably be considered reasonable.

In cases where the Act applies to a lease, a landlord can only cancel a tenant’s lease if the tenant has breached the lease and if after having given 20 business days written notice to the tenant to remedy the breach, the tenant has failed to do so.

Consult an experienced property attorney before sending breach and/or cancellation and/or early termination notices. Contact  Goldberg & de Villiers Inc on 041 501 9800 for advice.

CAN I HAVE PETS IN A RESIDENTIAL COMPLEX?

 

“I never married because there was no need. I have three pets at home which answer the same purpose as a husband. I have a dog which growls every morning, a parrot which swears all afternoon, and a cat that comes home late at night” (Marie Corelli, English novelist)

Residential complexes and estates are becoming more and more popular for the many advantages they provide. Remember however that – in everyone’s interests – they also come with restrictions on your freedom to use and enjoy your property, and that you bind yourself to whatever Conduct Rules apply in your community scheme.

One of those restrictions is likely to be your right to keep a pet, and that’s a topic that can be a source of much conflict and unhappiness.

Residents tend to fall into one of three camps

  1. “I really need to have my little dog/cat/parrot/lizard living with me”
  2. “I simply cannot handle any more of that parrot-screeching/lapdog-yapping/midnight-cat-yowling – it has to go!” or
  3. “Pets – don’t need them myself but hey, fine so long as they don’t cause me any trouble”.

Regardless of which category you fall into, it’s important to understand before you move into any form of residential complex whether or not you and other residents are allowed to keep pets, and to obtain any necessary prior authority to do so.

Sellers, buyers and estate agents would do well to address this specifically in sale agreements to avoid disappointment and dispute down the line.

Sectional title schemes

Your Body Corporate has the right to impose limits on pet ownership. It can for example prohibit pets altogether, or it can impose limits on the number of pets allowed, types of pet, breeds or sizes allowed, access to common areas, noise-control, replacement on the pet’s death and so on. Trustees should take care here to define clearly what is allowed and what isn’t. Are only dogs banned or also cats and cage birds? What about pet pigs? Guide dogs? Hamsters? Pet snakes? Goldfish? The more detail the better.

You need to find out exactly what rules apply in your particular complex, but the standard “Prescribed Conduct Rule” below will be in force unless your Body Corporate has amended it. This Rule reads –

“Keeping of animals, reptiles and birds

  1. The owner or occupier of a section must not, without the trustees’ written consent, which must not be unreasonably withheld, keep an animal, reptile or bird in a section or on the common property.
  2. An owner or occupier suffering from a disability and who reasonably requires a guide, hearing or assistance dog must be considered to have the trustees’ consent to keep that animal in a section and to accompany it on the common property.
  3. The trustees may provide for any reasonable condition in regard to the keeping of an animal, reptile or bird in a section or on the common property.
  4. The trustees may withdraw any consent if the owner or occupier of a section breaches any condition imposed in terms of sub-rule (3).”

Note that where this Prescribed Rule applies unamended, the body corporate is specifically required to act “reasonably” in all the circumstances of each matter. That entails a delicate balancing act between the competing rights of pet-owning residents and their neighbours, which means grey areas and fertile ground for dispute.

Hence the advice to get clarity on your rights before buying into a complex.

Home Owners Associations (HOAs)

HOAs have similar rights to restrict the keeping of pets, but no “Prescribed Rules” apply as they do with sectional title and their powers will depend on whatever founding documentation underlies them. HOAs normally govern free-standing estate houses rather than apartments and so are perhaps more likely to be pet-friendly but again, find out what the complex’s Rules say before you buy.

Trustees barking up the wrong tree? Polly ruffling feathers? The ADR alternative

If you find yourself embroiled in a dispute with your body corporate/HOA or a fellow resident or owner, first prize will of course always be a chat over a friendly cup of coffee to find common ground and a win-win outcome.

If that fails, the (relatively) new Community Schemes Ombud Service provides an alternate dispute resolution (ADR) service designed to assist with just this sort of situation. Contact the professional legal team at Goldberg & de Villiers Inc on 041 5019800 for help in any doubt.

Credit: LawDotNews

 

SELLING YOUR HOUSE: DISCLOSING DEFECTS

 

“Honesty is the best policy” (Benjamin Franklin)

A recent High Court decision again confirms that when it comes to selling your house, honesty is indeed the best policy.

Specifically, disclose all defects you know of to potential buyers, or risk expensive litigation and damages claims.

Defects and Defences

The buyers of a house, who had paid R2.3m for it (the seller having reduced her original asking price from R3.6m to get a sale), sued the seller for damages in respect of various defects. These, they said, had only come to light after transfer.

The Magistrates Court awarded them R92,352-80 in damages, and the High Court upheld that award on appeal. The seller must also pay legal costs, which will no doubt be substantial. Her loss is a practical lesson in the dangers of trying to hide defects from potential buyers.

The seller did not dispute the existence of the defects complained of, nor did she claim to have shown or disclosed them to the buyers, but she did raise various legal defences to the buyers’ claims –

  • Leaking roofs, defective windows, broken mirrors, defective pool equipment and missing keys: The seller argued that all of these defects were “patent” (easily identified on inspection) rather than “latent” (hidden or non-obvious). The buyers, said the seller, had an opportunity to thoroughly inspect the premises but had chosen not to do so and therefore had no claim. The Court however found that there was no evidence to corroborate this – there being for example no evidence that the buyers had inspected the house on a rainy day when the leaks would have been detectable.
  • The electric fence: In regard to latent defects such as the defective electric fence, the seller claimed protection from a voetstoots clause in the sale agreement. But our law is that a seller has a general duty to deliver the thing sold to the buyer without defects, and whilst a seller should always try to guard against liability for latent defects with a “voetstoots” (“as is” or “without any warranty”) clause, it offers no protection where the seller has acted fraudulently. Thus a buyer can sidestep a voetstoots clause by proving that the seller “at the time of the conclusion of the contract was aware of the existence of the latent defect in the [house] sold and deliberately concealed the existence of the defect to the purchaser or refrained from informing the purchaser of its existence.” On the facts of this case, held the Court, the seller had deliberately concealed defects such as the defective electric fence energiser.
  • The pool filter and cleaner: The sale agreement included a specific one-month warranty in regard to fixtures and fittings, which included the pool equipment. These, said the seller, had been in normal working order at the time of the sale. But the evidence showed that defects in them, resulting from years of wear and tear and requiring complete replacement, had in fact been discovered within the one month period after the sale. The seller had to honour the warranty.
  • The electrical compliance certificate: The certificate required by the sale agreement and provided by the seller was found after transfer to have been invalid. The house was accordingly not electrically compliant and the buyers could recover their costs of fixing the defects.

A note for sellers

Don’t fall into the trap of assuming that buyers will find defects for themselves, or of believing that a voetstoots clause will automatically protect you from liability.  Avoid all doubt by thoroughly inspecting your property, annex to the sale agreement a written list of all defects you find or know about, then get the buyer to sign it in acknowledgment. There is no substitute for proper legal advice here.

Credit: LawDotNews

Before selling or buying a property, contact the professional legal team at Goldberg & de Villiers Inc on 041 5019800.

 

BUYING YOUR FIRST HOUSE – AN ACTION PLAN

      “Buy land – they’ve stopped making it” (Mark Twain)

So you’ve decided to buy your first house – exciting! There’s nothing like owning and living in your very own dream house, and if you choose wisely your home could well be one of your most important investments ever.

Get started with these tips

First, understand how much cash you will need

Make a list of all the costs you need to plan for (there are plenty of convenient online calculators to help you figure out what your transfer and bond costs are going to be so Google for one that suits you) –

  • Deposit: Unless you pay the whole purchase price in cash, you will need to raise a bond. You may qualify for a 100% bond, otherwise be ready to pay at least 5% – 10% of the price as a cash deposit. Of course there may be benefit in paying more if you can afford it.
  • Bond registration costs: The bank’s attorneys will register your bond and you will need to pay them the registration costs. The bank will also charge you a bank initiation fee.
  • Transfer costs: Standard procedure (unless your sale agreement provides otherwise) is for you to pay the transfer costs, even though it is usually the seller who chooses the conveyancing attorney.
  • Transfer duty: This government tax is payable unless there’s VAT on the sale, and the sale agreement will almost certainly provide for you to pay it. No duty is payable on a property valued up to R900,000 and a sliding scale applies to houses above that threshold.
  • Associated costs: Make a list – moving, redecorating, furnishing, Internet connections and so on. Don’t forget this step, these costs can add up alarmingly!

So what’s your price range?

You now have your figure for one-off costs, but before you finalise your budget make provision also for all your new ongoing costs as they will all affect long-term affordability –

  • Recurring and monthly costs: Rates/taxes/levies, homeowner’s insurance, water, electricity and so on. Provide also for both short- and long-term maintenance costs for both home and garden.
  • Your bond repayments: This is the crunch – will you be happy with the lifestyle you can afford after paying your bond every month? When you first apply for a bond shop around for the best interest rate and – this is vital – be absolutely sure that you will always be able to afford the monthly payments, even when (not if) interest rates start rising again.

Get a bank pre-approval here – with today’s restrictions on credit grantors when it comes to responsible lending practices, it will help you gauge affordability. And as a bonus, it gives you a great negotiating tool when you move on to the offer stage!

The end result – you have your budget, that gives you your price range, and you can move on to…

House hunting

Lots of questions to ask yourself here of course –

  • Location, location, location: What area/s will you concentrate on? Where do you want to live? What sort of lifestyle are you after? What amenities do you want close by? Research the area – what are average selling prices in the suburb and is your budget up to it? Do houses in the area have a history of good value growth? What are crime levels like?
  • Searching: With your price range and target area in mind, the “thrill of the hunt” is at last upon you! Online searches are increasingly popular but choose whichever channel or channels you are comfortable with.
  • If buying in a community scheme: Check what Rules and Regulations you are letting yourself in for – you will be held to them. Make sure that the Home Owners Association or Body Corporate’s finances are sound (ask for audited financials and management accounts). Ask about any special levies or other planned expenditure on the horizon (get it in writing).
  • Plans, defects and the rest: Ask for copies of approved building plans (check for any unlawful structures or deviations from plan), look for and ask about defects like leaking roofs, problem foundations etc – consider getting a full professional report unless you are very sure of your own abilities in this regard.

Approach your choosing and purchasing decision as though it’s the most important financial decision you will ever make (it may well be).

Making an offer, and the legal bits

So now you’re ready to make your offer on a house. Excitement mounts – will the seller accept? Or perhaps counter-offer? You can’t wait to find out. You are presented with a Deed of Sale, a pen and a cheerful “just sign here, we’ll do the rest”.

Hold on a second!

Take no chances here. Before you sign anything, have your lawyer check the paperwork for you, with a Deeds Office search for anything that may affect your decision-making such as restrictive title deed conditions, servitudes (giving other people rights over your property) etc, etc.

Remember also that with property sales what counts is what’s in writing so tell your lawyer about any verbal undertakings or disclosures given to you.

For professional legal advice, contact Goldberg & de Villiers Inc on 041 501 9800.

BEWARE OF ONLINE AND EMAIL SCAMS WHEN YOU ARE PURCHASE A PROPERTY

To avoid falling victim to these scams, experts recommend the following measures:

  1. Know your service provider/attorney/conveyancer and always personally verify any change in payment instruction;
  2. Before making a payment, request the contact person that you have been dealing with at the business or firm of attorneys to confirm the amount and their banking details telephonically or to provide you with other proof of their banking details;
  3. Treat any email notification of a change of banking details with suspicion. Rather obtain telephonic confirmation or confirmation in person of the change in banking details;
  4. Do not click reply to an email when you are sending important information. Instead create a new email and type in the email address afresh or select the address from you address book. In this way you can avoid replying to a fake email address that looks similar to the correct email address;
  5. Cooperate with your attorney when proof of your banking details are required in the form of an original bank statement or cancelled cheque;
  6. It is not always practical to make personal contact with parties involved in transactions in our fast-paced, digital age however it imperative to verify bank details in person.

Contact the professional team at Goldberg & de Villiers Inc on Tel. 041- 501 9800 for assistance on your property related matters.

WHAT HAPPENS IF YOU CANCEL YOUR LEASE EARLY?

 

“There ain’t no such thing as a free lunch” (Wise old adage)

You sign a two year lease for a nice little apartment (or a large family house if you have a spouse, 3 kids and a dog) but after 6 months your employer transfers you and you have to cancel early.

“Fine” says your landlord “but you are breaching your lease and I am holding you liable for the remaining 18 months’ rental”.

What are your rights? As is often the case in life, that depends…

Check the terms of your lease

First things first, generally your most important consideration is this: “What does my lease say about termination?”

Most leases specify what happens if you don’t comply with the terms of your lease and our law will generally hold you to your agreements. So if you have agreed to be bound to a two year lease, your starting point should be that you are at risk if you cancel early.

Before you concede anything however, consider the following –

Does the CPA apply?

First step is to decide whether the Consumer Protection Act (CPA) applies to your lease.

The CPA gives its protections to “fixed-term agreement” tenants but only if your landlord is leasing to you “in the ordinary course of business” and it’s unfortunately not yet clear how our courts will interpret that definition in property leasing scenarios. For example, if your landlord is a property investor running a full-on letting business with a whole selection of apartments or houses, you will definitely fall under the CPA. But what about a private home owner who is overseas for a year and rents to you on a temporary basis? Or a pensioner letting out a “granny flat” to boost their retirement income? You can certainly argue that in both cases the landlord is making “a business” of the letting out, but expect your landlord to disagree.

The 20 day notice provision in the CPA

If the CPA does indeed apply, this is the crux: The CPA allows you to give your landlord 20 business days’ notice, at any time, and for any reason.

“Hooray” I hear you shout, “I get off scot free”. But not so fast!

The CPA also allows your landlord –

  • To recover any amounts still owed by you in terms of the lease up to the date of cancellation, and
  • To impose a “reasonable cancellation penalty”. The principle here isn’t to punish you by allowing your landlord to, for example, automatically hold you liable for the full remaining period of your lease. The idea rather is to let the landlord recover all actual losses resulting from your early cancellation – rental lost until a new tenant is in place, re-advertising costs, new agent’s fees, new lease preparation costs and so on. Particularly if you are cancelling a fixed-term lease early on, expect to pay for the privilege.

Note that this all applies regardless of what your lease says – you can’t be contracted out of these protections. In other words if your lease imposes a set “early cancellation fee” or the like, it must still be a reasonable one.  Note also that you must give the required notice “in writing or other recorded manner and form” (keep proof).

What if the CPA doesn’t apply?

In this case, you have no specific right of early cancellation and will be bound by the terms of your lease.

But you still aren’t entirely at your landlord’s mercy. Any penalty imposed on you must still be reasonable. Per the Conventional Penalties Act, a court can reduce a penalty if it is “out of proportion to the prejudice suffered” by the landlord.

Credit: LawDotNews

For more information, contact Goldberg & de Villiers Inc on 041 501 9800.