TRUSTEES: YOUR RISK OF PERSONAL LIABILITY IN PROPERTY SALES

Firstly, a warning to anyone selling or buying property to/from a trust – have your lawyer check upfront that you are adequately protected by the terms of the sale agreement.

The problem is that contracting with trusts has its own specific set of rules and, as a recent High Court case illustrates, standard sale agreements don’t always provide adequately for them.

A seller sues an unauthorised trustee for R2m – personally

  1. A company sold a “real right of extension” (a right to build additional buildings in a sectional title development) to a trust,
  2. The agreement of sale was signed by only one of two trustees,
  3. The sale agreement was invalid because the trustee who signed had no authority to sign alone,
  4. The seller sued the trustee in an attempt to hold him personally liable for payment of the purchase price of R1,45m (almost R2m with interest),
  5. The seller relied on a clause in the sale agreement – standard in such agreements – in which the trustee “warrants and binds himself in his personal capacity” that he had authority to sign and that the trust would perform in terms of the sale,
  6. A further provision bound any unauthorised signatory as surety and as the purchaser in his/her personal capacity.  The seller’s problem here was that this provision specifically only applied to anyone signing for a company or close corporation yet to be formed.  There was nothing specifically binding an unauthorised trustee to similar personal liability,
  7. The seller tried to persuade the Court that the trustee was nevertheless liable as a surety, or that there was an implied term in the agreement holding him personally liable, but the Court was unimpressed on both counts and dismissed the seller’s claim.

The risk for trustees

As the Court pointed out, the seller could have sued the trustee personally not for the purchase price as such, but rather for damages arising from the trustee’s “breach of warranty”.

There’s a warning there for all trustees – you risk a damages claim in your personal capacity if you don’t make sure that you are fully authorised to sign, that you hold the necessary letter of appointment from the Master of the High Court, that your trust has the power to do whatever you are binding it to do, and that all the terms of the trust deed have been complied with.

And a lesson for property sellers and buyers

On the other hand the seller, to succeed in such a damages claim, would have had to prove the extent of its loss, causation of that loss, mitigation of its damages and so on. Its position would have been much clearer, safer and easier had it, before signing the sale agreement –

  1. Checked for all the necessary signing authorities, compliance with the  trust deed etc (prevention being as always better than cure), and
  2. Inserted a clause giving it clear and strong personal remedies against any unauthorised trust signatory.

The same advice applies of course to anyone buying property from a trust.

Mistakes here will be expensive – take legal advice before you sign anything!

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SECURITY ESTATES: ARE YOUR RULES ENFORCEABLE?

“It is well established that contractual provisions are against public policy ‘… if there is a probability that unconscionable, immoral or illegal conduct will result from the implementation of the provisions according to the tenor’” (extract from judgment below)

When you choose to buy into a security estate or other community scheme, you will invariably become a member of a Home Owners Association (HOA), Body Corporate or the like, and you will be bound to comply with all its rules and regulations.

It’s essential to check that you are happy with them all before you buy because our courts have often confirmed that you will be held to whatever you agree to.

But there are limits, as a recent High Court judgment illustrates…

Speeding fines and dusk-to-dawn curfews

  • A large Golf Estate, comprising a mix of freehold and sectional title properties with extensive common areas and communal facilities, included in its Conduct Rules two sets of provisions –
    • Enforcing a 40 km/hr speed limit on estate roads, and
    • Restricting domestic employees to, amongst other controls, a 6 p.m. to 6 a.m. curfew, limited use of estate roads, and annual renewal of access cards.
  • A homeowner locked horns with the Estate over its enforcement of these rules, initially around its suspension of his and his family’s access to the Estate (and thus to their own home) over unpaid speeding fines.
  • The Court held that both sets of rules are unlawful and invalid, but gave the estate 12 months to regularise them.

First set of rules:  Speed limits and traps

Holding that although the roads in question are within the estate’s boundaries they are still “public roads” as defined in our Road Traffic laws, the Court held that the Estate could not lawfully impose speed limits nor enforce them without the necessary authority from the relevant MEC or municipality.

The Court suspended its invalidity ruling for 12 months to allow the Estate time to apply for such authority. Presumably that’s likely to be given to the extent that the authorities consider the rules to be reasonable in light of the Estate’s expressed need to protect children, pedestrians and wildlife on the roads.

Second set of rules: Restrictions on domestic employees

These, held the Court, severely restricted the constitutional rights of the employees in question and affected their basic rights to human dignity, equality, freedom of association, freedom of movement, freedom of occupation and fair labour practices. “Their position within the estate”, said the Court, “is reminiscent of the position that prevailed in the apartheid era: while they are good enough to perform domestic duties for their employers on the estate, which include the task of pushing perambulators on the roads, they are precluded from exercising any rights derived from public law and the Constitution.”

Thus, held the Court, “to the extent that these rules restrict the rights of domestic employees from freely being on and traversing public roads in the estate, I consider them to be unreasonable and unlawful.”  This invalidity ruling was also suspended for 12 months.

A warning to all estates

All HOAs and Bodies Corporate need to check their rules and regulations for legal validity.  The Court again: “If in fact there are other associations and/or estates in the country who, like the first respondent herein, either through ignorance or plain arrogance on their part, have seen it fit not to comply with statutory provisions, it’s time that they did.”

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SELLERS AND LANDLORDS: USING AN UNREGISTERED ESTATE AGENT

With media reports suggesting that up to 50,000 agents may be operating without the required Fidelity Fund Certificate (FFC).  The real figure is likely to be a lot less in that many former agents have probably just closed up shop in the last 10 years, but even so there is a chance that the agent who sold or rented out your house for you is (whether inadvertently or by design) unregistered.

Using an unregistered agent …

  1. Only registered estate agents (and those practicing attorneys not required to register as agents) have the legal right to claim remuneration/commission.  So an unregistered agent won’t be able to enforce any commission claim against you.
  2. Of course you would then stand to save a great deal of money in commission.  The question is, should you take the risk of not checking upfront?  It boils down to this – can you afford to trust your most important asset to someone who may not be registered with a professional body and backed by a Fidelity Fund?

For most of us the best advice is to rather err on the side of caution.  Check for registration, and in any doubt ask your lawyer for help before agreeing to anything.

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PLOT-AND-PLAN: GREAT OPTION, JUST BEWARE THE BUILDING DEADLINE

“Buy land, they’re not making it anymore” (Mark Twain)

Buying a house is an important and exciting experience.  One of the first decisions you must make is whether to buy an existing house (the “turnkey” option) or to buy from a developer on a “plot-and-plan” (“off-plan”) basis.

Which option is best for you only you can decide, but with the popularity of security estate living soaring and with the flexibility of creating your own dream home, off-plan is an increasingly attractive choice both for investment and for lifestyle.

Just remember that the many benefits of “buy and build” come with some important cautions.  Apart from practical considerations, there are many legal pitfalls to watch for, so have your lawyer check the agreements (normally two – one to buy the plot and the other to build the house) before you sign anything.

The building deadline – benefit and risk

One area to be particularly aware of is the common requirement that you build on your new plot within a certain period of time.  In fact as a buyer you should check for such a requirement – otherwise you could be subjected to years of construction activity in the estate with all the attendant noise, dust, inconvenience and security concerns.

Your risk is that, to enforce such time limits, developers commonly provide for defaulting buyers to be subject to penalty levies and/or buy-back/retransfer clauses entitling them to take back the plot.

A recent Supreme Court of Appeal (SCA) judgment provided strong warnings in this regard for both developers and buyers.

Developers – the perils of prescription

  • Two buyers of plots in a large estate failed to build on them within the required 18 month period (this requirement was registered on their respective title deeds).
  • Their sale agreements entitled the developer to take back the plots against repayment of the purchase price (without interest) and the developer asked the High Court to order re-transfer to it accordingly.
  • The SCA on appeal held that the developer’s claims had prescribed (become unenforceable) because it had waited more than three years before taking legal action.
  • The three year period applied, said the Court, because the developer’s right was a “personal right” not a “real right”.  The difference between the two is of great interest to lawyers, but all that really counts for developers and buyers is that the developer should have enforced its retransfer right within three years of the deadline date by which the purchasers were required to have built a house.

Bottom line for developers: Don’t delay in enforcing buy-back clauses!

Buyers – developers can enforce buy-back clauses

An earlier High Court decision, involving the same developer and the same clause but another buyer, had held that the buy-back clause was “grossly unfair”, and that such clauses generally “do not pass constitutional muster”.   Which led to speculation that buy-back clauses might be dead in the water.

Not so.  The SCA commented that the High Court should not have considered the question of constitutionality at all in the particular circumstances of that case, so (for the time being at least) buy-back clauses remain enforceable.

Bottom line for buyers: You could lose your plot if you don’t build by deadline.

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SELLING PROPERTY THIS FESTIVE SEASON? 3 TIPS FOR A SMOOTH TRANSFER

The Festive Season can be a great time to sell property, and to buy it.  Warm weather, sunny gardens and bright rooms, lots of holidaying visitors, and more time on your hands generally all help to stimulate the property market.

Just bear in mind that, Summer Holidays or not, whether you are selling a property or buying one, you want the whole process to be handled professionally and smoothly, with as little delay as possible.  After all, both of you are dealing with what is probably one of your most important assets.

Here are some tips to help you achieve that smooth and hassle-free transfer

  1. Choose the right conveyancer

Central to ensuring that all goes well is the choice of which conveyancing attorney you nominate to carry out the specialist task of transferring the property from the Seller’s name to the Buyer’s. Choosing a conveyancer is one of the things that is technically up for negotiation, but as a seller, you should always insist on making the choice.

Why?  You carry more risk than the buyer who, having to raise the purchase price within an agreed time period, is more likely to default or cause delay in the process than you are.  Moreover it is your asset – your house – at stake, so it makes sense to have your own attorney directing the process and ensuring that the purchase price is fully paid or secured.

The fact that the buyer invariably pays the costs of transfer isn’t relevant here.  A nervous buyer can always appoint his or her own attorney to keep a watching brief on the transfer, although – unless and until a dispute arises – that really shouldn’t be necessary seeing that conveyancers have a professional duty of care to act fairly to both parties.

Bottom line – as a seller, choose an attorney you can trust to act with speed and integrity.  And don’t be persuaded by anyone to give up your right to do the nominating!

  1. Avoid any possible uncertainty

Clearly record your choice of attorney in your written sale agreement.  Otherwise you could be opening the door to dispute.  That’s true for all provinces but is a particular risk in KZN where historically the buyer had the choice if the agreement was silent on the matter (the current legal position on that is uncertain).

  1. Bring your attorney into the picture from Day One

Sellers in particular should remember this basic principle – agree to nothing (verbally or in writing) until your lawyer has checked it out for you!  A lot can go wrong with property sales, from your initial choice of who to appoint to find a buyer for you, through to the wording and signing of the agreement of sale itself.

Our law reports are bursting at the seams with bitter, expensive and disruptive legal disputes which could have been avoided had the parties sought legal assistance before putting pen to paper.

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RIGHT OF FIRST REFUSAL

Many people have heard of “right of first refusal” on their property rental contracts, but what does that mean, and how does one exercise this “right”?

In essence, it is a legal agreement between and Landlord and a tenant, that should the landlord ever decide to sell the property, the tenant has the first opportunity to make an offer to purchase the then rented property. This is often to the advantage of both parties, as tenants get to purchase a property they like, and the landlord saves time in securing a buyer.

But, with all legal documents there are complicities, for more on this aspect read:
http://www.bizcommunity.com/Article/196/569/170753.html

For quality guidance on your legal matters, contact Goldberg & de Villiers Inc. on (041) – 501 9800

Sale of your house: What about the tenants?

In our law the rights of tenants are protected when a property is sold. The new owner is obliged by law to take over any existing lease agreement in respect of the property and will become the new landlord until the lease terminates.

Tenants cannot be requested to vacate the property because of the sale thereof. The existing lease agreement must be lawfully terminated or cancelled in terms of the provisions of the lease agreement. These aspects must be kept in mind when a property that is subject to a lease agreement is sold.

Provision must be made for rental to be remitted to the new landlord and a possible refund of rental paid in advance to the previous landlord must also be arranged. If a deposit was paid arrangements should also be made to pay this over to the new landlord.

For advice or assistance contact our professional team on Tel 041 5019800.

 

 

I BOUGHT A HOUSE, BUT CHANGED MY MIND. CAN I CANCEL MY AGREEMENT OF SALE?

 

There are some instances where the agreement of sale lapses, and does not need to be cancelled.

This happens when the sale is subject to a suspensive condition (for instance, the approval of a mortgage bond, or sale of the purchaser’s property) to be fulfilled within a certain time period, and that time period expires without the condition being fulfilled.

In this instance, no cancellation is necessary, as the agreement of sale automatically lapses.

Once the suspensive conditions have been fulfilled, and a valid and binding agreement of sale has come into existence, then cancellation would need to take place if you no longer want to proceed with the sale. In this instance, it is recommended that you take advice from a property law expert.

Bear in mind that if you are the purchaser and the sale is subject to you obtaining a mortgage bond or selling your existing property, you are obliged to do whatever is reasonably possible in order to obtain such mortgage bond or sell your property, and cannot rely on the lack of fulfilment of the suspensive conditions in order to withdraw from the sale.

Unlawful cancellation may bring about a damages claim, and entail lengthy and costly litigation, so it is always a good idea to get advice from a property lawyer / conveyancer.

More restrictions may be imposed: Demolition of buildings older than 60 years

A provincial heritage resources authority may when it permits the demolition of a 60 year old building also impose conditions as to how the property may be developed in the future to conserve heritage resources.

In terms of the National Heritage Resources Act 25 of 1999, (the Act), no person may alter or demolish any structure or part of a structure which is older than 60 years without a permit issued by the relevant provincial heritage resources authority. In terms of a recent court case the provincial heritage resources authority granted a demolition permit in terms of the Act for the demolition of a structure older than 60 years situated on a property. The building had no formal heritage status yet the authority also imposed conditions controlling future development on the property. The owner of the property applied to court to review the conditions that were imposed on the basis that they were ultra vires the powers of the appeal tribunal and heritage authority. The court found that s 48(2) of the Act gave a wide discretion to the appeal tribunal and heritage authority to impose terms, conditions, restrictions or directions in the permit and held that such conditions were lawfully imposed.

The owner of the property also argued that conditions controlling future building or development on the property, permits the arbitrary deprivation of property contrary to the provisions of s 25(1) of the Constitution.

The court found that although the curtailment of the owner’s right to deal with his/her property may to a certain extent be regarded as a deprivation of property it was not arbitrary. The court stated that in our present constitutional democracy an increased emphasis has been placed upon the characteristic of ownership which requires that entitlements must be exercised in accordance with the social function of law in the interest of the community. The conditions in the demolition permit stems from the purpose of the Act namely the conservation of a heritage resource. (Gees v Provincial Minister of Cultural affairs and Sport, Western Cape and Others (974/2015) [2016] ZASCA 136; 2017 (1) SA 1 (SCA) (29 September 2016)).

For advice or assistance contact our professional team on Tel 041 5019800.

Right to a View?

South African law does not recognise an inherent right to the existing view from a property. A beautiful view is considered a mere incidental advantage of property ownership and not an actionable right. Views can be protected by registering a servitude, restrictive title conditions or through contractual provisions. The wording of such a servitude or restrictive condition should be clear and as wide as possible to prohibit obstruction by buildings or plants.

Neighbours often use the provisions of the National Building Regulations and Building Standards Act 103 of 1977 to object against building plans relating to buildings that would obstruct the views of their property. In terms of section 7(1)(b)(ii) of the National Building Regulations and Building Standards Act 103 of 1977, a municipality is compelled to reject building plans if the value of a neighbouring property would diminish because of the specific nature or appearance of the proposed building.

However, case law has established that building plans do not have to be rejected even if the proposed buildings would obstruct a neighbour’s view from his/her property.

Know your rights! For advice or assistance contact our professional team on Tel 041 5019800.