New blog posts
6 March, 2019 by Greg
Demystifying the proposed Rental Amendment Act...
8 January, 2019 by Debi
Finding out how much you can afford before...
8 January, 2019 by Debi
The imminent FICA Amendment Act adds new...
Interesting legal snippets...
The Community Schemes Ombud Service Act
The Community Schemes Ombud Service Act requires each community scheme to pay an annual levy to fund the ombud service and authorises the Minister of Human Settlements to determine the levies and fees payable to the ombud.
In terms of the draft regulations released on October 3, the annual levy will be based on the municipal valuation of each unit in a community scheme (see table at link below). Units with a municipal value of up to R500 000 are exempt from the levy. Thereafter, the levies start at R3.40 a month, or R40.80 a year, and increase to R68 a month, or R816 a year, for units with a municipal value of over R2.25 million.
The scheme is responsible for paying the ombud service levies, not the unit owners in the scheme. The scheme will have to collect the levies from owners and will have to budget for them. Regular owners’ levies may have to be increased to take the ombud service levies into account.
Schemes must pay their levies to the ombud service by September 30 each year, or on a date determined by the chief ombud.
A community scheme that fails to pay the levy will be liable for interest, which will be charged at a rate that is one percentage point higher than the prime lending rate, compounded monthly in arrears.
An application for the ombud service to intervene in a dispute must be accompanied by a fee of R50. If the dispute is referred to an adjudicator, there is an additional fee of R100. People with a net monthly household income (gross income less pay-as-you-earn tax) of less than R5 500 are entitled to have both fees waived.
Community schemes or individuals who do not meet the above criteria for the waiver of annual levies or fees may nevertheless qualify for a waiver or discount if they can prove to the chief ombud that paying the levies or fees would cause them financial hardship. They will have to submit a breakdown, on a prescribed form, of their income, expenses and assets.
Disputes submitted to the Community Schemes Ombud Service will be settled by full-time and part-time conciliators and adjudicators; neither the chief ombud nor a regional ombud will be involved in deciding disputes.
Adjudicators’ orders will be enforced as if they were judgments of a magistrate’s court or the High Court, depending on what court would have dealt with the dispute in the absence of the service.
The service has jurisdiction over all community schemes, not just sectional title schemes (see “What is a community scheme?”, below), and it can settle disputes involving occupiers – including tenants – not only owners.
The ombud service was established in 2013 and has been recruiting and training staff since then. Although the service has not officially opened its doors to the public, it is accepting complaints and mediating between parties.
In addition to providing a dispute-resolution service, the Community Schemes Ombud Service will be responsible for monitoring the quality of the documentation that should regulate how community schemes are governed and what owners and residents can and cannot do – for example, the management rules and conduct rules in a sectional title scheme.
The service is also required to perform an educational function, informing owners, occupiers and executives of community schemes of their rights and obligations.
The draft regulations state that all community schemes will have to register with the ombud service and provide it with its governance documents (such as its rules or constitution). By October 31 each year, each scheme must file a prescribed return with the ombud. The return must include the scheme’s annual financial statements, and the names and contact details of its managing agent and members of its executive committee.
WHAT IS A COMMUNITY SCHEME?
A community scheme is an arrangement where the land use is shared and where there is shared responsibility for the land and buildings. The Sectional Titles Schemes Management Act states that such a scheme includes:
* Sectional title schemes established under the Sectional Titles Act;
* Share-block companies governed by the Share Blocks Control Act and the Companies Act;
* Homeowners’ or property owners’ associations, whether constituted as companies under the Companies Act or as common-law associations;
* Housing schemes established in terms of the Housing Developments for Retired Persons Act; and
* Housing co-operatives established under the South African Co-operatives Act.
New sectional title legislation: What owners and investors must know
New legislation that was gazetted last month has major implications for the budgets and administration of sectional title schemes. Find out how they will affect you.
Many cash-strapped South Africans are already struggling with spiralling consumer inflation and shrinking budgets, but scores of sectional title property owners are now also faced with hefty levy hikes if their body corporates haven’t made provision for the requirements of new legislation gazetted in October.
Schemes now need to have cash in a reserve fund
One of the new stipulations of the Sectional Titles Schemes Management Act is that schemes are now required to have a reserve fund, suggested (but not yet confirmed) to be an amount equal to 25% of the projected annual levy figure.
Efficient, well-organised body corporates should have already started accumulating this money, since this amendment to the act was announced back in 2011.
An end to special levies
The aim of this legislation is to ensure schemes create “rainy day” funds and shield home owners from the special levies that body corporates demand from time to time when major repairs or refurbishments take place. Once-off special levies are usually hefty and aren’t in most cash-strapped home owners’ budgets, often plunging households into debt to service them.
While numerous developments have already created their required level of reserves or are well on the way to doing so, there are also many schemes that have not used the grace period to add small top-up increases to annual levies and home owners in those schemes now face the prospect of substantial levy hikes next year while Trustees play administrative catch-up.
In real terms, though, what does this mean for existing owners and prospective buyers of sectional title properties?
Specialist Conveyancing Attorney Peet van Rooyen of Dykes Van Heerden Inc explains: “The reality is that property owners could see their levies increase by up to 25% initially until adequate reserves have been accumulated. This is in addition to the standard fixed annual increases required to cover the rising costs of maintaining the development.
The reality is that property owners could see their levies increase by up to 25% initially until adequate reserves have been accumulated
“Once the reserve fund has been adequately established, provision has been made for lower contributions, but owners can expect reserve fund levies to be charged, unless the value of the reserve fund is equal to 100% of the scheme’s total levy budget.
“Regulation 2 of the act also stipulates that, if the reserve fund is less than 25% of the previous year’s maintenance contributions, at the start of a new financial year, the owners in the scheme must add 15% to their total levy budget for the coming year as a contribution to bolster the reserve fund.”
Van Rooyen adds that if, at the end of the financial year, the remaining reserve funds are less than 100% but more than 25% of the value of the past year’s administration fund contributions, then the contribution to this fund must be at least equal to the repair and maintenance budget which has been formulated for the coming financial year.
Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, says that while the intent of the new regulations are laudable, their implementation and management require a whole new level of administration and accountability, and trustees will have to raise their game considerably to achieve and maintain compliance.
“Not only are separate records, budgets and bank accounts mandatory for the general levy and the reserve fund; they must be independently audited every year by an impartial person or company not involved in the scheme’s financial administration.
“Trustees must also prepare a detailed written 10-year plan for the use of the reserve fund, and report back to owners annually on its progress and implementation and more often than not, this document will have to be prepared by an outside consultant with the necessary expertise at an additional cost to owners.”
Geffen adds that the complexities of implementing the new requirements are compounded by a very short window of 90 days in which to meet seven of the key requirements.
“These include registering the scheme and lodging all governance documentation with the Community Schemes Ombud Service (CSOS), establishing a reserve fund and opening a separate bank account as well as compiling and submitting the new fund’s budget and financial statements.
“Many of these steps are time-consuming and involve reams of documentation as well as a level of expertise that smaller schemes with more simply structured body corporates will struggle to complete in time.”
Arnold Maritz, Cape Town Southern Suburbs Co-Principal for Lew Geffen Sotheby’s International Realty, stresses that it is now essential for prospective buyers to add scheme management to their list of priorities when choosing property, especially investors with budget restrictions.
“Sectional title levies cover various expenses such as insurance, administrative fees and the maintenance costs of the common property and on-site facilities, and it must be remembered that the more amenities there are and the larger the grounds, the higher the levy.
First-time buyers on a tight budget should therefore look for low maintenance schemes that are well run and maintained, and whose financial statements are in good order.
Request a copy of the financial statements, and look for the presence of a reserve fund as well as any adverse figures for non-payment by other owners in the complex.
“Sectional title properties will remain the more affordable option and they will continue to attract first-time buyers. However, it is essential that prospective buyers don’t just look at the property and the purchase price.
“They have to take the new Act and its financial implications into consideration when calculating their budgets and decide what they can afford in the long run, including any substantial levy increases. There is a very apt Afrikaans phrase that applies here, which is that sometimes goedkoop is duurkoop – or directly translated, buying cheap initially doesn’t always cost less long term.”
Maritz adds that it’s also a good idea to compare the levy for the subject property with those in similar complexes nearby on a “per square metre” basis as this will help to establish a balance between the lowest levy payable versus the expected capital return on the investment.
Matthew Raubach, Sectional Title and Area Specialist for Lew Geffen Sotheby’s International Realty between Wynberg and Lakeside says: “We have been lucky enough to predominantly sell property in blocks that have been well-managed and that already have established reserve funds with a healthy balance.
“What this has highlighted for us is how beneficial effective management is to sectional title schemes, not only in the short term but also to the value of owners’ investments. It is now even more critical and smaller schemes without the necessary resources or expertise would benefit by appointing an experienced managing agent.”
Shaun Groves, Gauteng Rental Manager for Lew Geffen Sotheby’s International Realty, believes that many Johannesburg sectional title owners are in for a nasty surprise.
From what I have seen, it appears that the majority of schemes have not planned accordingly and I have no doubt that many owners are going to feel the pain of increased levies which will compound the struggle to realise yields in a notably subdued rental market.
“This year has been particularly tough as yields have come under severe pressure and any increase in the operating cost of a property will have a direct impact on net profits. Landlords may look to offset this by increasing rentals, therefore pushing prices up and putting even more pressure on consumers.”
The rental market in Cape Town is much stronger and in the most sought-after areas, demand in the lower to middle markets now exceeds supply. However, rental prices have dropped this year in response to the continued economic downturn, with tenants also becoming increasingly educated about the market and aware of current pricing.
This is according to Lorraine-Marie’ Dellbridge, Rental Manager for Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs who adds: “I have seen a number of leases including clauses that if levies or rates increase the landlord may adjust the rental accordingly but I would advise against it as a blanket practice, especially if they risk losing stable and reliable tenants.
“Not only will the landlord have to go through the onerous process of finding a suitable new tenant, it could be costly if the house stands empty which is a real possibility if the increase prices the property out of its current market.”
Van Rooyen concludes: “While it may be daunting, especially for schemes that have only just begun the process, it must be borne in mind that the home owners are members of the body corporate and in terms of their governing rules as prescribed by the new regulations, they have to approve the annual administration and reserve fund budgets.
“So whilst increases may be unavoidable for many schemes, the trustees cannot just increase the levies arbitrarily. Home owners are not entirely powerless here; they do have a voice.”
How much power does a body corporate chairman have?
A body corporate chairman does not have any more power than other trustees. A chairman who believes that he does can cause havoc in the body corporate.
Why is it that some people assume that they have absolute power simply because they hold the title of body corporate chairman? Do they link the word ‘chairman’ to something akin to the title bestowed upon those at the top of their game in the corporate world? Or do they mistakenly believe that they hold all the body corporate cards and that trustees are simply there to do their bidding? We're not actually sure, but what is abundantly clear is that having someone who views themselves as some sort of demigod is going to cause havoc with any body corporate.
Beating around the bush
We recently received a call from a disgruntled homeowner who bemoaned the fact that his body corporate was unable to instruct the complex’s gardener to perform the most basic of tasks without first obtaining the approval of the chairman. As crazy as it sounds, in one instance the trustees were forced to send photographs of an overgrown bush to the chairman (who in this instance didn't live in the complex) in order for him to grant ‘permission’ to cut back the offending shrubbery.
It's not the only story we've heard regarding body corporate chairmen who think they wield some almighty power and rule with a rod of iron. There have been cases where the chairman has decided that he didn't want children in the complex and went all out to make those families’ lives an absolute misery. The first to leave were the tenants, but eventually other homeowners who didn't understand their rights sold up and moved on in order to get away from the constant harassment.
So, what power does a chairman have?
It's important to note that a body corporate chairman has no more power than does any other trustee. What he does have, however, is the power of a swing vote in the case of a deadlock. An example of how this works: say half of the body corporate members decide they want to install a swimming pool on the common property. However, the other 50 percent of the homeowners don’t want the pool and this results in a tied vote. In this instance the chairman could use his vote to either veto the proposal or he could add his vote to those who want to have the pool installed. If on the other hand 55 percent of the homeowners decided they didn't want to install a pool, the body corporate chairman could not insist that the project go ahead. In other words, the chairman cannot take a decision to build a swimming pool on the common property and steamroll the decision through. The issue must be put to the vote and if the nays outnumber the ayes, the pool may not be built.
Electing the right kind of body corporate chairman is therefore imperative for the smooth running of a complex. We are not for one moment suggesting that every body corporate chairman is some sort of megalomaniac. While there are some highly competent individuals who run large sectional title complexes in exemplary fashion, on the flip side there are some whose behaviour leaves a lot to be desired. For this reason it's vital for people who own units in sectional title schemes to fully understand their rights and to stand up to anyone who assumes they have more power simply because of their title.
Who pays the special levy when a property is being sold?
The payment of a special levy does not pass on to a buyer if the seller was still the registered owner of the property when the levy was raised.
The payment of a special levy does not pass on to a buyer if the seller was still the registered owner of the property when the levy was raised.
Everyone who lives within a sectional title scheme has to pay levies on a monthly basis. This is understandable as the complex or block concerned has to be maintained. Levies are generally calculated by the trustees of a body corporate at the beginning of the financial year in order to budget for the day to day running of the scheme. However, things can and sometimes do go wrong and there could well be times that additional money is required in order to fund unexpected issues within the complex or apartment block, these are referred to as special levies.
“Section 37(2A) and prescribed Management Rule 31(4B) of the Sectional Titles Act provides the trustees of the body corporate of the sectional title scheme with the discretion to determine special levies by passing a resolution to that effect,” says Mark Robertson, an attorney with Barry, Botha and Breytenbach Inc.
He says the trustees can, however, only pass a resolution for a special levy if they adhere to the following two requirements. The first requires the special levy to be necessary - this means that it must be urgent and cannot wait to be included in the next financial year’s budget. The second requirement is that the expense may not already have been included in the annual budget of the scheme. The trustees further also have the discretion to state whether the special levy should be paid in a lump sum or in installments over a certain time period.
“Generally speaking, special levies are for emergencies only and as such are aimed at dealing with unforeseen expenses or expenses that have been inadequately catered for in the annual budget. They should not be used for maintenance expenses which must be included in the annual budget of the sectional title scheme.”
Whatever its purpose, if the resolution is validly passed, the owner of a sectional title unit will have to pay the special levy. So does this mean that someone who buys into a sectional scheme will automatically be liable to pay a special levy that was implemented before the sale of the property went through?
Robertson notes: “The Sectional Titles Act provides that the person who is the owner of the sectional title unit at the time of the passing of the resolution for the special levy is liable for the full amount of this levy. This means that should a special levy be passed and an owner sells his unit thereafter, that owner remains liable for the full payment of the special levy before the unit can be transferred to the new owner. The Body Corporate of the sectional title scheme can even make such payment a condition for the issuing of the Levy Clearance Certificate needed to enable the transfer of the sectional title unit.”
It does, however, pay to remember that a seller may include a clause in the Deed of Sale stating that any special levies raised after the date of acceptance of the offer to purchase will be paid by the purchaser. In these instances, the purchaser would have to pay the special levy in order to obtain the clearance certificate from the body corporate.
Land Rights Act declared invalid by Constitutional Court
New land claims have been put on ice for now after the Constitutional Court declared the Restitution of Land Rights Amendment Act of 2014 invalid. The ruling may well signal the beginning of a new and protracted debate on the matter.
What the Act is about
The Restitution of Land Rights Amendment Act of 2014 reopened the land claims process in 2014 after the first window for land claims closed in 1998. Approximately 79 696 claims were lodged during the first claims window, of which approximately 78 750 have reportedly been settled. As per the Amendment Act, the window for restitution claims was extended until the 30th of June 2019. Approximately 75 000 – 80 000 land claims have since been lodged.
Why the ConCourt declared it invalid
The Constitutional Court ruled that a lack of adequate public consultation took place in respect of the Amendment Act. The ruling effectively puts a stop to new land claims and puts on ice the land claims submitted after July 2014.
According to reports, the Amendment Act was “rushed” through parliament in 2014 ahead of the national and provincial elections. Concerns were raised at the time that government had not sufficiently taken into account the massive cost the Amendment Act would place on the state to deal with a raft of new claims. Critics also said the new claims would affect the state’s capacity to finalise old claims, some of which hadn’t been dealt with for more than a decade. Others suggested that the legislation was pushed through with a view to garnering support for government ahead of the elections.
Whatever the case, the Amendment Act seemingly no longer applies – at least in its current form that is. The Constitutional Court’s Justice Mbuyiseli Madlanga found that while the National Assembly’s consultation process was constitutional, the “timeline of process” undertaken by the National Council of Provinces was (NCOP) “inherently unreasonable.” Indeed, Madlanga stated that the NCOP’s failure “taints the entire legislative process and is a lapse by parliament as a whole.”
What happens with land claims now?
While new claims can no longer be processed, claims that were lodged under the Amendment Act won’t just disappear. These claims can be dealt with if and when parliament re-enacts the legislation. The Constitutional Court’s order also allows for new claims to be processed once all the old ones have been finalised. If parliament does nothing to revive the legislation within two years, the Constitutional Court may be approached once again for an appropriate order.
Due to the possibility of a land claim, the majority of farmers are not expanding their agricultural activities at present.
It’s clear the matter needs to be dealt with sooner rather than later which would offset further uncertainty for all those concerned. That said, it needs to be dealt with in a balanced manner. In 2015, Freedom Front Plus (FF Plus) MP Pieter Groenewald shared his thoughts on the matter which are worth considering in the overall context of the land restitution debate.
He said: “The FF Plus has already warned that the re-opening of land claims will create great uncertainty in the agricultural sector. New claims will result in claims taking many years to finalise.
“Due to the possibility of a land claim, the majority of farmers are not expanding their agricultural activities at present. Currently, the South African commercial agricultural sector needs certainty about the future to ensure, through new investments and developments, that enough food is produced for everybody in the future.
“What South Africa needs at present is [to know] that agricultural land which has already been transferred to new black farmers, [will] produce food successfully. South Africa needs more successful commercial farmers. Nine out of ten successful land claims have resulted in failure, according to figures provided by Minister Nkwinti. We cannot afford [to let] fertile land [to] become unproductive while the population is growing and more food is needed daily.”
Be prepared for the "biggest land claim"
When the land claim process re-opens (which in all likelihood will happen), Zulu King Goodwill Zwelithini said he would lodge the “biggest land claim” for all the land in KZN, as it had once belonged to the Zulu Kingdom. Needless to say it will be interesting to see how that claim and the other claims will be handled going forward and what impact they will have on South Africa both individually and as a whole.
Credits; Jackie Gray-Parker
Is Your Landlord Responsible for Providing Security?
Both the Rental Housing Act and consequent Unfair Practices Regulations are clear on the landlord’s responsibility to offer a property both ‘reasonably fit’ for the purpose for which it has been let and to ensure the property is habitable.
Rea says security is a matter very close to the hearts of South Africans and it is imperative at the time of renting a property that a tenant assesses the level of security before committing to a lease.
This is according to Grant Rea, Certified Residential Rentals Specialist at Remax Living, who says, however, the big question remains - is providing security like burglar bars, perimeter sensors, alarms and other forms of security an obligation of the landlord and can a tenant reasonably expect this?
The level of security offered by a landlord, in terms of the fixtures of a property rented to a tenant, is a matter that a matter that often arises in tenancies, says Rea. “On face value, it would not be an obligation of a landlord to offer more than doors and windows that adequately lock and close. However, in this day and age with escalating domestic crimes and break-ins, it may be deemed reasonable for a tenant to request at least a security gate or access control measures.”
“Furthermore, in the instance where the tenant is willing to cover such expense to ensure their own safety, could this request reasonably be denied by the landlord?”
He says security is a matter very close to the hearts of South Africans and it is imperative at the time of renting a property that a tenant assesses the level of security before committing to a lease.
“Sadly in this country, the safety of a rented home is the responsibility of the tenant, unless they can possibly demonstrate that the property is genuinely uninhabitable due to the level of security offered.”
A question often asked by clients is “who is responsible for repair in the event of a break-in?” Since the damage caused is beyond the control of the tenant, the landlord would usually be liable for repair in this instance and can approach their individual insurer to cover such cost of repair. It further stands to reason that the tenant is responsible to insure their own personal belongings, as the landlord is not responsible for these.
“Another point of conflict we come across in tenancies is when a property is let with an alarm system. It is imperative that the tenant enquire about the state of repair of the alarm and even arrange that it be tested and assessed by an alarm specialist. The landlord cannot be assumed to be offering a state-of-the-art alarm installation, as the property is often let as is and the functioning of the alarm is often not pertinent to the property being ‘unfit’ for tenancy,” says Rea. “However if a landlord makes warranty that the current installation is functioning and it is in fact not, the landlord can be found liable if a breach of security results in losses to the tenant. Essentially the wording of each tenancy is crucial to ensure obligations of each party are outlined.”
Rea says by saying that in short, a tenant it is advised to negotiate increased security measures upfront with a landlord or agent. Many landlords may just be open to sharing such cost, provided the installation is left in the property when the tenant vacates.
Tenants and Landlords: How to Handle Renting With Pets
One of the more delicate and contentious issues in leases in South Africa is the debate surrounding pets in a rental property and the restriction of keeping pets within a lease and how reasonable this is.
The debate is a sensitive one because many consider their pets as they would any other family member, and being restricted from keeping pets gets people rather heated and flustered.
The debate is a sensitive one because many consider their pets as they would any other family member, and being restricted from keeping pets gets people rather heated and flustered.
“As a Residential Rental Specialist, I deal with the matter almost monthly,” says Grant Rea at Remax Living. “Many landlords simply disallow pets entirely, eliminating a large percentage of people from their potential pool of tenants. This is a particular issue in Cape Town where many people are ardent pet owners.”
He adds often people argue that if a pet is not a nuisance or is not hindering the enjoyment of other residents, the permission cannot reasonably be withheld. While this argument has merit, the property owner still maintains the right to withhold this permission.
Where a lease is silent on the matter it becomes more complicated, especially if the tenant did not have a pet at the commencement of the lease but acquired one later, he says. “In my opinion, the landlord would have to demonstrate how the ownership of the pet may be prejudicial to either him or the property. However there is currently no law that covers any rights to pet ownership in the tenancy scenario. If the landlord agrees to the tenant keeping the pet, it would not be unreasonable for a landlord to ask for an addition to the lease pertaining to the behaviour of the pet and potential damages. So naturally a clause regarding pet ownership is essential in the lease.”
From a landlord’s perspective, if and when they decide to allow pets, either in a ‘pet friendly’ sectional title unit or freestanding home, it is important to clearly highlight the conditions for such permission to the tenant. As a tenant, it is vital to not keep the pet a secret from the landlord and get clear written permission before moving into the property. Tenants should be upfront with their landlords and let them have as much information about the animal as possible. This information could include a picture, confirmation of sterilisation and inoculation details, breed and temperament.
“Our standard rental agreements are clear on the pet owner/tenant’s responsibility in keeping the pet under control at all times. The tenant also needs to ensure their pet does not cause a nuisance or cause damage, failing which the tenancy may be terminated or the pet needs to be rehomed,” explains Rea.
He adds that many owners in sectional title developments are restricted from keeping any pets in terms of the Conduct Rules, however, this may on occasion be overturned with explicit permission from the trustees. “This is becoming less prevalent as developments are simply clamping down on pets being allowed in blocks at all. Often conflict arises when existing pets are seen in the complex and new tenants assume a precedent has been set, so decide to acquire a pet or rent a property without checking on house rules on pets beforehand,” says Rea.
He adds that if a tenant has pets, they need to consider whether the rental property is in fact suitable for their pet. Many smaller apartment spaces are simply inadequate for most dogs, but may be suitable for smaller caged animals or cats if they are house trained. “Ideally, as a tenant with a pet, simply avoid properties that are not advertised as being pet friendly,” advises Rea.
“Generally pets can result in much conflict at the end of leases, with dogs often the cause of damage to the gardens, wooden floors and the like. Flea infestations, the remnants of pet hair or foul smells and damage to carpets often crop up too. It is highly advised that landlords request and hold a larger deposit when pets are allowed,” says Rea.
Tenants and Landlords: Beware Hazard Of Damp and Mould
Bricks and mortar provide us with protection from an increasingly harsh environment. But what if your haven of safety, your home, could unknowingly be causing you harm?
The extent to which mould affects someone’s health is dependent on the type of mould, the amount of mould present together with the individual’s sensitivity to it and their existing state of health.
Although a patch of mould may seem harmless as it first spreads into view, it can invade far more than the musty corners of a room. In fact, it poses a real threat to human health.
In 2009, a celebrity couple died only months apart, both from pneumonia and anaemia which were reported to be a result of the extensive mould found in their Los Angeles mansion.
Older properties are at risk
Michelle Dickens, managing director of TPN Credit Bureau, describes a serious case of mould that TPN attorneys dealt with in 2011. She says it was a stately home built in the late 1970s, with the quintessential wooden floors and pressed ceilings.
Although the family renting the property loved all the old features, something was amiss from the beginning. Their concerns were confirmed when the mother suddenly became ill.
No matter how many doctors were consulted, Dickens says no one could treat the seemingly incurable ailment that plagued her. It was only during the second biopsy that her doctors discovered mould spores in her lungs.
The family immediately moved out of the rental property and a team equipped with hazchem suits, breathing apparatus and testing equipment was sent in to investigate. What they found was disturbing to say the least.
With older, water-damaged properties, mould can flourish almost everywhere. While most cases are harmless to humans, in instances where the spores are inhaled, it can cause major illness.
The dangers of mould
Dickens says some types of mould are so dangerous they can cause irreparable harm and even death. Studies have shown mould or spore exposure to be more dangerous than intense exposure to heavy metals.
In this instance, as the property was inhabitable, Dickens says the tenants were released from their agreement without penalty or fault.
The extent to which mould affects someone’s health is dependent on the type of mould, the amount of mould present together with the individual’s sensitivity to it and their existing state of health.
Studies in 2003 of more than 1 600 patients who suffered from health issues as a result of exposure to mould showed that the patients experienced a range of symptoms including muscle and joint pain, headaches, anxiety, memory loss and visual disturbances, immune system disruptions, fatigue, digestive issues and shortness of breath.
What types of moulds are there?
Mould is a type of fungus which causes the breakdown of various natural materials. Not all mould is bad however, as it is beneficial in the production of antibiotics. The mould Penicillium, naturally produces penicillin which has saved an estimated 200 million lives.
It can also cause disease due to one of three reasons: an allergic reaction to mould spores, the growth of pathogenic moulds in the body or toxic mould compounds called mycotoxins being ingested or inhaled.
Allergenic moulds produce life-threatening effects and are problematic if you are allergic or asthmatic.
Pathogenic moulds produce an infection if someone has a compromised immune system. The mould can grow in the lungs of an immune-compromised person and cause an acute response similar to bacterial pneumonia.
Toxigenic moulds can have serious health effects. Mycotoxins are the chemical toxins found on the surface of the mould spore which is inhaled, touched or ingested. It can cause a suppression of the immune system and even cancer.
Signs of a mould problem
Landlords who suspect but are not sure if they have a mould problem should look out for a musty smell, buckled floorboards, water stains on walls, black and white blotches or discoloration on carpeting.
What causes mould to grow in the first place?
Mould requires moisture and warmth to grow and is often found in damp, warm areas. It can enter a home through windows, vents, doorways and air-conditioning systems.
The most common place to look for mould in your home is in the bathroom and kitchen, especially around leaking taps and under sinks. Mould loves to grow behind appliances such as the dishwasher or fridge and in areas where condensation and humidity is high.
How can I protect my property?
The US Centres for Disease Control and Prevention suggests the following to avoid a mould problem…
- Use a dehumidifier, no more than 50% humidity is recommended.
- Ensure your home is properly ventilated.
- Mix mould inhibitors into paint used on surfaces.
- Clean the bathroom and kitchen using products that kill mould and mould spores.
- Keep your kitchen and any dark, damp room carpet-free.
- Replace or remove upholstery that has been exposed to moisture.
Naturally, besides preventative measures it is imperative to ensure that a property is well-maintained at all times. One of the most important aspects is the early detection and rectification of any underlying sources of damp like floods or leaks.
Dickens says landlords need to consider a few legal aspects in this instance. He says it is essential that their lease agreement stipulates that it is the tenant’s responsibility to timeously complete any repair work for which they are responsible. For example, where a tenant erects a washing line in the bathroom without proper ventilation and the resulting continuous damp causes a growing mould problem.
Added to that, should the tenant discover maintenance or repair work that needs to be done for which they are not responsible, the tenant must inform the landlord in writing as soon as is reasonably possible.
An example of this would be where the growth of mould is the result of fair wear and tear. If the tenant fails to do so, the landlord is entitled to claim damages for the repairs from the tenant. In this way, the landlord is protected from discovering that a massive mould issue has sprouted before it develops into a serious health risk.
5 common indoor moulds
- Alternaria is found in your nose, mouth and upper respiratory tract, and can cause allergic reactions.
- Aspergillus is found in warm, damp climates. It produces mycotoxins and can cause lung infections.
- Cladosporium is mostly found outdoors but it can find its way indoors onto tiles, wood and damp materials. It causes hay fever and asthma.
- Penicillium is found on wallpaper, fabrics, carpets and fibreglass insulation. It causes allergies and asthma, and some species produce mycotoxins such as penicillin.
- Stachybotrys is often referred to as ‘black mould’ and produces mycotoxins that cause serious breathing difficulties and bleeding of the lungs. It is found on wood or paper products but not on concrete or tiles.
Landlords and Tenants - Beware New Rental Scam
The emergence of new rental scams where potential renters pay deposits to a middleman who then disappears with their money once again highlights the importance - for both renters and landlords - to work with an experienced, professional and reputable rental agent.
The emergence of new rental scams where potential renters pay deposits to a middleman who then disappears with their money once again highlights the importance - for both renters and landlords - to work with an experienced, professional and reputable rental agent, says Renecle.
Chris Renecle, MD of Renprop, says the scammers market legitimate properties that they copy from popular property listing websites and place on other well-known and widely-used buying and selling websites.
“They use the correct images and property description, but change the contact details and pretend to be the landlord. When people contact them about the property, they set up an appointment with the actual agent marketing the rental property pretending to be the interested party, and tell the renter they have an appointment with the agent,” he says.
“When the actual renter has seen the property with the real agent, the scammer follows up with the potential renter, and if they are interested in renting out the property, requests that they pay the deposit directly into their account as the landlord.”
Renecle says rental agents charge the landlord a fee, therefore the rental deposit will never be paid directly to a landlord if an agent is involved in the transaction - even just showing the property to potential candidates.
“In order to avoid being scammed and losing money, those paying deposits on a rental unit should only make payments into a reputable real estate agency’s trust account,” says Renecle.
Furthermore, he cautions renters against dealing directly with landlords unless they know them, or have dealt with them before and know that they are legitimate.
“Both renters and landlords can protect themselves from falling prey to these kinds of scams by working through a reputable and experienced rental agent,” says Renecle.
“The benefit of making use of a professional, reputable rental agent - for landlords in particular - is ensuring the protection of their asset through proper tenant vetting.”
He says this works even more in the landlord’s favour when the rental agent is from the same company that manages the sectional title complex or apartment block, as they know the kind of tenant that would best suit the complex and be able to adhere to its rules.
Benefits for tenants dealing with a professional rental agent include deposit security as it’s is paid into a trust account, protection through the lease which will have been professionally drafted, as well as ensuring that all legal requirements are met.
Renecle says rental agents are also regulated, and professional agents will belong to a number of industry bodies with codes of conduct that need to be adhered to.
He says both tenants and landlords should take whatever measures they can to protect themselves as it can be financially detrimental - especially for tenants - to fall prey to rental scams such as these.
“Working with an agent is just one step tenants and landlords can take to protect themselves,” says Renecle.
“But bear in mind that not all rental agents are created equal - both tenants and landlords need to do their homework and check the agent’s credentials and references to ensure they are the best candidate for the job.”
The Rental Housing Tribunal: Know your rights
The relationship between a landlord and a tenant can often be challenging. From time to time, issues arise which cannot be amicably overcome and the need for an independent party becomes clear. Enter Rental Housing Tribunals (RHT’s).
RHT’s are a product of the Rental Housing Act and have been established with a view to resolving disputes between landlords and tenants. The services rendered are free and can be used by tenants, landlords and property agents.
The tribunals have the power to determine issues relating to, amongst others, non-payment of rentals, failure to refund deposits, overcrowding, unacceptable living conditions, harassment and intimidation, lack of maintenance, determination of fair rentals, unlawful seizure of tenant’s belongings, discrimination, exploitive rentals, illegal lock-out or illegal disconnections.
How to lodge a complaint:
Complaints have to be lodged in person or by mail at relevant RHT offices which can be determined by looking online or by phoning 0860 106 166/ 011 355 4000/ 012 483 5020. It is important to note that while a complaint is being handled, the landlord may not evict a tenant, a tenant must continue to pay all rent payable and the landlord must remedy any and all necessary maintenance.
Required documentation for lodging a complaint:
If you feel you need to lodge a complaint you will need certain details and documentation to do so. These include:
• Your ID/ permit/ passport
• The relevant lease agreement
• Proof of applicable payments
• Proof of the physical address of both parties
• Contact telephone numbers
There are essentially seven steps involved when lodging a complaint with an RHT.
1: The first step involves opening a file for each complainant
2: A letter is sent to all parties which outlines the nature of the complaint
3: The RHT will conduct a preliminary investigation
4: A mediation session will be arranged to try and resolve the matter. If no agreement is reached, the matter will be referred for a tribunal hearing or arbitration
5: Once arbitration has taken place, a binding ruling will be handed down to both parties
6: Any ruling will be enforced in terms of the Magistrate’s Court Act
7: If one of the parties is dissatisfied with the outcome, he/she can have the matter reviewed by a High Court
From the time a complaint is lodged, it should take no more than three months for a complaint to be resolved by an RHT.
Do’s and don’ts for avoiding rental disputes:
While there are myriad issues involved with the lease of a property, one of the key points to consider is that of the rental agreement. It is imperative that a rental agreement be drawn up and signed by both parties.
Both landlords and tenants should also conduct a joint inspection of a property prior to occupation and before it is vacated. Any and all defects should be noted and a date agreed by which time they will be fixed.
In addition to these aspects, landlords would do well to engage the services of a rental agent. These agencies are well versed in dealing with the complexities of rental arrangements and can carry out credit, background, financial and reference checks. Through utilising such services, potential defaulters and undesirable would-be tenants can be skirted straight off the bat.
Many agencies also offer rental property inspections and, should a tenant default, will usually take action far quicker than landlords. Rental agencies also have access to a database of reputable potential tenants.
In a similar vein, tenants should familiarise themselves with the rules and laws pertaining to rentals so that they do not end up in a situation where they are being treated unfairly or exploited.
Capital Gains Tax isn’t the loss you think
Is the thought of the capital gains tax (CGT) that you might pay when you sell sometime in the future putting you off buying your home right now?
It shouldn’t be.
Strangely, though, it does seem to prevent some people from doing so: according to the Rawson Property Group’s financial director, Calum Wedge, “a small but significant percentage of South Africans shy away from property as an investment because they have a vague idea that it carries a higher CGT than other asset classes.”
But, he says, this is “definitely not the case”.
What does SARS say?
According to the SARS web site, “CGT is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost.”
It “applies to individuals, trusts and companies” and “a resident, as defined in the Income Tax Act 58 of 1962, is liable for CGT on assets located both in and outside South Africa” while non-residents are “only liable to CGT on immovable property in South Africa or assets of a ‘permanent establishment’ (branch) in South Africa” – although, “some persons such as retirement funds are fully exempt from CGT,” and “public benefit organisations may be fully or partially exempt”.
First R2-million is CGT-free
But, said Calum, as long as you’re selling your primary residence (the home in which you live most of the time), “the first R2-million of the capital gain is totally tax free in terms of the primary residence exclusion tax claim.
“This in effect means that a high percentage of South African homes are sold without paying capital gains tax because they change hands roughly every eight to 10 years and their sales price is often not high enough to make a capital gain of R2-million.”
He pointed out, though, that as long as you have documentary evidence to prove the actual costs of any improvements you’ve made during your ownership, these costs “can be deducted from the gain.”
What’s the base cost?
Grant Thornton’s Property Tax Guide says that, “a capital gain or loss is the difference between the proceeds and the base cost”.
The base cost is either the price for which the property was purchased or, if the purchase was made before capital gains tax came into effect on 1 October 2001, the price it would have attracted at that time. (Owners were given the option of having their properties valued by accredited valuers in the run-up to the implementation date. According to Calum, if you failed to have this done, the base cost will now be calculated on a time-apportionment method, “which in practice has proved to be fair and equitable”).
Calum said that “Primary homes ... are subject to some very real tax advantages and should always be seriously considered as an investment class.”
He cited as an example a primary home that was bought for R2-million 12 years ago, and which has now sold for R5-million. If R500 000-worth of improvement work was carried out during the seller’s ownership, the capital gain on the home would be R2.5-million. “But after the primary residence exclusion of R2-million, the seller is left with a capital gain of R500 000.”
Calum said that one third of the taxable gain (R166 666) “will be included in the individual owner’s income for the year in which the home was sold” at a rate of between 18% and 40% (depending on the seller’s income tax bracket).
It’s clear, therefore, that CGT isn’t the bogeyman that you might think – and that its specter shouldn’t put you off buying your home.
Body corporates can't penalise the tenant
A great deal has been written about landlord's taking matters into their own hands in an attempt to get tenants to toe the line and pay their rentals, or about evicting them without the correct legal process being followed. It now seems that body corporates are also getting in on the action and are penalising third-party tenants when owners do not keep up with levy payments.
The fact that an owner of a unit doesn't pay levies has absolutely nothing to do with a tenant. A tenant who pays his rent every month is perfectly entitled to use any amenities available to all those who reside in a complex, until such time as a court says otherwise. Currently, there are a number of stories doing the rounds where tenants have been banned from using the swimming pool and club facilities and according to a report in the Daily News, barred from receiving visitors or even using the communal washing line.
To say that this is ludicrous is a gross understatement and it is unclear how penalising a tenant by withholding certain 'privileges' will help extort levies from a defaulting owner in the complex. What will invariably happen is that the tenant will elect to move out, perhaps leaving the owner less able to play catch up with any outstanding levies.
The root cause for such behaviour is unacceptable and distasteful ignorance of the law. Body corporates are not judicial bodies and are not capable of any form of sanction against anyone without approaching a court of law. Unfortunately, there are trustees and body corporate chairmen who assume a demi-God status, contrary to law or reason. Fortunately, the courts will disregard their assumed rank and title by making an appropriate order that takes the rights and obligations of all three parties into account. The wheels of justice grind slowly, but they grind surely and any meting out of justice by a over zealous body corporate will eventually be remedied.
A situation where an owner neglects or refuses to pay levies affects both the body corporate and, more particularly, a tenant renting the property. Nevertheless, when weighing up the rights and wrongs of the matter this does not justify a body corporate taking extra-judicial action against the tenant. It's real and only target is the owner and browbeating the tenant is pure and simple abuse in every sense of the word.
There are, of course, true demi-gods in the form of the rental housing tribunal who will not stand for a tenant being abused by a vindictive body corporate. It's suggested that anyone who is experiencing issues with the people who run the complex in which they live are well advised to contact this authority in order to get more clarity on the situation.
There is no question: levies have to be paid by the owner. The fact that they have not been paid is not a blight on the tenant - after all, he has no control over how his rental payments are utilised. It's highly unlikely that an unhappy tenant is going to convince his landlord to pay outstanding fees. Again, while the court may decide to allow the body corporate to garnish the rental payment from the tenant, this is not an option that the tenant can exercise without the assistance of the courts.
Certificates of Compliance
Selling your house? You’re going to need a number of certificates of compliance before you do - and it’s just as well to get them done before you even put your property on the market.
Some of them (electrical certificates, electrical fence certificates) are required under national regulations; some (water certificates) under municipal by-laws; and some (beetle certificates) have become accepted practice. Having them all in order will ensure a smooth, hassle-free property transfer process.
It’s compulsory to be in possession of a valid Electrical Certificate of Compliance (ECOC) when selling your home.
This is a provision of the Electrical Installation Regulations which came into effect in 2009 under the Occupational Health And Safety Act (No. 85 of 1993).
Although the ECOC is valid for a period of two years, it’s only necessary to have the house inspected when it’s to be sold: you don’t need to have it done as long as you plan to remain in possession of the property.
This document “verifies that the electrical work and installations that have been completed on the property are up to standard in accordance with the regulations as required by the South African National Standards.”
While the certificate covers distribution boards, wiring, earthing and bonding of all metal components (include antennae and satellite dishes), as well as wall sockets, light switches and the isolators of fixed appliances, it doesn’t cover the fixed appliances themselves (geysers, stoves, motors, fans, under-floor heating.
If you’ve installed electric fencing as a security measure, you’ll need an Electrical Fence System Compliance Certificate, too. This is a separate certificate since it falls under the provisions of a separate set of regulations: The Electrical Machinery Regulations of 2011 (also issued under the Occupational Health and Safety Amendment Act, No. 181 of 1993.).
Adrian noted, though, that the regulations don’t apply to electric fences installed prior to 1 October 2012 - unless you’re preparing to sell.
“As with an ECOC, this certificate is required where additions or alterations to the system have been undertaken, or when a change of ownership of the property takes place.”
He said that the system has to be certified by an approved installer and that, as with ECOCs, certification is valid for two years.
If your property is situated within Cape Town’s municipal area, you’ll need to know that the City’s Water By-law (which came into effect in 2010) requires you to be in possession of a Certificate of Compliance of Water Installation before transfer can take place.
Adrian said that is designed to limit water wastage, and to protect buyers both from latent defect claims, and from high water bills due to leakages.
Amongst others, certification covers the water meter (does it start registering when a tap is open, and stop completely when all taps are closed?); the correct installation of water cylinders; and the correct discharge of storm water (which mustn’t go into the sewerage system). It also ensures that the potable water supply is completely separate from any grey water or groundwater systems.
“It’s important for buyers to bear in mind that a water installation certificate is not a plumbing certificate, and that it doesn’t cover all aspects of the home’s plumbing - nor does it cover any leaks from waste or sewer water or drainage,” said Adrian.
If your home’s fitted with gas appliances, you’re going to need a Gas Certificate of Conformity in order to comply with the Pressure Equipment Regulations of the Occupational Health and Safety Amendment Act (the regulations came into effect on 1 October 2009).
This certificate is valid for a period of five years. It certifies that your gas installation is in a safe, working condition, that emergency shut-off valves have been correctly installed, and that the system is free of leaks.
Not, not your membership of the fan club of THAT group from the 60s - and, like your choice in popular music, there’s no actual law that requires you to provide the buyer with a beetle certificate of clearance which shows that your property has been inspected and found to be free of the bugs that attack structural timber.
But it does show that you’re serious.
The beetle certificate has become standard practice, and it’s often a condition written into the sale agreement in coastal areas, although they it isn’t usually required for sectional title properties, or where the property is situated inland where beetle and woodborer problems are less common.
Many banks and insurance companies will require a beetle clearance certificate when a property is transferred to a new owner.
"One other compliance, however not requiring a certificate is the newly promulgated ALIEN INVASIVE PLANT SPECIES law. Property owners can face heavy fines if alien invasive plant species are found on their properties. Whether you are selling or not, make sure you know exactly what is growing in your yard" says Greg Palmer of ALOHA Properties.
Selling your property and the new Alien and Invasive Species Regulations
Invasive Alien Plants (IAPs) are widely considered as a major threat to biodiversity, human livehoods and economic development. IAPs cost South Africa tens of billions of rand annually in lost agricultural productivity and resources spent on management.
On 1 August 2014, the Minister of Environmental Affairs published the Alien and Invasive Species Regulations (“the Regulations”) which came into effect on the 1st of October 2014 in a bid to curb the negative effects of IAPs. The Regulations call on land owners and sellers of land alike to assist the Department of Environmental Affairs to conserve our indigenous fauna and flora and to foster sustainable use of our land. Non-adherence to the Regulations by a land owner or a seller of land can result in a criminal offence punishable by a fine of up to R5 million (R10 million in case of a second offence) and / or a period of imprisonment of up to 10 years.
The Regulations published identified a total of 559 alien species as invasive in four different categories, and a further 560 species listed as prohibited that may not be introduced into the country. A list of Alien Invasive Species can be found at http://www.invasives.org.za/legislation.html.
Category 1a and 1b listed invasive species must be controlled and eradicated. Category 2 plants may only be grown if a permit is obtained and the property owner ensures that the invasive species do not spread beyond his or her property. The growing of Category 3 species is subject to various exemptions and prohibitions. It is interesting to note that some invasive plants are categorised differently in different provinces. For example: the Spanish Broom plant is categorised as a category 1b (harmful) invasive plant in Eastern Cape and Western Cape, but it is a category 3 (less harmful) invasive plant in the other seven provinces.
Other invasive plants are categorised differently depending on whether they appear in urban or rural areas. Jacarandas serve as example: the species are classified as a category 1b invasive species in rural areas within KZN as well as in three other provinces, but in the urban areas of these provinces it is exempted from the regulations. Jacarandas situated in the urban areas of Pretoria are thus safe for now.
Depending on the identified IAP and its classification in terms of the Regulations a land owner must allow an authorised official from the Department of Environmental Affairs to enter onto the land to monitor, assist or implement the combating, control or eradication of the species in accordance with the Regulations.
In terms of Regulation 29, if a permit holder sells property on which a listed IAP is under the permit holder's control, the new owner of such property must apply for a permit in terms of the Act. The seller of any immovable property must also, prior to the conclusion of the relevant sale agreement, notify the purchaser of that property in writing of the presence of listed IAPs on the property.
In practice, an estate agent can add value by guiding a seller to adhere to the letter of Regulation 29. An estate agent should ask the sellers to declare in writing whether they are aware of any IAPs on their properties or if they hold permits for species that require permits to be held on the property. If an enquiry of an estate agent establishes that IAPs are to be found on the land for sale or that the seller holds a permit, then a copy of this confirmation must be given to a prospective purchaser and the purchaser’s offer should include an acknowledgement by the purchaser that he has been advised of the invasive species on the property.
Property sales agreements dated 1 October 2014 and onwards, should also incorporate a clause in terms of which the purchaser acknowledges that he has acquainted himself with the extent and the nature of the property he is buying and that he accepts the property as such, including the vegetation on the property.
The declaration by the seller resulting from an inquiry of an Estate Agent, and the subsequent incorporation of the facts on the ground pertaining to the fauna and flora into the deed of sale, could well assist in adhering to Regulation 29 and so avoid the heavy punishments imposed by the Regulations.
So if you are buying or selling property that could contain IAPs, consult with your attorney as to what steps you should take to ensure that you comply with the regulations.
Are you liable for historical arrear property rates on your property?
Who is responsible for historical arrear property rates and taxes on your property? The good news is that the person who owned the property at the time the debt was incurred is liable. But did you know that a municipality can in some instances cause your property to be sold in execution for debts being owed by a previous owner?
Municipalities are obliged to collect charges that are payable to them for property rates and taxes and for the provision of municipal services. If you buy a house, the relevant municipality will - after the Seller has settled the required amount - issue a clearance certificate that certifies, amongst other things, that all debts have been settled in respect thereof for two years preceding the date of application for the certificate. Now the question arises: What about debts owed to the municipality that are older than two years?
The short answer is that of course the person who owned the property at the time the debt was incurred will be liable. Despite this reality, a threat exists to the new owner of the property based on the infamous section 118(3) of the Municipal Systems Act which provides a municipality with a lien over a property within its jurisdiction to secure payment of money due to it on that property.
What this means is that if there are monies owed to the municipality which relates to the property, the municipality can obtain a judgment against the person liable for the debt (remember it will be the person who owned the property at the time the debt was incurred), but because of section 118(3) the municipality will have the right to attach the property and cause it to be sold in execution to recover the money being owed. And this property may just be that dream house that was registered in your name not that long ago.
Our Supreme Court of Appeal ruled that the transfer of ownership does not destroy the lien created by section 118(3) and the lien will in fact "follow the property". The appalling result of this is that a new owner may be forced to have to save his property by paying the municipal debt of someone else. You can later try and recover the money from a previous owner, but this may be a futile exercise, leaving you even more out of pocket.
A notable exception to the above rule is where properties are purchased at execution sales where the municipality did not exercise its rights in terms of its lien. In such a case, our courts have recently ruled, the lien of a municipality over a property lapses. Accordingly, where a municipality is aware of the sale in execution of a property and it issues a clearance certificate without any objection or without exercising its rights in terms of section 118(3), the purchaser will acquire a clean title over the property.
Not all debt older than two years are recoverable by the municipality and it is necessary to distinguish between the following types of debt: rates charges (taxes) and charges for electricity, water, gas and sewer and refuse charges. The reason for having to differentiate is because certain debts prescribe after three years in terms of the Prescription Act and are no longer enforceable.
Rates and taxes only prescribe after 30 years and electricity, water and gas charges after 3 years. It would seem that, at least at present, sewer and refuse charges also count as 'rates and taxes' and will thus only prescribe after 30 years.
If you are a potential buyer your must consult with your attorney who can assist you to include a relevant provision in the Deed of Sale that obliges the Seller to settle all debts due to the relevant municipality, and not just the debt incurred during the two years preceding the date of application for the clearance certificate.
As a Seller you would need to consult with your attorney to discuss any provision in the Deed of Sale which has the effect that you guarantee that all debts due to the municipality are settled.
Also estate agents should take note and ensure that their pro forma contracts cover this scenario and that they inform the parties of the effect of section 118(3) as discussed above.
The liability for old municipal debts against the property is a contentious issue and will evoke strong emotions from Sellers and Buyers alike. It is therefore critical that both parties carefully consider the wording of any Deed of Sale and where necessary discuss the situation with a property specialist before entering into any agreement.
The Contract is silent as to the duration…Is there a way out?
The contract is signed, the deal made, the future is bright…! Who really cares about how long the contract must run? A few months later the deal is over, the relationship soured, the future bleak… But the contract is silent as to the duration. Does this spell eternal damnation at the behest of a contract that does not allow for an exit or can a contract which has no express duration clause be terminated?
The clause determining the duration of a contract can be one that is easily forgotten in the euphoria of having a deal concluded. Yet this clause (and specifically the absence thereof) has the potential to cause numerous problems for the contracting parties. The question that often arises is when does a contract terminate when there is no express duration clause? Is the only way out to try and place the other party in breach of contract or commit breach of contract yourself? Are the contractants bound to a perpetual agreement or is there liberation?
Where the duration of certain agreements are regulated by legislation, these provisions regarding duration must be applied to the contract. For example, the Consumer Protection Act specifies a maximum period of 2 years for certain fixed term consumer contracts. Any agreement which purports to be longer than this would need the supplier to prove demonstrable benefit in favour of the consumer.
If a contract is not specifically regulated by legislation, the duration will have to be determined contractually by establishing whether there are any specific termination grounds, including voluntary termination grounds, which the parties can rely on. If no such specific termination grounds are included in the contract, then the following tools recently provided by our Supreme Court of Appeal in the Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd case can be considered to answer the question:
1. The construction of the agreement.
2. The intention of the parties when entering into the agreement.
3. The nature of the relationship between the parties.
4. The surrounding circumstances of the agreement.
These considerations will help determine whether a contract which has neglected to specify the duration, is terminable or if the parties are forever bound by its provisions.
This entails an investigation into the language and use of words used in the contract, in order to get a sense of the tacit or implied terms of the contract. If the contract has no express term to the contrary and there is no indication throughout the agreement that its existence should be perpetual, it can be construed that the duration of the agreement is determinable as opposed to perpetual.
According to our law, one of the essential elements of a contract is the meeting of the minds between the parties to the contract. Without this, a valid contract cannot be said to have been created. One of the approaches to determine whether there has been a meeting of the minds is the exploration of the mutual intention of the parties and what they envisioned when entering into the agreement. If this is established to not have been a perpetual relationship, this is also indicative of a terminable agreement.
The type of contract and the relationship between the contractants is an important aspect in the determination of the duration of a contract. Where a contract was entered into between the parties as a temporary arrangement, it cannot be inferred that the parties should be permanently bound to the agreement. A further consideration is a contract which embodies a close and mutual relationship of trust and confidence in each party. In such instance it is reasonable to deduce that the parties did not intend to bind themselves perpetually, but rather that they were able to terminate the agreement by delivering reasonable notice to the other party.
In South Africa, our approach to interpretation is contextual, meaning that all external, relevant factors surrounding an agreement must be considered when determining the duration of a contract. In considering surrounding factors these may also lead to a clear inference of the contract having a terminable nature.
From the above it is clear that commercial prudence will more likely tip the scales in favour of the duration of an agreement being determinable instead of perpetual. Accordingly, where an agreement is silent as to its duration, it will generally be terminable on reasonable notice being provided by one party to the other in the absence of an express term that the contract was intended to continue indefinitely. Ultimately, the determination of duration is strongly dependent on the facts of each case and the particular relationship created between the parties. Furthermore, and contrary to popular belief, there need not always be a valid commercial reason for terminating the contract. Simply put, a contract which has run its course, with no prospect of future potential should be laid to rest and not imprison the parties to an eternal relationship.
Is your Landlord responsible for your safety?
Jennifer was very excited to move into a larger rental apartment from the small flatlet she had been occupying. She gave notice, signed the lease and had already moved in when she heard from a neighbour that there had been numerous housebreakings at the property. This fact had not been disclosed by the landlord who had in fact alleged to Jennifer that there had never been an incident at the property. After hearing about the housebreakings Jennifer confronted her landlord who agreed that he would make certain security improvements to the property. A month later, after the landlord had failed to make any of the promised improvements, the property was broken into. To what extent is Jennifer’s landlord responsible for her safety and security at the rental property?
Our courts have held that a lessee is entitled to the full use and enjoyment of rental property and the landlord is under a duty to deliver and maintain that property in a condition reasonably fit for the purpose for which it is being let. This duty includes the obligation that lessees not be exposed to any unnecessary risk to life or property and that lessees should safely occupy the rental property. Accordingly, where a landlord has shown a wilful disregard for the safety of a tenant, exacerbated by a history of previous incidents, the landlord can be held negligent and accountable for damage suffered, if the landlord was aware of existing security issues and did not reveal such to the tenant or even deliberately concealed such facts from the new tenant.
That said, the tenant is also responsible to ensure that it inspected the property and is aware of what security measures are being provided by the landlord, before signing any lease. Where the existing security measures are not acceptable, additional measures should be agreed with the landlord and included in the lease agreement. Where tenants have inspected the existing security measures and accept such or fail to discuss any additional measures with the landlord, then the landlord will only be responsible for the maintenance of such measures and not for the implementation of additional measures, unless it can be shown that this represents unreasonable conduct.
In the present situation, particularly given the history of housebreakings at the property, Jennifer may have sufficient grounds to cancel the agreement of lease on the basis of the misrepresentation of the facts by the landlord if she can prove that the landlord was aware of the security issues and deliberately concealed such from her.
Using a Trust as an estate planning tool
Death eventually knocks on everyone’s door. This certainty necessitates proper estate planning to ensure that when the time comes you are not anxious as to whether sufficient provision has been made for your loved ones after you are gone. In this article, we briefly explore some of the main benefits as well as concerns in using a trust as a specific tool for your estate planning purposes.
Estate planning is aimed at protecting and preserving one’s assets not only during one’s lifetime, but also thereafter. In order to obtain some of the benefits that are associated with using a trust as an estate planning tool, it is important that the trust is correctly set-up and complies with the essential requirements of the Trust Property Control Act.
Some of the benefits associated with using a trust are:
The great advantage of a trust is that it allows you to enjoy the use and the fruits of the asset while not having ownership of that asset. Generally, if an asset has been transferred to a trust when the founder of the trust was solvent, the creditors cannot lay claim to such an asset.
Stabilizing of the value of the assets for estate duty purposes
Assets that have the potential to increase in value can be transferred to the trust. This can help ensure that the growth in those assets do not form part of the deceased estate and would not be subjected to estate duty taxes upon the death of the owner.
Where the details of a deceased estate is filed at the office of the Master of the High Court as part of the liquidation and distribution accounts, the financials of a trust remain private and are protected from public inspection, providing privacy in respect of your affairs and family planning.
Control of assets
A trust is useful to plan for the care and protection of beneficiaries that are minors or incapacitated. The trust enables experienced trustees to effectively and efficiently control and administer the trust assets over time for the benefit of minors and persons with special care needs and avoid the squandering or misuse of such assets.
Efficient and continued succession
Once a trust has been validly set up, the trust can continue indefinitely provided sufficient provision is made for the continuation of trustees to administer and control the trust. Accordingly, the death of a beneficiary does not impact the existence of the trust or the ability of the trust to continue to provide for the care and use of the trust assets for the remaining beneficiaries.
Setting up and administering a trust can be a costly exercise and as such it is important that you weigh up the costs and administration involved against the purposes of the trust and the potential benefits that a trust provides, as setting up a trust merely for the sake thereof is never a good idea.
In considering the use of a trust as an estate planning tool, it is also important to remember the following:
A holistic decision should be taken when considering using a trust as a vehicle for estate planning by taking into account your individual needs and financial capabilities.
Using a trust as a vehicle for estate planning can be a complex exercise and therefore it is important that proper legal advice be obtained which considers your current and future needs and does not provide you with a one-size-fits-all solution.
Your estate plan should be revisited every time there are significant changes in your life, such as marriage, divorce or death of a beneficiary, and this may include revisiting the provisions of your trust and whether these are still appropriate in the light of your overall estate plan.
Discuss these items with your legal advisor and embark on the process of trust planning with a clear understanding of the nature and consequences of setting up a trust.
The legal nature of exclusive use areas in a sectional title scheme
In order to understand the legal nature of an exclusive use area it is important to know how it was historically developed, what exactly constitutes an exclusive use area and how it is established. In this article we will focus briefly on the historical development of exclusive use areas in South Africa, what an exclusive use area is, the two types of exclusive use areas that can be established and the legal nature of these two types of exclusive use areas.
A person obtaining sectional title ownership (“an owner”) obtains ownership of a unit in the sectional title scheme. A unit consists of a section together with an undivided share in the common property. The size of the share in the common property is calculated by a formula known as the participation quota. A unit will for all purposes be deemed to be land, and as a result of this it is possible for a unit to be mortgaged. A section and the undivided share in the common property shall always be deemed to fall together and accordingly cannot be alienated separately.
Therefore the common property of the scheme is owned by all the owners jointly in undivided shares and they must share it with each other. The use and enjoyment of the common property by the owners can be restricted by the allocation of exclusive use areas on parts of the common property. It is therefore important for owners to know how exclusive use areas are dealt with. To do this, it is necessary to understand a bit more about the historical development of exclusive use areas.
Historical development of the exclusive use area
The Sectional Titles Act 66 of 1971 did not make provision for the creation of exclusive use areas. Owners were not allowed to appropriate any part of the common property for their exclusive use. Subsequently, however, it became clear that owners had a need to reserve certain parts of the common property for their own exclusive use.
The Sectional Titles Act 95 of 1986 now expressly provides for the procedure of creating exclusive use areas. Section 27 of this Act created a number of problems regarding the regulation of exclusive use areas and accordingly section 27A was introduced.
What is an exclusive use area?
Exclusive use areas in a sectional title scheme are defined in the Sectional Titles Act as ‘a part or parts of the common property for the exclusive use by the owner or owners of one or more sections.’ Examples of what can be the subject of the exclusive use right includes gardens, parking bays, courtyards, storerooms, patios and so forth.
The common property comprises of “the land included in the sectional title scheme together with such parts of the building or buildings that are not included in a section and land referred to in section 26.” Certain parts of the common property can be reserved, either by the developer or the body corporate, for exclusive use by a specific owner. Accordingly, such exclusive use areas forms part of the common property and do not form part of a section.
The owner holding the right to exclusive use may use that area exclusively of all the other owners, but it still remains part of the common property. There is a clear difference between an owner’s undivided share in the common property and his right to the exclusive use of a part of the common property. An owner automatically has an undivided share in the common property if he is the owner of a section, but an owner does not necessarily have the same right to an exclusive use area.
Creation of exclusive use areas in terms of section 27 and 27A
The Sectional Titles Act makes provision for the creation of exclusive use areas in one of two ways. Firstly, exclusive use areas can be created in terms of section 27 (registered/genuine exclusive use areas). Secondly, exclusive use areas can be created in terms of section 27A (rule-based/non-genuine exclusive use areas).
Registered (genuine) exclusive use areas
Registered exclusive use areas in terms of section 27 can be created either by the developer at the opening of the sectional title register or by the body corporate at a later stage:
By the developer
If the delineation of a part or parts of the common property is indicated on the sectional plan, the developer must, when making application for the opening of a sectional title register and the registration of the sectional plan, reserve such a part or parts of the common property for use as exclusive use areas by a specific section by way of a certificate of real right of exclusive use, and when the specific section is sold this right will be ceded to the owner of the section by registration of a unilateral notarial deed.
If no such reservation was made by the developer, then the Sectional Titles Act grants the developer a second chance to reserve exclusive use areas. The developer may, after the opening of the sectional title register, but before the establishment of the body corporate apply for a certificate of real right of exclusive use at the Registrar of Deeds. This right to exclusive use is then notarially ceded to an owner.
By the body corporate
The body corporate may, when it is duly authorized thereto by a unanimous resolution of its members, request an architect or land surveyor to apply to the Surveyor-General for the delineation of the exclusive use areas on a sectional plan for the exclusive use by the owner or owners of one or more sections. In this instance the right to exclusive use will then be notarially ceded from the body corporate to an owner.
Rule-based (non-genuine) exclusive use areas
Since 1997 exclusive use areas can be created in terms of section 27A. This section provides for a cheaper and less cumbersome method of creating exclusive use areas in the rules of the sectional title scheme. The developer may, at the opening of the sectional title register, add a special rule that will provide for exclusive use areas. On the other hand the body corporate may also amend the management or conduct rules, by unanimous or special resolution (depending on the rule that is amended) to create exclusive use areas.
The requirements for this method of creation are that the rules must:
Not create rights contemplated in section 27(6), (see below for discussion of rights).
Include a layout plan to scale, indicating the location of the distinctively numbered exclusive use and enjoyment parts and the purpose for which these parts are to be used.
Include a schedule indicating to which member each such part is allocated.
If the exclusive use area is created by the body corporate then a further requirement is that the Registrar of Deeds should be notified of the amendment. Only after this notification will the rule be of force.
Nature of the right of exclusive use in terms of section 27
An exclusive use right created in terms of section 27 is deemed to be a right to immovable property over which a mortgage bond, lease contract or personal servitude of usufruct, usus or habitatio may be registered.
Nature of the right of exclusive use in terms of section 27A
The rights of exclusive use created in terms of section 27A are not real rights in immovable property and are not registrable in the Deeds Office. These rights are personal rights created in terms of the rules of the scheme.
It is very important for a person who wants to buy a unit in a sectional title scheme to know if he or she is entitled to an exclusive use area and also to know which type of exclusive use area he or she is buying. A section 27 exclusive use area provides the holder of that right with a real right which is registered in the Deeds Office and which is enforceable against the world at large. A section 27A exclusive use area gives the holder of the right only a personal right which cannot be registered in the Deeds Office and is only enforceable against the body corporate and other sectional title owners of that specific scheme. Also, a section 27 exclusive use area can be mortgaged, whereas this is not possible in the instance of a section 27A exclusive use area. So make sure you ask the right questions regarding exclusive use areas in your proposed sectional title scheme.
Subdividing your property. Not as easy as 1-2-3!
Mr Jones has been enjoying his retirement, but his waning retirement fund has been of increasing concern to him. Mr Jones owns a large old property in the city and his nephew’s suggestion to subdivide this property and sell one portion of the ‘erf’ to his nephew, gets him thinking about the possibilities of generating some much needed funds for his retirement fund, particularly as the rates and taxes and the cost of maintaining his more than 2000m2 property is increasingly taking its toll on his finances. But what does such a subdivision entail and is it really that quick and easy?, we look at the application process Mr Jones has to follow for the subdivision of his property.
Mr Jones, very excited and eager to transfer the proposed subdivided portion of land to his nephew and receive the proceeds of the sale, promptly pays his local Municipality a visit, only to be informed that this is a costly and lengthy process that is not likely to happen overnight as he had hoped for. If he decides to continue he will have to follow the following process to apply for the subdivision:
First of all Mr Jones should consider appointing the correct professionals to oversee the process on his behalf. This will stretch his budget but will help save time and money in the long run. Ideally, Mr Jones should appoint a town planner, land-surveyor and conveyancer from the start as they will greatly help to streamline the entire process and help Mr Jones steer clear of potential pitfalls that can easily be avoided, as well as providing him with a better understanding of the viability, estimated costs and time-frames for completing the process.
The first step for Mr Jones should therefore be to appoint a town planner who will be able to attend to the application process on his behalf by establishing whether the property can be subdivided, what the zoning rights of the property are and if there are any restrictive conditions on the property.
The town planner will request the title deed, power of attorney and bondholders consent from Mr Jones, all of which can be provided to the town planner by the appointed conveyancer. If the title deed has restrictive conditions, the town planner will need the mailing addresses of the surrounding properties that may be affected in order to provide them with a notice of the proposed subdivision. The town planner will advise Mr Jones on the minimum erf size of the area to be divided off and any other requirements such as floor size and entrances before subdivision can take place.
After providing the applicant with a quotation, the town planner will perform a site survey in which a layout plan showing all the buildings, servitudes and other pertinent information will be drafted, stipulating precisely how the land will be subdivided. Once the town planner has overseen the site inspection (between 1 to 3 days) and the site layout (between 7 to 14 days), instructions will be given to an engineering company to compile a services report. These engineers will then conduct a professional site inspection. Based on previous inspections and data available to a specific area they will calculate the bulk services contribution that must be paid by the applicant, additionally offering suggestions and finally compiling a services report. The report must be delivered to the town planner who finalises the site layout plan and readies the final application for subdivision (about 2 months) for submission.
The town planner will formally submit the preliminary application for subdivision, along with the following attachments, to the local Municipality and the Provincial Department of Rural Development for approval by the MEC:
The prescribed application form;
The formal application;
The engineers’ services report,
The site layout plan in duplicates (as required); and
Any other documents that the Local Government may require.
The Provincial Government will confirm receipt of the application within seven days and the application will be circulated amongst the various municipal departments (water, electricity and storm water) for individual inspection, suggestions and comments - taking an average of 12 months to circulate. The Municipal Town Planner will then write a letter of recommendation which contains the conditions that Mr Jones will have to comply with and it will be forwarded to the appointed conveyancer, who will attend to the formal application process in order to help the applicant comply with these conditions.
In the case of any restrictive conditions that need to be removed, Mr Jones is compelled to provide notice to the general public by advertising the subdivision and the removal of restrictions in two local papers and the Provincial Gazette. Mr Jones must also give notice to all interested parties within a 100m radius. The public is then given an opportunity to object to the application within 21 days. In the event of any objection, the town planner will meet with the objector and determine whether their intention is to withdraw their objection or not. If not, the town planner will schedule a public hearing wherein both parties can be heard fairly. Based on both the findings and the applicants’ written confirmation to comply with the conditions as set out in the Municipality’s letter of recommendation, the Municipality will decide whether to recommend the subdivision to the Provincial Government or not.
If the recommendation is approved, the Provincial Government will issue a Letter of Approval for Subdivision, wherein they will set out any further conditions along with a time frame of 24 months in which the registration process must be finalised.
We will discuss in more detail the process of registration of the subdivision.
We looked at the application requirements for approval with which Mr Jones had to comply with.
Without the help of a professional team, Mr Jones may upon receipt of the approval of his subdivision from the Local Government have been under the impression that registration of the subdivision was close at hand and likely to happen quickly. The harsh reality is that once the letter of approval has been received from the Provincial Government, and accepted by him in writing, a fair number of steps still need to be completed.
Mr Jones’ appointed land-surveyor must now complete a sub-divisional survey and draft a Surveyor General Diagram of the new subdivision. The proposed subdivision diagram will be lodged at the Surveyor General's office for his approval and once registered, certified copies will be issued. This process usually takes approximately 12 weeks and it will often be required that an SLA (Service Level Agreement) be drafted and agreed upon by the applicant, the engineers and the municipality. Consultations to discuss this agreement will thus have to take place.
The conveyancer will correspond with the land-surveyor as well as the town planner for the duration of the process, ultimately obtaining the following documents:
All the original applications;
Letters of recommendation;
Letters of approval;
Acceptance of conditions;
Registered subdivision diagram;
Consent to registration of a subdivision by the bondholders;
In case of servitudes or other restrictive conditions, consents pertaining thereto;
The service level agreement; and
In the case of immediate transfer, various additional documentation from the buyer.
Once the conveyancer has confirmed that all requirements have been complied with and he is in possession of the above documents, together with the original title deed, application will be made to the local authority to resolve any outstanding rates, levies and/or payments. The local municipality will subsequently issue a certificate allowing the applicant to register the subdivision and the conveyancer will draft the following documents on behalf of Mr Jones in the event that he does not intend to sell the subdivided land:
Application to issue a Certificate of Registered Title;
Draft Certificate of Registered Title or Title Deed; and
Any other necessary consents.
If Mr Jones wishes to sell the subdivided land, the transfer of the subdivided portion of land will take place directly from the Surveyor General Plan. The conveyancer will advise the parties in this regard.
Mr Jones (and any other relevant parties i.e. wife, if married in community of property, or trustees in case of a trust etc.) must sign the relevant documentation in the presence of a conveyancer, where after the application and the Certificate of Registered Title will be lodged at the Deeds Office together with all required supporting documentation. Once the documents have been lodged at the Deeds Office, an estimated time of between two to three weeks should be expected before registration can take place and the Registrar of Deeds issues a Certificate of Registered Title or in the case of immediate transfer, a Deed of Transfer. Delivery of the latter title should occur within six to eight weeks after date of registration.
All in all, a team of experts should be in a position to register an uncomplicated subdivision of land such as that of Mr Jones (excluding transfer of the subdivided portion of land), between 18 to 30 months from start to finish. The costs of the various professionals involved, will depend on the extent of their involvement, and will vary according to the complexity of the subdivision. It is advisable though to obtain quotes or estimates from the various professionals involved before the subdivision process commences.
Please note that this article is a generalisation on the course of action taken during uncomplicated subdivision applications and these requirements, timeframes, costs and processes may differ for various Provinces and Local Governments. If considering a subdivision, it is advisable to contact a conveyancer to assist you with specific queries or applications and for a referral to a town planner, land surveyor and engineer that can assist you in managing your proposed project efficiently and cost effectively.
The low down on lawful evictions
Housing is a vital and primary need for each person. As most of us acquire accommodation by lease or through home loans or even through state housing provided by municipalities, it is important to know your rights and what the correct procedure is for lawful evictions.
With the exclusion of farm land, lawful evictions from residential premises, buildings or structures thereon, which includes any hut, shack, tent or similar structure or any other form of temporary or permanent dwelling or shelter, is governed by the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998, commonly known as the PIE Act.
Who has a right to evict?
The right to evict under the PIE Act is given to a registered owner of premises or to a person in control of the residential premises in question. Persons in control of residential premises include:
A lawful tenant
The executor administrating the estate which includes the premises
Any other agent acting on the lawful instructions of the owner
Who can be evicted?
People who can be evicted include the following people who remain in occupation of the premises:
Defaulting tenants whose lease agreements are terminated
Defaulting mortgagors whose bonds were cancelled and property sold in execution
Unlawful occupiers and squatters
Any other person who does not have the express consent of the owner or person in lawful control of the premises
What are the special considerations?
When dealing with eviction applications our courts are obliged to give special consideration to the elderly, children, people with disabilities and also households headed by women. All facts and circumstances of such persons must be highlighted to the court for the evaluation of such special considerations.
Lawful eviction procedure:
Step 1 - Eviction notice/demand
An eviction notice or demand serves to warn the occupant of the intended eviction and it usually provides the occupant 30 days to vacate the premises. It also affords parties the opportunity to negotiate settlement terms or terms and timeframes for vacating the premises. This letter may be served by the Sheriff of the Court, by hand at the premises or by registered post.
Step 2 - Court application for eviction
A court application by way of a notice of motion with a supporting affidavit, must be served by the Sheriff on the occupant and on the relevant municipality. This will set out the court appearance date and the dates when the occupant must file their opposing court papers if they intend to oppose the eviction application. The occupant must receive the court application papers at least 14 days before the court date.
Step 3 - Appearance in court for hearing of eviction application
A Court is obliged to consider all relevant facts relating to the eviction application at the appointed dated for hearing the application. Legal representatives of the parties will be afforded an opportunity to present oral and written legal arguments on behalf of each respective party. The Court will then through a Court Order, if the application is succesful, provide the occupant sufficient time to vacate which is ordinarily up to 1 month with a provision that should the occupant fail to vacate in that period, the Sheriff is authorized to remove the occupant and all belongings from the premises at the costs of the occupant.
Step 4 - Forced eviction of occupant by Sheriff
The Sheriff will first serve a copy of the Eviction Court Order on the occupants. The Sheriff will then usually be authorized to forcefully remove the occupants after the vacation date appointed by the court has lapsed. The Sheriff may also be authorized to obtain the assistance of the police where necessary and he may also be authorized to remove the belongings of the occupants including to demolish any erected structures. The Sheriff may take up to 3 weeks to execute the eviction Court Order after making necessary arrangements to evict the occupants.
Lawful evictions can take between 2 to 3 months to be concluded and they can become technical and even costly. A landlord, owner or a person in control who wishes to evict, and a tenant or occupant against whom eviction processes are being commenced, are in both instances advised to seek legal advice from an attorney specialising in evictions to ensure that the eviction process is lawful and carried out correctly. Following the correct lawful eviction procedure minimizes frustration, costs and potential further rental losses and avoids the need for conduct like changing locks, disconnecting utilities and even intimidating conduct, which in itself can result in legal action being taken by unlawful occupants against owners or landlords.
Maintenance and Sectional Titles: Who must pay?
An issue that can often raise the blood pressure of sectional title owners, is the question surrounding maintenance within a sectional title scheme, particularly where maintenance costs are going to cost an arm and a leg. So where does the responsibility of the sectional title owner for maintenance begin and end?
To answer this question, one must first recognize that there are different types (or classes) of property when dealing with sectional title schemes. They are common property, sections and parts of the common property that are subject to rights of exclusive use by one or more owners in the scheme.
The Sectional Titles Act dictates that the Body Corporate is responsible for the maintenance of the common property. This is property not forming part of a section and includes the land in the scheme. The Body Corporate must see to it that the common property is maintained, repaired when necessary and foot the bill for the repairs. The common property can include, inter alia, elevators, the outside of the building, roof, common gardens and parking bays, driveways, security systems, street lights, communal passages and staircases, and shared swimming pools. An exception can exist where it comes to geysers. Often a geyser is situated above the ceiling, and can then be seen to form part of the “common property”, yet in this instance, the owner often remains responsible for the upkeep and repair and not the Body Corporate.
The maintenance of sections is the sole responsibility of the owner. A section extends from the centre line (median line) of the walls, floors and ceilings, this area is the property of the owner and with ownership of said area follows the responsibility for maintenance and repair. Keep in mind that shirking this responsibility may have a negative effect on another section. Should there for example, be a leak in your section and the water causes damage to a section below or adjacent, you may face a claim for damage from the owner of the section below or adjacent and not the Body Corporate.
There is a noteworthy exception to the maintenance of a section. The Body Corporate is responsible for maintenance of “pipes, wires, cables and ducts” in a section that also serve any other section or the common property.
The third type of property is the exclusive use areas. As the name suggests, these areas remain common property and the responsibility for maintenance rests with the Body Corporate, but the Sectional Titles Act states that costs associated with these areas must be recovered from the owner or owners who enjoy the rights of exclusive use to the said areas. On the one hand the Body Corporate must see to the maintenance of these areas, but the owner or owners are financially responsible. It is common practice that the owner who is financially responsible for this area, maintain the area with the result that it is unnecessary for the Body Corporate to spend money on this area and then still recover such from the owner.
Although the question of maintenance appears straightforward, disputes are common and frequent. A simple example is where a leak in section A causes damage to section B or the common property and the owner of A does not repair the leak. May owner B or the Body Corporate take matters in their own hands? How will they gain entry without permission from owner A? If the Body Corporate or owner B repairs the leak and owner A refuses to reimburse the Body Corporate or owner B, what recourse can be followed?
Because of the financial and legal implications of maintenance and the potential complexity of a dispute it is advisable that legal advice be obtained in the event of such a dispute to help determine the allocation of responsibility and merits of your claim.
Buying a house? Beware of restrictive title conditions
Tony and Jen have just bought a house in a popular residential area. They plan to make this house their home and raise their family in it. Fast forward ten years and Tony and Jen wish to extend their house in order to make room for their third child that is on the way. Imagine their frustration when they find out that they cannot add even one more room to the house due to restrictions on the title deed!
Buying property is an important step in a person’s life and serves as an investment for the future. However, the process of buying a house can be a laborious and daunting, beginning with the search for the ideal and affordable house in the right area, making a considered offer and, on acceptance of the offer, getting the loan application approved and possibly selling your current property. There’s a plethora of factors to consider before buying a house and as a result by the time buyers find the perfect house they just want to seal the deal. Alas, often forgotten is the important check of the title deed for any existing restrictive conditions – a potentially disastrous mistake for buyers having ‘big’ plans for the property and not having beforehand familiarized themselves with the title deed of the property.
Often residential property title deeds contain restrictive conditions, most importantly perhaps, restrictions regarding the size, number and placement of dwellings and other buildings that may be erected thereon. Simply put, these restrictive conditions limit the owners’ use and enjoyment of their own property in the sense that they often indicate a limitation or prohibition on some action by the property owner.
Some common restrictive conditions include the following:
No building or other structure may be erected within the servitude area.
No large-rooted trees may be planted within the servitude are.
The erf is subject to servitude for transformer purposes.
The erf is subject to servitude for municipal purposes.
To avoid wearing Tony and Jen’s shoes, buyers should, before finalizing their offer, request their attorneys to obtain a copy of the title deed and consult with them to discuss any restrictive conditions therein, particularly where these conditions may impact on their future plans.
The consequences of not reading or obeying the title deed conditions carefully can be disastrous as illustrated in the case of Van Rensburg NO and Another v Equus Training and Consulting CC and Another. Equus Training CC (“Equus”) owned residential property in Port Elizabeth and embarked on a venture to build a guest house on its property. Equus went ahead with building works that extended over the building line, a restrictive condition prescribed in the title deed. A neighbour applied to the court for relief and the court subsequently held that Equus was interdicted from continuing with any building work that encroached over the building line of the property and that all building works that encroached should be demolished at the expense of Equus.
The above is not intended to discourage property buying but rather act as a warning to the general buyer to be careful when considering an offer and include in his due diligence also an investigation of the title conditions (if any) of the property. Often the sale agreement also contains a waiver clause that transfers the risk of restrictive title conditions to the buyer and if the buyer’s homework has not been properly done, the buyer may be sorely disappointed when his future plans are affected by restrictive title conditions.
The ‘what’, ‘how’ and ‘why’ of sectional title levies
The payment of levies is the backbone of any sectional title scheme making the management of levies and awareness of how levies can be charged vital to the managers and owners of sectional title units, including what can happen if levies are not paid.
What are levies?
When you buy a sectional title unit in a sectional title scheme, as owner you will be required to pay a certain monthly amount, in the form of levies, to the body corporate of the sectional title scheme which must be used for the maintenance and day-to-day management of the scheme. According to the Sectional Titles Act (“the Act”) the owners have to pay levies and the body corporate is required to collect such.
What are levies for?
Levies can be applied for a number of purposes, most prominently being:
Repair, upkeep, management and administration of the scheme’s common property.
Payment of taxes (if units are not taxed separately) and other local authority charges for electricity, gas, water, etc. of the common property.
Fulfilment of an obligation incurred by the body corporate.
Salaries of staff (cleaners, gardeners etc.) employed by the body corporate.
Payment of contractors, etc.
The body corporate will at its annual general meeting determine the levies for the year based on the budgeted expenditure of the scheme for the following year. Owners may sometimes also be required to pay a special levy to cover a certain project such as the instalment of an electric gate or swimming pool for the complex or to cover unseen expenses such as essential repairs and maintenance.
How are levies calculated?
Levies can be calculated:
on the basis of measured floor area (participation quota);
on an equal pro rata basis; or
on the value of each owner’s investment in the scheme.
Participation quota basis:
This is generally the most common basis for determining the levy contribution of an owner. According to the Act, in the case of a scheme for residential purposes, the participation quota of a section shall be a percentage expressed to 4 decimal places, and arrived at by dividing the floor area of the section by the floor area of all the sections of the buildings comprised in the scheme.
The body corporate is in some instances allowed to move away from this prescribed expense-sharing formula, and a developer can, when submitting an application for the opening of a sectional title register, or the members of the body corporate by special resolution, make rules in terms of which a different value is attached to the vote of the owner of any section, or the liability of the owner of any section to make contributions, is modified. In practice all common expenses, whether special or not, will under this basis of allocation be paid by the owners according to their participation quotas based on floor area, unless amended by special resolution of the body corporate.
Equal pro rata basis:
The equal pro rata payment of levies is where each owner pays the same amount each month. It does not matter what the size of the owner’s unit is or which unit is responsible for the most expenses, as all units are treated exactly the same. This approach can be used for all the expenses of the scheme or only for certain specified expenses. This can be appropriate where the units are broadly similar, but can likewise be very unfair where units differ dramatically in size and contribution to expenses.
Each owner’s investment in scheme basis:
In this instance levies are calculated based on what each owner’s investment in the scheme was. This formula is not frequently used and is not very popular as the investment value can become dated and can differ from unit to unit as units are resold.
Non-payment of levies
The Act makes the payment of levies by owners in a sectional title scheme compulsory. If an owner thus does not pay levies, he is in breach of the Act and steps can be taken against the owner by the trustees of the Scheme. These steps can involve a basic demand to pay, to eventual repossession of the unit and ultimately sale in execution of the property to recover arrear levies. Importantly, non-payment is actionable and steps can be taken to recover arrear levies.
The importance of paying levies
If owners do not pay their levies, necessary income required to operate the scheme is not obtained, ultimately affecting the value of each owner in the scheme due to necessary maintenance and upkeep not being done, security being compromised and the overall respectability of the complex being tarnished.
Additionally, the Act determines that if you wish to sell your sectional unit, the transferring conveyancer is required to certify that the body corporate has confirmed that all monies due to it in respect of that particular unit have been paid or has been secured to the satisfaction of the body corporate. Accordingly, if an owner in arrears wishes to sells his unit, he will first have to obtain a ‘levy clearance certificate’ from the managing agent or trustees before the unit can be legally transferred to the buyer. If levy payments have fallen behind, this can become a major cash flow concern for an intending seller as the trustees or managing agent will refuse to issue such a levy clearance certificate until all arrear amounts owing to the body corporate have been paid.
Whether your levy is large or small or based on your participation quota or another method of calculation, the continued payment of your levy is essential to the continued success of the scheme. This does not require you to pay blindly, and is the involvement of a sectional title owner in the annual budgeting and levy allocation of the scheme, encouraged. In this regard, the assistance of a property specialist can be obtained to help clarify any uncertainties that may arise.
What is meant by a suspensive condition in a contract?
Most persons that have bought a property, may have noticed a clause dealing with suspensive conditions in the contract of sale. Usually these conditions relate to deposits that need to be paid, financing that has to be procured and/or another property that needs to be sold before the sale can be confirmed. The interpretation appears straightforward enough - meet the requirements, then the contract is valid; don’t meet them, then the contract is invalid. But is it that straightforward? And what are the consequences of non-compliance?
A condition contained in a contract can in layman’s terms be described as a provision that defers the obligation(s) of a party in the contract to the occurrence of some future uncertain event. This is usually termed a ‘suspensive condition’ or a ‘condition precedent’.
Legally a suspensive condition can be described as a condition which suspends the operation or effect of one, or some, or all, of the obligations under a contract until the condition is fulfilled. If the condition is not fulfilled, then no contract comes into existence. Once the condition is fulfilled, the contract and the mutual rights of the parties relate back to, and are deemed to have been in force from, the date of the signature of the agreement and not the date of the fulfilment of the condition.
The Supreme Court of Appeal recently confirmed that where a suspensive condition is not fulfilled timeously, it lapses and the parties are not bound by it, even though one party has performed fully. In the matter of Africast (Pty) Limited v Pangbourne Properties Limited the parties concluded a contract for the development of commercial property in an area in Gauteng. One of the suspensive conditions in the contract was that Pangbourne’s board of directors had to approve the contract and written approval had to be presented to Africast within seven working days from the date of conclusion of the contract. The contract was signed on 11 April 2007 and Pangbourne’s board of directors approved the contract on 20 April 2007, however the written approval was only provided on 25 April 2007 to Africast which was after the required seven day period. Pangbourne decided after 18 months that since the suspensive condition had not been met within the stipulated period, it was not bound by the contract and refused to deliver the required guarantees. At that stage buildings had already been constructed by Africast in terms of the agreement. The Court confirmed Pangbourne’s view that since the suspensive condition in the contract had not been fulfilled timeously no contract had come into existence and that the contract had lapsed due to non-fulfilment of the suspensive condition. The Court came to this conclusion notwithstanding the fact that both parties had performed in terms of the agreement for some 18 months.
The most common appearance of suspensive conditions is in contracts involving the sale of immovable property such as a house, flat, plot or farm. The conditions that are generally encountered in the contract of sale is that the sale is subject to the purchaser obtaining a bond from a financial institution and/or that the sale is subject to the purchaser selling his existing property within a certain time frame. It is important to bear in mind that suspensive conditions are usually inserted in a contract for the benefit of one of the parties to the contract. In the abovementioned scenario the suspensive conditions are included for the protection of the purchaser. Should the purchaser fail to obtain a bond and/or sell his existing property within the required time frame, the contract would not have any force or effect and the purchaser will not be bound to the terms and conditions of the contract. Non-fulfilment of a suspensive condition renders the contract void and should the parties still wish to continue with the sale, a new contract of sale may have to be concluded.
If a suspensive condition is included for the benefit of a particular party to a contract, such suspensive condition can be waived at any time prior to the lapsing of the time for the fulfilment of the suspensive condition by the party for whose benefit the condition was included. Having regard to the scenarios mentioned above, the purchaser may accordingly at any time before the lapsing of the period of the suspensive condition, inform the seller that he waives the suspensive condition and that the contract is no longer subject thereto. This will then make the contract unconditional and the purchaser and seller will be bound to the terms of the contract.
It is always prudent to tread carefully when entering into a contract that is subject to a suspensive condition. Be aware of the stipulated time frames for compliance, for whose benefit the conditions are inserted and the requirements to prove compliance. If necessary, ensure you seek legal advice before you sign the contract and also obtain advice before you waive any conditions that have been inserted for your benefit.
Evicting the Unlawful Occupier: Why the PIE is not always so tasty!
It is now the third month in a row the tenant has failed to pay his rental, and it doesn’t look like this tenant will ever be in a position to make up the outstanding rent. Can you quickly evict the tenant and replace him with a new one, or is it not quite that easy? What does our law say?
In our law the current procedure to evict a tenant is unfortunately not one that has been built for speed, and often appears to favour the unlawful occupier rather than the owner. The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (“PIE”), was enacted in 1998. PIE drastically changed the landscape in respect of evictions. PIE established a definite distinction between commercial property and residential property, with PIE only applying to residential properties.
According to PIE no person can be evicted from a residential property without a court order that enforces such eviction, and acquiring such court order can be time consuming as it can often take upwards of three months to obtain. When considering that every month you are suffering loss of rental, potential damage to property and you may have to incur legal costs, the costs related to this period can add up quite quickly.
Waiting for a litigious matter to be settled can be accepted as a ‘normal’ risk when renting out one’s property. However, sections 4(6) and 4(7) of PIE, add a further complication to the eviction process:
“4(6) If an unlawful occupier has occupied the land in question for less than six months at the time when the proceedings are initiated, a court may grant an order for eviction if it is of the opinion that it is just and equitable to do so, after considering all the relevant circumstances, including the rights and needs of the elderly, children, disabled persons and households headed by women.
4(7) If an unlawful occupier has occupied the land in question for more than six months at the time when the proceedings are initiated, a court may grant an order for eviction if it is of the opinion that it is just and equitable to do so, after considering all the relevant circumstances, including, except where the land is sold in a sale of execution pursuant to a mortgage, whether land has been made available or can reasonably be made available by a municipality or other organ of state or another land owner for the relocation of the unlawful occupier, and including the rights and needs of the elderly, children, disabled persons and households headed by women.”
This essentially affords the courts a discretion to grant an eviction order or not. The relevant circumstances as given in these sections are the rights and needs of the elderly, children, disabled persons and households headed by women. This means that even though you are the lawful owner of the property you can still ‘lose’ the use and enjoyment of your property if the court finds that these or other similar circumstances are present.
Although PIE is intended in part to help protect these vulnerable and easily exploited groups, it does in effect mean that unlawful occupiers could stay in your property for an indefinite period of time in accordance with what the courts deem as being just and equitable under the circumstances.
PIE does make provision for urgent applications which can dramatically shorten the time to evict an unlawful occupier. In this regard section 5 of PIE determines as follows:
“5(1) Notwithstanding the provisions of section 4, the owner or person in charge of land may institute urgent proceedings for the eviction of an unlawful occupier of that land pending the outcome of proceedings for a final order, and the court may grant such an order if it is satisfied that-
(a) there is a real and imminent danger of substantial injury or damage to any person or property if the unlawful occupier is not forthwith evicted from the land;
(b) the likely hardship to the owner or any other affected person if an order for eviction is not granted, exceeds the likely hardship to the unlawful occupier against whom the order is sought, if an order for eviction is granted; and
(c) there is no other effective remedy available.”
Although urgent relief can be obtained, this places a heavy burden of proof on the owner, and even more so when the vulnerable groups are involved whose hardship in the event of an eviction order being granted may outweigh that of the owner.
So what can a lessor do to evict? Firstly, it is important to seek legal advice and ensure that you have a well drafted lease agreement. Evicting unlawful occupiers with a well drafted lease agreement is hard enough, not to add further complications with a sloppy contract that is vague and ambiguous. Needless to say a verbal lease agreement is never a good idea.
Secondly, and unfortunately, it is important to be patient when dealing with these matters. Sometimes it is may even be beneficial to help the unlawful occupiers relocate, even though this might put you out of pocket in the short term.
Thirdly, landlords should consider requiring a deposit of at least two months rental to cover monies due by defaulting tenants.
Lastly, pre-screening of lease applicants is vitally important. A little upfront due diligence can go a far way in helping identify bad tenants and avoiding time-consuming eviction processes at a later stage.
Electrical fencing certificates: Do I need one?
The use of electrical fencing as a means to secure fixed property, and in particular also residential property, has escalated dramatically over the last few years. To address this increasing demand the market has been flooded by suppliers offering electrical fence installation services. Understandably the necessity to regulate safety issues in respect of these installations has led to the promulgation of the Electrical Machinery Regulations in terms of the Occupational Health and Safety Act which regulate electrical fencing and its certification.
What implications do the Regulations have for electrical fences?
The Regulations stipulate that all electric fences installed after 1 October 2012 must be certified and have an electric fence system certificate of compliance. It also applies to electric fences that have been altered, added to or where ownership of the premises changed after 1 October 2012
What effect does the Regulations have on the transfer of property?
The Regulations stipulate that where there is a change of ownership of the premises on which the electric fence exists after 1 October 2012, the user must obtain an electric fence certificate.
This means that a homeowner whose installation was done prior to 1 October 2012 is not required to obtain such a certificate, but that such a certificate will be required by the user if the property is transferred after 1 October 2012 and the user wishes to utilise the system.
It is not stipulated which party (buyer or seller) is responsible for the certificate and it is up to the parties to negotiate the matter of certification as well as the cost thereof. In practice it often occurs that this obligation falls to the seller in the same way as with electrical and gas certification. However, the Occupational Health and Safety Act does allow this undertaking to be transferred and a clause can be included in the sale agreement which relieves the seller of his responsibility to obtain certification and places an obligation on the purchaser to ensure that the system is certified as compliant at the cost of the purchaser. This may particularly be relevant where the seller is exempted from obtaining a certificate and that responsibility falls to the purchaser who wishes to use the electric fence.
Additionally, if a certificate has been obtained, a new certificate may be required if there has been subsequent alterations or additions to the system. Accordingly, when property is sold it would be wise to add a clause in the sale agreement that states that there have been no additions or alterations to the system (if this is in fact the case), allowing the existing certification to remain valid.
Is your electric fence certificate transferrable and for how long is it valid?
The certificate is transferable from one owner to the next. Once it has been issued there is no need for another one. Unlike the electrical compliance certificate which is only valid for two years, the electric fence certificate does not expire, unless additions or alterations have been done to the electric fence after the certificate has been issued, in which case a new certificate is required.
From the above it is clear that electrical fencing certification, particularly when dealing with the transfer of property, is vitally important. Additionally it is also clear that the responsibility for obtaining the certification and cost thereof is a negotiable item which can be addressed in the sale agreement. Discuss the certification of the electrical fence with your estate agent or legal advisor and ensure that this responsibility is addressed beforehand where possible.
The powers of trustees in the conclusion of agreements with third parties
The question which arises when contracting with a trust is whether or not the trustee you are contracting with has the necessary authority to enter into a contract and bind the trust as an entity to the contract. In this article we briefly examine what you can do to safeguard yourself when contracting with a trust and what potential ramifications exist when you do contract with a trustee who does not have the necessary authority.
Firstly, one must briefly consider the nature of a trust to understand the legal implications of dealing with a trust. A trust can be defined as a legal institution in which a person, namely a trustee, holds and administers property separately from his own property for the benefit of another person(s). A trust is therefore created by a founder through a contract for the benefit of a third party(s) who on the acceptance of the benefit acquires certain rights under the trust. In South African law we distinguish between two types of trusts, namely a trust set up by a living founder, legally referred to as an inter vivos trust, and a trust that is set up by a deceased person in his will, legally referred to as a mortis causa trust. The former will more often than not be the form encountered when dealing with a trust in daily life.
The trust deed is the founding document of a trust and is a public document which is lodged with the Master of the High Court. Each trust is also allocated a unique identifying number by the Master and the Master issues Letters of Authority to each trustee authorising him to represent the trust.
The trust deed is vitally important as it provides for the appointment and powers of the trustees to act under the trust. If a trust deed for example provides a trustee with the power to sell trust property, this does not automatically include the authority to rent the property to third parties, unless the trust deed also makes provision for such powers.
Accordingly, when contracting with a trust it is important to have insight into the contents of the trust deed. The trust deed may contain provisions regarding which trustees may represent the trust and whether all of the trustees’ consent is necessary for the conclusion of a contract and if not, what authorisation is then required from the other trustees.
It is clear in our law that, unless the trust deed specifically provides otherwise, trustees must act jointly when dealing with third parties if they are to validly bind the trust estate. Therefore a third party dealing with a trust should as a rule of thumb always assume that the contractual powers of the trustees have to be exercised jointly by all the trustees unless the trust deed specifies otherwise.
What then are the consequences of a third party entering into a contract with a trustee who is not authorised to act on behalf of the trust?
It has been suggested that in some instances a third party could still hold the trust bound to the terms of the agreement, notwithstanding the fact that the trustee was not authorised to represent the trust or conclude an agreement to bind the trust, if the third party can show that he was falsely misled to his detriment into a contract with an unauthorised trustee. The applicable remedy for the third party in that instance may be estoppel, unless the third party was aware of the contents of the trust deed and that it did not empower the trustees to delegate their powers to one of them, in which event the third party would not be able to rely on estoppel.
However, as a trust deed is a public document and accessible to the public, it is a far safer approach to request the other contracting party for a copy of the trust deed and authorising resolution providing the necessary authority. Additionally, obtaining a copy from the relevant Master’s office is also a possibility, although not necessarily an easy exercise. Once obtained, these need to be scrutinized to ensure that the trustee representing the trust has the necessary authority and that the trust deed makes provision for the type of agreement that is being entered into.
One should also tread carefully if the trust deed allows for a trustee to be authorised, but that authorisation has not been given yet, even though verbally confirmed to be present or “will be provided” by the representing trustee. Our courts have held that in some cases an agreement, depending on the underlying requirements for the conclusion of a specific type of agreement, may be void in totality even though all of the trustees after the fact consented to the conclusion of the agreement.
In conclusion, it remains prudent to be cautious when contracting with a trust. Firstly, always request the third party for a copy of the trust deed and verify that the trustees who purport to represent the trust are indeed representatives of the trust. Secondly, you should have insight into the trust deed to establish whether the trust may conclude the type of agreement it intends to conclude. Thirdly, should there be more than one trustee, they must act jointly if the trust is to be held bound by the terms of the agreement unless the trust deed indicates otherwise. Finally, should a trustee indicate that he is authorised to act on behalf of all of the trustees, then a resolution by all the trustees to that effect and signed by all of the trustees must be provided together with clear provision in the trust deed that allows for such authorisation.
To assist in ensuring that your transaction is successful and enforceable it is important that you request the assistance of a legal advisor to scrutinize the provided information and advise you regarding possible concerns in relation to the transaction and the authority of the purchaser to effectively bind the trust in your transaction.
Property Transfer: Let’s break it down!
The complex process of transferring property frequently leaves buyers and sellers alike confused, frustrated and in the dark as to what exactly the sequence of events are to have a property transferred. With the sale agreement signed, surely the hardest part has been taken care of? The reality is, that our property regime in South Africa is quite sophisticated and with numerous stakeholders and role players impacted by a transaction, the actual process of transfer can become quite complex. Accordingly, it is important to understand the procedure and prepare oneself for the steps of the transfer process.
Firstly, it is unfortunate that more often than not, the transfer process takes longer than expected, often due to technicalities arising or as a result of the complexity of having many stakeholders (multiple attorneys, financial institutions, SARS, Deeds Office, local authority etc.) involved. A delay by any one party can impact the flow of the entire transaction. The upside is that our property system is extremely accurate with special measures taken to verify that all documents are 100% correct and that each and every land purchase is verified and documented by the Registrar of Deeds.
The process can also involve multiple attorneys (transferring attorneys, bond cancellation attorneys, bond registration attorneys etc.) with these specialists also playing a crucial role in coordinating a speedy registration. Accordingly, choose your attorneys, especially the transferring attorneys, with care as this choice could affect the speed of your transaction.
The transfer of property (conveyancing) includes all the administrative and legal procedures necessary to transfer ownership (and other real rights) in immovable property from one person to another. A practicing attorney who has passed the National Conveyancer’s Exams and has been admitted as a Conveyancer of the High Court of South Africa is officially recognised to draft the required specialised documents and deeds that are required for registration in the Deeds Office.
The contract of sale
The transfer process will generally commence with a contract of sale and end with a bond registration and/or the registration of the transfer of the immovable property. In the event that an attorney did not draft the offer to purchase and a standard form is used by the estate agent , it is the responsibility of the estate agent to explain the terms of the contract to the relevant parties and ensure that the contract is validly concluded. The contract of sale must be in writing, clearly identify the property being sold, the purchase price and the terms of payment, and must be signed by both the purchaser and the seller before the transfer process can commence.
The transferring attorney
The transferring attorney receives the instruction from the client or the estate agent to attend to the transfer. Generally, unless the parties agree otherwise the seller usually nominates the transferring attorney.
Upon receiving the instruction, the transferring attorney will conduct a deeds search on the property to verify that all the property and related information is correct. It may also be necessary to do a company search to verify the directors of a company who is a party to the contract. In order to comply with FICA requirements the transferring attorney will require the purchaser's and seller's details. Accordingly, the following documents will generally be required from all the parties:
Copies of identity documents
Proof of residence
Income tax number or VAT registration number
Marriage certificates (in case of a marriage in community of property, also FICA documents for the spouse)
In the case of a close corporation or a company, the details of the directors, shareholders or members. Additionally, the incorporation documents of the legal entity or the trust deed and trust letters of authority will also be required.
The conveyancer will also request the original title deed from the seller or in the case where a bond is registered, the bond account number and details of the bond holder to request cancellation figures.
The conveyancer will also upon receiving and verifying the above information institute the following actions:
Rates clearance figures from the local authority
In order to obtain a Rates Clearance Certificate the seller is required to make payment of rates for a period of 3 months in advance. This amount is calculated on an estimated amount calculated over a 24 month period and the Deeds Office will not register any transfer without proof that the rates have been paid. However, if any taxes are owed, the seller is not exonerated and the taxes will still have to be paid by either the seller or the new owner as per their contract of sale. It is worth noting that this can sometimes be quite a lengthy process to be finalised, depending on efficiency of the relevant local authority.
Transfer duty or VAT receipts from sars via e-filing
Transfer duty for natural persons and legal entities are calculated on a sliding scale according to the purchase price of the property and the SARS e-filing system ensures that all parties (including the relevant estate agent/agency) are registered and that their taxes are up to date. VAT is payable if the seller is a registered VAT vendor. As a result this process can take some time to be completed and it is essential that all parties provide the correct tax details to the transferring attorney and resolve any tax issues prior to submitting the e-filing applications. This will ensure you avoid any unnecessary delays.
Electric compliance certificate from a certified electrician
The seller will usually obtain this certificate but there should always be a clause in the sale contract that indicates who should obtain it and who bears the cost of this certificate.
Other compliance certificates
Other certificates may be required to be obtained such as a gas or electrical fence compliance certificate (as applicable). Again the sale contract should address which party is responsible for these certificates and who must carry the associated cost.
Levy clearance certificate from the managing agents/body corporate (sectional title)
This is required where the property is part of a sectional title scheme to verify that all outstanding levies in respect of the sectional title have been paid up to date.
Transfer documents drafted and prepared
Upon receipt of the necessary information the transferring attorney will draft and prepare the necessary transfer documentation for signature by the buyer and seller and arrange to meet with the buyer and seller to sign the documents.
Documents to be signed by seller:
Power of attorney
Transfer duty declarations
Affidavits (Solvency; FICA)
Resolutions (if applicable)
Documents to be signed by purchaser:
Transfer duty declarations
Affidavits (Solvency; FICA)
Power of attorney for bond documents
After signature of the documents by both the buyer and the seller, the transferring attorney will await receipt of the following documentation before lodgment at the Deeds Office can take place. This can be a lengthy wait if delays are experienced with any of the other transaction role players.
The rates clearance certificate from the local authority
Clearance certificate from the managing agents/body corporate
Guarantees from financial institutions
The original title deed from the owner
Consent of the bond holder to cancel the existing bond
Consents required in terms of conditions in the title deed i.e. servitude or other registered real rights
Lodgment at the Deeds Office
Documents for transfer of the property, the bond documents for registration of the new bond and the documents for cancellation of the seller's bond are linked and lodged at the Deeds Office simultaneously by all the attorneys involved.
Preparation of the deeds in the Deeds Office
It takes a number of days to check all the documentation before it is ready for registration. The conveyancers get an opportunity to correct any mistakes noted by the examiners unless the deeds are rejected. The deeds are then prepared for registration and execution.
Registration of the deeds
The Registrar executes the deed and updates the register and microfilms a copy of the deeds.
The transferring attorney will advise all parties of the registration, present guarantees for payment and prepare the final accounts for the buyer and the seller, subsequently the seller will be paid the purchase price.
Delivery of registration documents
Upon receipt of the documents from the Deeds Office the transferring attorney will send the title deeds to the bondholder/s for safekeeping. If there is no bond, arrangements will be made with the purchaser to collect the necessary documents or have such sent via registered post.
As is clear from the above, there are a number of steps and processes that must be completed before a transaction can be registered. A good transferring attorney will facilitate the management of the process, but the availability of the required information and the speed of delivery of required documents from third parties are critical to the conclusion of the transfer process. This is where you can assist by ensuring that information provided is complete and assist where possible with the retrieval of the required documents.
Water leak? Whose responsibility is it?
Maintenance of a sectional title scheme can appear straightforward, but the reality is that disputes arise frequently regarding maintenance issues relating to sectional title units. This is often the result of the complex relationship of close quarter living and the shared form of ownership represented by sectional titles. Making things even more complicated is the silence of the Sectional Titles Act on many of the nitty gritty issues encountered daily in sectional title schemes. So how does one approach maintenance issues in a sectional title scheme?
Let’s look at the following scenario to provide perspective on the complex situation that can arise:
Dave owns a section on the second floor of a sectional title scheme. There is a water leak coming from flat A above him, causing damp problems in his flat and the owner of flat A does not repair the leak. This scenario creates a flurry of questions:
Can Dave or the body corporate repair the leak?
Can they enter flat A or do they need permission from the owner first?
If the owner of flat A refuses to grant access, what are they to do to stop the leak and further damage occurring?
Who is responsible for the damage the water caused?
Can the damage be claimed from the body corporate’s insurance?
The law with regards to responsibility
Section 44(1)(a) and (c) of the Sectional Titles Act read with management rules 68-70 of the Sectional Titles Act provides that an owner must repair and maintain his section in a state of good repair. The owner must also allow a person authorized in writing by the body corporate to enter his section at a reasonable time and after notice was given (except in case of emergency when no notice is required) with the purpose to inspect, maintain, repair or renew the pipes, wires cables and ducts capable of being used in connection with the enjoyment of any other section or the common property.
Section 37 of the Sectional Titles Act requires the body corporate to maintain and repair the common property. From this it is clear that if the leak originates from pipes that are used by more than one section and is situated in the walls separating these sections from each other, these pipes form part of the common property and are therefore the responsibility of the body corporate to maintain. However, it is the duty of the owner to maintain the hot water installation which serves his section, or, where such installation serves more than one section, the owners concerned shall maintain such installation pro-rata, notwithstanding that such appliance is situated in part of the common property and is insured in terms of the policy taken out by the body corporate.
But let’s complicate matters a little further. Who would be responsible for the repair of and damages caused by water due to the fact that the shower base of flat A has not been properly sealed? This water leak has nothing to do with the pipes and the shower base does not form part of the common property. In this instance the Sectional Titles Act fails to provide a clear answer for this position and therefore a practical solution must be found.
The law with regards to insurance
Section 37(1)(f) of the Sectional Titles Act provides that the body corporate must insure the buildings of the sectional title scheme against fire and such other risks as may be prescribed and management rule 29 provides specifically for the bursting or overflowing of pipes. A portion of a sectional title owner’s levy contribution is used by the body corporate to pay for building insurance.
Accordingly, an owner who sustained damages due to the water leak should be able to claim for the repairs of the damage. The sectional title owner will have to ask the trustees to lodge the claim on his behalf seeing that the insurance is on the name of the body corporate of the scheme.
The insurance company will request proof of the repairs from the sectional title owner who suffered the damage or the body corporate who effected the repairs (as the case may be) before they will pay out the amount for the damage caused to the section.
Depending on the insurance policy of the body corporate, certain assets may be included and in some instances excluded from the cover of the insurance. For example, if you could take a section in your hands and turn it upside down so that the roof is now at the bottom, all those belongings that fall to the roof will generally not be covered by the insurance of the body corporate (as is the case with most body corporate insurance policies). This means that if you sustained damages to your television or furniture it will not be covered by the insurance policy because it does not form part of the buildings.
There are, however, certain insurance policies that provide for what is often referred to as ‘resultant damage’. This type of clause in the insurance policy could cover the damage to your ceilings or carpets caused by the water leak. It is thus important for a sectional owner to make sure he knows and understands the insurance policy of the body corporate and to consider taking out his own insurance to cover the content of his section.
A possible solution
Until the Sectional Titles Act provides for an exact procedure to be followed with regards to maintenance aspects such as water leaks caused, for example, by a shower base that was not properly sealed, a workable practical solution must be sought.
In our opinion, in the above example where the leak is caused by flat A’s shower base and therefore forms part of the section and not the common property, it should be the responsibility of the owner of the section causing the damage and the leak to repair it.
If such an owner does not repair the leak within a reasonable time as to stop further damage, the owner suffering the damage can ask the body corporate to step in and repair the leak using the same procedure as in the instance where the leak is caused by pipes forming part of the common property. The body corporate can then recover the cost of repairs from the defaulting owner.
It is still in this instance also possible for the owner who suffered damages to his section to claim from the sectional title scheme’s insurance as set out above, although resultant damage may not be covered, depending on the policy.
From the above it is clear that in most instances the duty to repair will fall to the body corporate. It is only in a few instances where it will be the responsibility of the sectional owner to repair the water leak at his own cost. Until the Sectional Titles Act provides for specific solutions, the best way to approach a situation such as where a leak is caused by a shower base of a section is for the two sectional owners to resolve it themselves. If for any reason the sectional owner whose section is causing the leak does not want to repair the leak then the body corporate must be involved to repair the damage and claim the cost from the defaulting owner.
Non-Residents purchasing property in South Africa
There are no restrictions on property ownership by non-residents, save for a prohibition on illegal aliens owning immovable property within South Africa. There are, however, procedures and requirements which must be complied with in certain circumstances, such as, the local registration of entities registered outside of South Africa where it purchases property in South Africa and the appointment of a South African resident public officer for a local company whose shares are owned by a non-resident. In the event of a non-resident purchasing property in the country with the intention of residing here for longer periods, permanent residency will have to be applied for in accordance with the given requirements and procedures of South African law.
Purchasing Property In South Africa As A Foreigner
Property of any kind in South Africa is normally purchased through a broker or real estate agent who should be registered as a member of the Estate Agents Board.
The South African Reserve Bank refers to foreigners as NON-RESIDENTS whether they be natural persons or legal entities, whose normal place of residence, domicile or registration is outside the common monetary area of South Africa.
Should the non-resident be paying cash for the property, the transaction can be processed without intervention from the South African Reserve Bank.
Non-residents purchasing a property in South Africa may borrow up to a maximum of 50% of the purchase price in South Africa; the other 50% of the funds must be brought into the country by the purchaser and transferred from a recognised foreign bank to a bank in South Africa. The total amount that may be borrowed is at the discretion of the commercial bank offering the loan and we can assist in this regard using our in-house Mortgage consultants.
Non-residents who are in possession of a valid South African work permit are considered to be residents for the duration of their work permit and are therefore not subject to borrowing restrictions placed on non-residents without work permits.
All contracts to acquire land must be in writing, contain certain prescribed information and be signed by both buyer and seller to be valid and legally binding. Contracts most commonly take the form of an Agreement of Sale or Offer to Purchase.
Once an Agreement of Sale has been signed by both parties it represents a valid and binding document from which neither party can withdraw without legal consequences, save for certain instances where:
• the agreement is subject to certain conditions which are either fulfilled/not fulfilled;
• the purchase price is less than R250 000 and certain additional criteria in terms of the
Alienation of Land Amendment Act are present entitling the Purchaser to "cool off".
A non-resident must open a ‘non-resident’ account at a South African commercial bank, to facilitate loan repayments. This account would normally be funded from abroad or from rentals received on the property purchased, subject to the bank holding the account being provided with a copy of any rental agreement.
However, the Exchange Control Authority allows a non-resident desirous of obtaining permanent residence status in South Africa, to be dealt with as a South African ‘resident’ for exchange control purposes. This takes place upon completion of a so-called Immigrant’s Declaration & Undertaking issued by South African banks.
Once such Declaration has been completed, such applicant will be eligible to borrow 100% of the purchase price of the property. However, it will then be incumbent upon such person to actually apply for and obtain permanent residence within a reasonable period.
Exchange Control is currently going through a process of deregulation in South Africa, to make it progressively easier for foreigners to invest in this country, and for South Africans to do business abroad. However, it remains a complex subject and non-residents investing in South Africa are strongly advised to consult a reputable lawyer or accountant for advice. The Reserve Bank retains considerable control, and while notes and guidelines have been set, allowances will be made for exceptional circumstances.
South Africa is reputed to have one of the best deeds registration systems worldwide, with an exceptional degree of accuracy and of tenure being guaranteed. South Africa offers an unusual degree of certainty with regard to property ownership and property can be owned individually, jointly in undivided shares or by an entity such as a company, close corporation or trust or a similar entity registered outside South Africa.
Frequently Asked Questions
1. Is my investment secure?
The banking system in South Africa is dependable, established and highly advanced. Transfer of funds through any registered South African Bank is secure and guaranteed. Once the money transfer has taken place, it is usually held in trust by an attorney or real estate company, either on behalf of the purchaser or the seller until registration of transfer. The holding of the funds in trust by an attorney is a cornerstone of the attorneys' practice and is regulated by the relevant Law Societies and secured by the Attorney¹s Fidelity Insurance.
2. Will I be able to get my money out of South Africa?
The Exchange Control Rulings stipulate that funds brought into the country by a non-resident may be repatriated at any time, as well as any capital gain thereon after deduction of any Capital Gains Tax payable.
A new immigrant (that is, someone who has completed the Immigrant’s Declaration & Undertaking) may only repatriate funds introduced from abroad, and capital gains accruing thereon, within the first five years of the date of signature of such Declaration. Thereafter, such person will be bound by Exchange Control restrictions imposed on residents with respect to the repatriation of funds.
3. Can property be owned by a non-resident?
Non-residents can own property partially or wholly, in their own names or through ownership of an interest in one or other forms of legal entity, as discussed below.
4. What forms of ownership are available?
Freehold is the most common form of property ownership. Other forms of ownership include Leasehold, Sectional Title and Share Block.
5. Which is the best form of ownership?
The most common form of ownership is that of individual title. However, property may also be held through share ownership in companies, through holding membership in Close Corporations or as a beneficiary in a Trust. This choice will be dependent on decisions in relation to tax or transfer duty issues, or relating to the protection of assets.
Companies and Trusts in South Africa are based on English Law and are very similar in nature to those in England. A Close Corporation is a type of company, which is flexible and cheaper to form and administer than a normal incorporated company. A Close Corporation or a Trust can usually be formed in less than a month. A Proprietary Limited Company may take a few weeks longer. Pam Golding International will refer you to specialists who provide advice in each case as to the method of holding property best suited to particular needs.
6. Can property be leased to others?
Non-resident owners of South African property have all the normal rights of ownership including the right to recover rental income from lessees. Rental income is normally taxable in South Africa.
7. What is the procedure for transfer of ownership?
The registration of a property transaction is handled by a specially qualified legal practitioner known as a conveyancer. It is customary for the seller to appoint the conveyancer to attend to the registration of transfer of a property sold, whilst the costs attendant on same are for the account of the purchaser, unless contractually agreed to otherwise.
The conveyancer prepares the requisite transfer documentation that, after signature by the purchaser and the seller, is lodged in a regionally located Deeds Registry, together with the cancellation of any existing mortgage bonds and new mortgage bonds to be registered. The deeds are subject to an intense examination process whereafter they are made available for registration.
On date of registration of transfer all existing mortgage bonds registered over the property are cancelled simultaneously with the registration of any new mortgage bonds by the purchaser in favour of the bank granting financial assistance. The purchaser is recorded as the new owner of the property and the purchase price is paid to the seller.
The above procedure does not apply in an instance where the shares/members interest and loans are acquired in a property-owning company/Close Corporation where no change in ownership is recorded.
It is important to note that upon transfer to the new owner, any liabilities in respect of the property incurred by the previous owner, remain with the previous owner and do not necessarily pass to the new owner, unless otherwise agreed to.
8. Are there costs in addition to the purchase price?
There are various costs involved in the transfer of property in South Africa. The following are costs borne by the purchaser:
• A. Transfer Duty
Transfer duty is a tax levied by the government on transfer of ownership of fixed property.
Where the purchaser is a natural person, the duty is calculated on the following scale:
No duty up to R500 000 of the purchase price
R500 001 - R1 000 000 5% (R25 000)
R1 000 001 and above plus 8%.
Where the purchaser is a legal entity, transfer duty is levied at a flatrate of 8% of the
B. Transfer Costs - Conveyancing and Attorney's Fees
These costs relate to the transferring attorney. They are calculated on a sliding scale
regulated by a tariff and amount to between 1-2% of the purchase price.
C. Mortgage Costs
Mortgage costs are the costs incurred for raising mortgage finance. These fees include initiation and valuation fees. Mortgage registration fees according to a prescribed tariff are payable to the registering attorney.
Therefore: a home costing R500 000 with a 50% mortgage bond registered in your own name would attract additional costs of R2 996.
These costs are subject to change from time to time and a complete and updated table of costs is available from your Pam Golding Agent.
D. Estate Agents Commission
This fee, normally paid by the seller, attracts VAT (VAT is currently 14%).
9. Does a property purchase affect applications for permanent residence?
For any foreign person seeking to reside permanently in South Africa, applying for a permanent residence permit, or at least a temporary residence permit, is obligatory. Permanent residence applications are assessed completely independently of the issue of property in South Africa. However, the current immigration law and regulations do allow for immovable property owned in South Africa to be taken into account when assessing the applicant's net worth.
Before embarking on the process of applying for permanent or temporary residence in South Africa, it is best to consult with an immigration lawyer since South Africa's immigration laws have recently changed and are complex.
10. To what taxation am I liable?
For income tax purposes, South Africa is no longer a source-based taxation system. In February 2000 proposed changes to the South African tax legislation were announced and, although the actual legislation has not been promulgated, the government has indicated its intention to change from a source-based to a residence-based taxation system.
In addition, a Capital Gains Tax was introduced in October 2001 and clients are advised that it is prudent in all cases to seek professional legal and tax advice.
Signature Of Documents
Documentation prepared by the conveyancer pertaining to the registration of transfer of the property and any mortgage bond to be registered over the property is required to be signed in black ink and must be authenticated if signed outside South Africa. This is sometimes inconvenient and it is possible, and often advisable, to leave a General Power of Attorney in favour of an entrusted person within South Africa to assist in this regard. Where the purchaser is married, which marriage is governed by the laws of a foreign country and a mortgage bond has been applied for, please note that the spouse of the purchaser will be required to assist the purchaser in signing the mortgage bond documentation. Marriages according to the laws of the England and Scotland are exceptions to the aforegoing rule.
Buying A Property
Offer To Purchase/Agreement Of Sale
The Offer to Purchase/Deed of Sale will contain certain of the following standard provisions:
A deposit is not mandatory but serves as a gesture of good faith on the part of the purchaser and an indication of financial ability. This amount will be invested by the estate agent/conveyancer in an interest-bearing trust account for the benefit of the purchaser.
Provision will be made in the Agreement for a guarantee to be called for in respect of the balance of the purchase price. In general, a guarantee will only be acceptable if issued by a local financial institution which means that the funds will actually have to be remitted to South Africa in order for a local bank to issue such a guarantee or, alternatively, arrangements must be made between a foreign and local bank for a back to back guarantee to be issued. It is, however, possible to negotiate the issue of a Standby Letter of Credit from an overseas institution in certain circumstances.
OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL RENTAL
Occupation is the physical occupation of the property whereas possession is generally deemed to be the date upon which the purchaser assumes responsibility for the property and it is customary for the risk of ownership to pass on the date of possession. Transfer refers to the actual date of registration of ownership in the Deeds Registry in favour of the purchaser. Occupational consideration is the rental payable by the party occupying the property belonging to another where the date of occupation and date of transfer differs, which is better expressed in Rand terms or as a percentage of the outstanding balance of the purchase price.
This is a standard inclusion in all deeds of sale and implies that the property is bought as is. As is means 'in the exact condition in which the property is found'. However, all patent and latent defects present in the property within the sellers' knowledge must be brought to the attention of the purchaser. It is not standard in South Africa to conduct property surveys but these can be arranged with the assistance of the estate agent or an attorney and should be included as a condition of the purchase.
ELECTRICAL AND BEETLE-FREE CERTIFICATE
The property owner is required by law to be in possession of a valid 'electrical compliance certificate' certifying that the electrical installation at the property meets certain statutory safety requirements. The beetle-free certificate certifies that all accessible parts of the property are free of infestation by certain defined beetle and this certificate, whilst a standard inclusion in the Agreement of Sale, is neither a legal requirement nor included in sales of sectional title units. The cost of attending to the necessary repairs in order for the aforesaid certificates to be provided, is generally accepted as being for the account of the seller, although, the parties can contractually agree otherwise.
FIXTURES AND FITTINGS
A property is sold together with all fixtures and fittings of a permanent nature situated thereat. Generally fixtures and fittings include anything which is attached to the property or which by virtue of its considerable mass accedes to the property. In the event of any uncertainty, the purchaser is cautioned to ensure that all items intended to be included in the purchase price are specified in writing in the Agreement of Sale.
The format of agreements concluded for the acquisition of shares/members interest and loan accounts in property-owning companies/close corporations contains many of the aspects discussed above, although it is substantially different and includes numerous warranties and indemnities granted by the seller to the purchaser who acquires the property-owning entity together with its financial history.
Exchange Control/Repatriation Of Funds
All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, provided, the title deed of the property has been endorsed "non-resident". Similarly, funds introduced to acquire shares in a company/members interest in a close corporation may be repatriated together with any profit on resale, provided, the relevant securities have been endorsed "non-resident". Funds, introduced into South Africa in the form of a foreign loan to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided, the relevant securities have been endorsed "non-resident".
South Africa follows a revenue-based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Accordingly, any rental earned by non-residents in respect of South African properties will be subject to income tax and it is the responsibility of the non- resident to register as a South African taxpayer.
Income earned by natural persons below R40 000 per annum (for persons under the age of 65) and R65 000 (for persons above the age of 65) is exempt from income tax, whilst all income earned over and above the aforesaid amounts, will be taxed at a marginal rate applicable in accordance with published tax tables. The marginal tax rate is calculated on a sliding scale with a maximum rate of 40%.
Companies and close corporations are subject to a flat tax rate of 29% of each Rand of taxable income whilst the equivalent rate for trusts is 40%. If a company declares a dividend it will be subject to an additional tax (STC) of an amount of 12.5 % of the dividend declared. Non-resident companies are taxed at a rate of 35% but are exempt from secondary tax on companies ("STC") in respect of dividends paid.
On death a person is deemed to have disposed of all property at market value hence triggering a CGT liability. For non-residents this deemed disposal applies to immovable property situated in South Africa. In addition on death a person is liable for estate duty at 20% (after deducting a R2.5million abatement from net assets and after deducting any CGT payable by virtue of the deemed disposal of the property). In the case of a non-resident estate duty would be levied on immovable property situated in South Africa (subject however to the terms of any applicable Double Death Duties Act entered into by South Africa with any other State). There is an exception to the foregoing if a person bequeaths his or her estate to his or her spouse the bequest is exempt form both CGT and estate duty.
Capital Gains Tax
South African residents are liable for the payment of Capital Gains Tax (CGT) on the disposal of any asset, subject to certain limited exceptions.
Non-residents, however, are only liable to pay CGT on the disposal of the following:
• Immovable property situated in South Africa, including any right or interest in immovable property (this also includes an interest of at least 20% in a company where 80% or more of the value of the net assets of the company is attributable, directly or indirectly, to immovable property in South Africa);
• Assets of a permanent establishment of a non-resident through which trade is carried on in South Africa.
CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individual’s income for that year and taxing that income at the individual¹s marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is presently 40% (reached at taxable income levels above R300 001). The capital gain is calculated and disclosed in the individual’s income tax return for the year in which it is sold.
Thus, if a non-resident disposes of an immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she will have to register as such and submit an income tax return reflecting the calculation of the capital gain, and will be liable for the payment of CGT on that gain.
CGT became effective on 1 October 2001 and is thus payable only from that date.
The amount of a capital gain is calculated either by deducting the value of the property as at 1 October 2001 (together with the costs of acquiring and improving the property) from the proceeds on disposal of the property or by apportioning the amount of time the property was owned between the period before 1 October 2001 and the period after that date.
South African residents do not pay CGT on the first R1.5milion of profit made on the disposal of their primary residence
SA Immigration Act
The Immigration Act number 13 of 2002 came into operation on the 7th April 2003 and heralded a degree of certainty in terms of the various categories of temporary and permanent residence in South Africa for the first time. It also represented an Act of Parliament upon which all interested parties and stakeholders had been give an opportunuty to give input. Much of this input has been included in the the current Act and Regulations.
The Immigration Act Amendment Bill was signed into law by the President of South Africa on the 22nd October 2004 but will not come into operation until the draft new regulations in terms of the Immigration Act and its Amendment have been gazetted into operation. There is still at an administrative and public participation process which will have to be followed before this can happen and in addition the draft regulations still have to be forwarded to the Immigration Advisory Board "the IAB" for that body to advise the Minister on the final drafts.
The draft regulations will then be published in the final format and hopefully approved by the Minister and gazetted into operation. This would have to take place simultaneously with the coming into operation of the Immigration Amendment Act.
One of the main purposes of the draft Immigration Amendment Act and Regulations is to bring about a degree of certainty in the immigration law and regulatory sphere. It is certainly hoped that this goal can be achieved.
Full particularity will be carried in updates of this article as and when the information comes to hand.
The most important categories of permits under the current Immigration Act and Regulation are set out hereunder together with comment, wherever possible, of what can be expected in terms of the Immigration Amendment Act and the new Regulations:
Temporary Residence Permits
Visitors Permit (Section 11 of the Act) :
• Cannot exceed a period of three months;
• Section 11(1)((b)(ii) however provides for issue of a permit for a period not to exceed three years to a foreigner who can prove available resources in South Africa to sustain themselves (to the satisfaction of the Department of Home Affairs) and who is in South Africa and engaged in activities such as academic sabbaticals, voluntary or charitable activities, research or “other prescribed activities and cases”. This last category opens up the door for long term visitors permits to be granted in appropriate cases for up to three years,he so called ”long term visitors permit”.
• All applications to extend a permit must be made timeously and at least thirty days prior to expiry of the current permit;
Work Permits (Section 19 of the Act)
• Various categories of temporary work permit are provided for in the Immigration Act. All of these are linked to the applicant having an offer of employment and the required skills, qualifications and experience for the position. An overriding factor in all of this type of application is that the prospective employer must show what efforts have first been made to secure the services of a South African Resident before a foreign national can be employed. This is generally achieved by proving an advertisement in the national printed media in respect of the position being offered him by way of a report from the regional Department of Labour. In the quota permit, intracompany transfer and the category where the applicant is in a spousal relationship with a South African citizen , the advertisement requirements are dispensed of. Applications in this category must be lodged at the South African High Commission or Embassy closest to where the applicant normally resides all should be processed at the Department of Home Affairs regional office closest to where the applicant will reside and work, if the applicant is already in South Africa It is advisable to consult with and have an assesment of viability done by a specialist immigration attorney before embarking on an application.
• A permanent residence permit in the “worker” category is also possible but can only be made contingent upon a job offer that is permanent, in line with the applicant’s skills, experience and qualifications, which must also be inherent requirements of the job being offered to that applicant. Applications in this category should be lodged at the South African High Commission or Embassy closest to where the applicant resides or works.
Retired Persons Permit: (Section 20 of the Act)
• A temporary residence permit in this category may be granted for periods exceeding three months and up to four years providing that an applicant can show that they have the required financial resources to sustain and support themselves during their stay in South Africa and in specific either a pension or lifelong retirement annuity or a “retirement account” providing the required income for this purpose.
• A qualified dispensation to” work” to a limited degree in respect of retirees exists in the current regulations. The new regulations which will come into force shortly will in all likelihood make provision for a further relaxation of this requirement and may even lift the restrictions on “work” .Off neccesity this may require the retiree to obtain a work permit to be endorsed onto their retired persons permit.
• Retirees must be able to show that their pensions or annuities will deliver to them an income of not less than ZAR 20,000-00 per month readily transferable to South Africa, alternatively a “retirement account” of not less than ZAR12 Million delivering an income of not less than ZAR 15,000-00 per month (The new regulations about to come into operation will in all likelihood provide for a relaxation of the qualifying monthly income amount and will in all likelihood also allow for the equivalent rental value of property owned by the retiree to be factored into the income amount. The condition being that the retiree must be living on the property, however it must be remembered that this comment must not be acted upon and till the Immigration Amendment Act has been promulgated in law and there is certainty on this aspect).
• In the permanent residence permit category it is an additional requirement that the applicant show that the rights they have to the pension/annuity or “retirement account” are lifelong in terms of duration.
• Note: Under the current Immigration Act there is a requirement to have a South African Chartered Accountant certify the financial aspects. The Immigration Amendment Act will do away with this requirement in most categories of residence and replace it with the requirement that an applicant must prove “to the satisfaction of the Director General” that they have adequate resources.
Business permit category: (Section 15 of the Act)
• A temporary residence permit (known as the "own business/self-employment" category under the old immigration laws) may be obtained for a period of up to two years from the date of the issuance of the permit and which is renewable for further to your periods.
• In order to succeed in this category a potential immigrant must meet the capitalisation requirements of at least ZAR 2.5 million to be invested as part of the book value of the business. This amount must be sourced from abroad. Upon application to the Department of Home Affairs May, acting upon recommendation from the Department of Trade and Industry may reduce or even the waive the capitalisation requirement.
In addition to the capitalisation requirement a potential immigrant intending to apply in this category, must also prove one of the following:
o A business track record to prove entrepreneurial skill.
o Prove that the business contributes to the geographical spread of economic activity.
o Proof that at least five South African citizens or residencts will be employed.
o This prove that the business in question is either in the information technology, clothing and textiles, chemicals and biotecnology or agro-processing, tourism, crafts or automotive and transport industries.
o The export potential of the business; or
o Calls for or involves a transfer of technology not previously generally available in South Africa.
o A sustainable and viable business plan, certified by a South African Chartered Accountant must be filed with the Department of Trade and Industry, requesting a recommendation and must also be included with documentation lodged with the application automatically. This business plan must show short to medium term sustainability and viability.
Applications in the business permit category should be lodged at the nearest South African consular office to where the applicant resides or works.
o A permanent residence application in the business permit category must comply with all of the above criteria and obviously must also show continued long-term sustainability and viability of the business.
This article will be updated as and when there are any changes in legislation, regulation and policy
The contents of this brochure are presented for information purposes only and they are not to be depended on in any particular transaction. Professional legal and accounting advice should be sought on individual transactions. The contents contained herein are subject to change.
What tax benefits are property owners entitled to?
It is that time of year again where all income from property investments must be declared to SARS and is subject to income tax, this includes all rental income. Here’s what you need to know.
In preparation for tax season, taxpayers can start gathering all the supporting documents that are needed to submit their tax returns. The first important point to note when reviewing the income tax implications of residential properties is the difference between; the income tax of primary residences and buy to let residential properties:
Primary residences are occupied by the owner of the property and there is therefore no taxable income that is generated from the ownership of the property. All the costs that are incurred in relation to the property are therefore of a personal nature and cannot be deducted for income tax purposes.
Rental properties are leased by a tenant and the owner of the property (the lessor) receives a monthly rental income in return for leasing the property. The rent income must be included in the taxable income of the property owner regardless of whether the property owner is an individual, corporate entity or a trust. All the costs that are incurred in order to generate a monthly rental income can be deducted from the income that the property owner receives when calculating the owner's taxable income for tax assessment purposes.
Rental of residential accommodation includes:
• holiday homes • bed-and-breakfast establishments • guesthouses • sub-renting part of your house e.g. a room or a garden flat • dwelling houses and • other similar residential dwellings
"The important factor with owning an investment property is that all expenses are deductible from the rental income, before tax is calculated. These Costs typically include property management fees, municipal rates, levies charged by body corporates, repairs and maintenance, insurance premiums and municipal service costs that are paid by the property owner. Proper accounting records therefore need to be kept in order to provide SARS with supporting documents for the deductions that are claimed for income tax purposes if required to do so”, says Craig Hutchison, CEO Engel & Völkers Southern Africa.
How is tax calculated on rental income?
The rental income you get should be added to any other taxable income you may have. Any amount paid to you in addition to the monthly rental is also subject to income tax. These additional amounts or lease premiums are usually paid in the form of lump sums at the start of the lease and the full amount is subject to tax in the year that it accrues or is received. A refundable deposit paid by a tenant is not taxable provided it is kept separately in a trust account and is not used by you but if it is forfeited by the tenant then it’s taxable.
Can the taxable amount be reduced?
Yes, the taxable amount (rental income) may be reduced as you may incur expenses during the period that the property was let. Only expenses incurred in the production of that rental income can be claimed. Any capital and/or private expenses won’t be allowed as a deduction.
Which expenses are allowed?
Expenses that may be deducted from taxable income include: • rates and taxes • bond interest • advertisements • agency fees of estate agents • insurance (only homeowners not household contents) • garden services • repairs in respect of the area let and • security and property levies
Which expenses are not allowed?
According to Alvin van Staden, Director/CA(SA) at The Consulting Services Hub (TCSH), maintenance and repairs should be noted as specific costs and should not be confused with improvement costs. The latter is a capital expense that would be included in the base cost of the property, to effectively reduce the capital gain (or loss) on the disposal of the property, for capital gains tax purposes.
When it comes to VAT expense claims, the supply of residential accommodation by means of a “dwelling” is an exempt supply for VAT purposes, and you can’t deduct VAT incurred on its expenses. However, if the “dwelling” is used to earn rental income through the supply of “commercial accommodation” (such as hotels, B&B’s and lodges), the owner will be entitled to a VAT expense claim in terms of specific rules as stipulated within the Act, if they are a registered Vat vendor
What if the expenses exceed the rental income?
Should the expenses exceed the rental income, the loss should be available to be off-set against other income earned by the homeowner, provided that losses are not “ring-fenced” in terms of prevailing anti-avoidance provisions. For more information, see our Guide on ring-fencing of assessed losses arising from trade conducted by individuals. The homeowner must effectively be able to satisfy SARS that he is carrying on a bona fide trade through the rental of his property.
In certain circumstances can a lessor qualify for specific allowances? Yes. Tertius Troost, Tax consultant at Mazars South Africa explains that in certain circumstances a lessor could qualify for specific allowances when letting out a property, which the lessor may deduct from the rental income they earn from the property.
Urban Development Zone (UDZ) allowance
If the property is located in an UDZ, the lessor will be able to claim a certain allowances. These allowances are dependent on the nature of the building. Of critical importance is that the lessor will need to obtain a certificate from the developer or municipality stating that the property is in an UDZ.
5 residential unit allowance
If a lessor owns at least 5 new and unused residential properties situated in South Africa, the taxpayer will be allowed to claim an allowance of 5% of the purchase price as a deduction. Be it purchase, sale or commencement of a lease, it is important to consult with a tax specialist when entering into a transaction to ensure that the tax affairs are treated correctly.
Investing in property or becoming a home owner can be both personally and financially rewarding. But without correct information on which taxes are payable and how much, buyers could find that their purchase could land them in trouble with the Receiver of Revenue and knee-deep in debt. In conclusion, Zulfah Mullins, Tax Administrator at Hobbs Sinclair reminds us that all rental income earned during a tax year should be included in taxable income. If caught evading tax, property owners could face a hefty penalty or imprisonment.
Here is a checklist of documents to be kept on file for tax season (for an entire year or part off where applicable)
• Monthly Rates & Taxes statements • Monthly Bank Statement of home loan • Levy’s or HOA statements • Homeowners insurance • Any utility bills included in the rental income • Advertising invoices or agency fees statements • Slips and invoices for any repairs done (example geyser bursting) • Garden services or any other services necessary to make the home rentable
The imminent FICA Amendment Act adds new layers to an already onerous transaction.
With the compliance deadline for the Financial Intelligence Centre (FIC) Amendment Act fast-approaching, estate agents are becoming increasingly apprehensive as they have yet to receive implementation guidance and clarity about its implications for the industry.
Industry professionals are becoming increasingly apprehensive as the broad scope of stipulations and mechanisms required by the new act are expected to take considerable time - and expense - to implement.
“At the moment we have more questions than answers and smaller or low-commission agencies especially could really struggle to achieve compliance by 1 April 2019. We urgently need more information if we are to abide by the law as well as service our clients to the proper standard.”
Craig Guthrie, Partner at Guthrie Colananni Attorneys, explains: “The Act places a responsibility on accountable institutions to not only identify, know and understand their clients, they are also required to conduct a continuous client due diligence that will focus on understanding the business of clients and where and how they get their money.
“These onerous requirements are aimed at combating money laundering, corruption and terrorist financing, but they will also place further pressure on an already beleaguered market as the property industry has unfortunately been identified to carry a risk.
“This is largely because third party payments could happen without the necessary verification of identities of the third party. For example, you might find that a seller has elected to have the purchase price paid over to a relative whose identity is not known to the agent or the conveyancer.
“Therefore, in theory, without realising it, the conveyancer and estate agent could both be aiding and abetting in financing a terrorist, money laundering or corruption.”
In order to comply with the new amendments clients in a property transaction are going to have to disclose the source of their funds and provide supporting documents.
“No-one is exempt,” says Guthrie, “including high risk people such as politically connected persons, foreign public officials or domestic prominent individuals involved in business with government. Their family members and known close associates will also have to provide documentation to verify the source of funds and the activities that generated those funds.
“And if the information is not provided or is unsatisfactory, Section 21E obliges the agent or conveyancer to stop dealing with the party until they have complied as well as report them to the Financial Intelligence Centre.”
“Property transactions are already laden with reams of documentation at every stage and there are numerous potential pitfalls that can delay or even scupper a deal, and this amendment introduces yet another layer of compulsory engagement with added potential to cause delays or the loss of a sale.
“Estate agents have to do far more than collect data now; they also effectively have to do the government’s job of due diligence - and be able to prove that the info is correct.
“We will have to develop policies and systems to safely store the confidential information and will need to be able to recognise suspicious activity and report it. Additionally, the penalties for non-compliance are massive.”
It is a criminal offence if accountable institutions and individuals do not comply and, upon conviction could face imprisonment of up to 15 years and fines up to R10 million for individuals and R50 million for companies.
Demystifying the proposed Rental Amendment Act
Although a date is yet to be set for the implementation of the looming Rental Housing Amendment Act, many of the proposed changes, including criminal liability for non-compliant landlords, have sparked considerable concern.
However, many property professionals believe that there is little or no cause for concern as long as all parties are well-informed and compliant – and that the amendments could, in fact, have a positive impact on the market and encourage rather than deter investors.
Rental Specialist, says:
“The new act actually highlights and remedies a number of practical and statutory weaknesses in the current act and the proposed changes will eradicate any existing blurred lines, making it easier for landlords and tenants to comply.
“Fundamentally the law remains the same but there are significant amendments to the statutory rights and obligations of landlords and tenants and rules relating to stipulations in a lease, however, these points are already in place in the existing leases of most reputable agencies.
“Factors that landlords are going to have to look out for include ensuring that all lease agreements are in writing with clear definitions and guidelines and that properties are habitable in accordance with the Rental Housing Act or they could find themselves incurring fines and also face possible imprisonment.
“It’s therefore essential that both parties understand their rights and obligations and familiarise themselves with the new Act,” she says, adding, “It is also more important than ever that landlords appoint an experienced agent from an established and reputable agency to manage the property and fight in their corner if necessary.”
Area Specialists on the Atlantic Seaboard for the group believe that legislation has been moving in this direction for a while and that many will welcome a clearer definition of the law.
“As much as these new regulations don’t seem to favour property buyers, the fact that laws are being further defined further is probably an advantage in the mind of buyers who now have a clearer cut idea as to what is expected within their relationships with their tenants.
“Foreign buyers, especially, prefer legislation to be laid out up front. It is therefore important for current landlords to follow due process as this bodes well for buyers taking over existing leases and being assured of having well-regulated contracts in place going forward.”
They add that with Cape Town recently having been voted the top tourist destination for the sixth year in a row, foreign property investment on this exclusive coastal strip is once again picking up and a more streamlined process for rental management can only boost these sales.
Attorneys, explains the main changes to the act and takes a closer look at several of the proposed amendments and their implications for landlords and tenants.
“As it stands, the rights of tenants in the residential property sector are protected by the Rental Housing Act, the common law, and the Consumer Protection Act, however the proposed Amendment Act creates new offences which are punishable by law and landlords now face the possibility of a fine or even imprisonment.”
These infringements include:
Not issuing a written rental agreement - this is a positive development in South African law as it creates more legal certainty for both parties and usually, due to a non-variation clause - cannot be amended orally or unilaterally. It affords the tenant security of tenure, while affording the Landlord proof of an existing agreement, which can be enforced in court
Failure to provide a habitable dwelling - a ‘habitable’ condition refers to a dwelling being safe and suitable for living, with adequate space, protection from the elements and the supply of necessary utilities; Failure to maintain the property - landlords must maintain building structures and ensure that their rental properties have proper access to basic services
Failure to repay the deposit and accrued interest - the responsibility of arranging a joint inspection of the property with the tenant will fall on the landlord. A list of defects to the property must be attached as an annexure to the lease agreement and if a joint inspection is not done at the commencement of the lease, the landlord will not be allowed to withhold a portion of the tenant’s deposit for repairs or damage. Deposits, together with the interest earned, must be paid out to tenants within seven days of the expiration of the lease, subject to deductions for damages
Cutting utilities – only the municipality may cut services for non-payment
Locking the tenant out of the property – you may not keep a tenant from entering the property without a court order.
They strongly urge both landlords and tenants to familiarise themselves with the act as there are a number of clauses that could easily trip up both parties: “For instance, Section 4A (9) expressly prohibits subletting of the leased premises, without the consent of the Landlord.
“And in this Air BnB day and age, together with the strict requirements of service on each occupant for eviction proceedings, it is imperative for the landlord to know at any given time who is occupying the leased premises.”
They concludes: “Although no firm date has been set for the amended act to come into operation, landlords and tenants will be required to comply with the new requirements within six months from the date of commencement.
“And in this case knowledge definitely is power and it’s not too soon to begin familiarising oneself with the act and note the important changes. In fact, landlords should embrace it – it will eradicate much frustration and will also help weed out tenants who take advantage and work the current system.