November 9, 2020
Being one step ahead………
The uncharted territories are rapidly transforming the nature of work and how existing organizations in both the private and public sector adapt to global change. Personally, there is a loud call to be more than what was ever thought possible!
Turbulence is a given; turmoil does not have to be! So, what are the meta-skills that will allow us to weather the storms and adopt an innovative mindset? I want to highlight the following four:
- We must be fluent in processing information! Rapid absorption of information is the beginning of overcoming difficulties. Generally, the faster and more easily we’re able to process information, the faster and more efficiently we can act and adapt.
- Congruent attitudes, a must! Whenever our behaviour contradicts our attitude, we feel a state of discomfort. We resolve the inconsistency between our attitude and behaviour by adopting a new attitude – an attitude that is consistent with our behaviour.
- Connect with people! Research shows that we’re influenced by people who we view as similar, so we’re more likely to act if we believe that many people are doing it too.
- Be generous! Generosity is the ultimate sign of forward-thinking! Give freely, of your knowledge, of your time and your heart; this will enlarge your capacity to thrive!
At KVV we do not opt for the easy way out, we know that it will require a collective effort to keep the competitive advantage.
Diaan Van Wyk | Director
November 9, 2020
“Death knocks at all doors alike” (John Dunton 1692)
Sooner or later we must leave our families to face life without us, and of course these are particularly dangerous times for us all.
Make sure that your own affairs are in order now –
- A valid will is the only sure way to protect your loved ones after you are gone.
- If you have an old will, check whether it needs updating or changing.
- Leave a file with all the important information and documents that your estate’s executor will need.
Five mistakes which can invalidate your will
The last thing you want is to leave your loved ones grappling not only with the tragedy and grief of your passing, but also with a bitter feud over the validity of your will. Avoid these mistakes in particular –
- Not complying with all the required formalities when making your will: Although our courts do have a discretion to order the Master of the High Court to accept as valid any document not complying strictly with the various required formalities (the court must be satisfied that the document “was intended to be [your] will or an amendment of [your] will” you will want to spare your loved ones all the delay, cost and risk of dispute involved in a court application.
- Not complying with formalities when changing your will: The same applies if you want to change or revoke your will. In addition, a court can declare your will to be fully or partially revoked if you did anything (such as leaving something written on your will, an action on your part, or another document) that satisfies the court of your intention to revoke the will. Again a scenario to avoid at all costs with a properly-drawn replacement will or codicil.
- Leaving any doubt as to your “testamentary capacity”: Anyone aged sixteen years or more may make a will “unless at the time of making the will he is mentally incapable of appreciating the nature and effect of his act”. Although it is up to anyone challenging your capacity to prove that you were mentally incapable at the time, there are grey areas here and our law reports are full of bitterly-fought disputes over the question of testamentary capacity. So if there is any chance at all of that sort of challenge arising ask your lawyer to advise on the best way to leave proof of your capacity at the time of signing.
- Leaving any doubt as to fraud or forgery: All too often our courts have had to decide disputes over whether the signature on a will is genuine or forged, or over allegations of fraud. Again if there is any risk of that happening, get legal advice on how to put the genuineness of your signature, and of the correctness of your will, beyond doubt.
- Leaving any doubt as to coercion or “undue influence”: As with the previous two warnings, this isn’t likely to be a danger for most people, but on the “better safe than sorry” principle don’t risk any chance of someone challenging your will with accusations that you were subjected to some form of duress (threats perhaps, anything that would cause you to act unwillingly or against your better judgment) or undue influence.
If you don’t have an updated will in place contact your attorney now – one of the commonest (and most tragic) mistakes people make is thinking “I’m too busy right now, it can wait”. It can’t!
November 9, 2020
“By subscribing to the constitution, each member accepts the benefits stipulated in his or her favour by the other subscribing members. One of those benefits is that there shall be rules of conduct to give substance to the objectives and rights promised and conferred by the constitution … and that the other members will be required to comply with them … and that any breaches thereof will be called to account” (Extract from judgment below)
There are many advantages to living in residential estates and sectional title developments, but there are also rules and responsibilities.
A common source of friction in complexes is parking, leading to complaints such as “there’s never any parking for my visitors because owners hog the visitor bays for their own cars” and “our complex roads are a nightmare of parked cars jutting out of driveways”.
In yet another reminder to community scheme buyers and owners to fully understand and comply with all the rules and regulations you are agreeing to, the High Court recently barred a home owner from parking his vehicles anywhere except in his own garage and driveway.
- The owner in question lives in a residential estate governed by a Homeowners Association (HOA), one of whose rules forbids the parking of owners’ vehicles either in visitors’ bays or in the street.
- Able to park only one of his three vehicles in his own double garage (because of household equipment stored there), an owner persistently parked his second vehicle outside his garage (its size meant that it jutted into the street), and his third vehicle in a visitor’s bay.
- Other owners complained and the HOA asked the High Court for an interdict against the owner in question.
Two of the owner’s contentions in fighting the application are no doubt commonly raised by rule-breakers generally –
- “The HOA has waived compliance with its rules by not enforcing them”
The owner claimed that failures to strictly enforce the rules against other offenders amounted to the HOA waiving compliance with them. Not so, held the Court, the HOA’s duty was to enforce the rules for everyone’s benefit, plus it had no power to waive compliance. HOAs must however both check the exact wording of their constitutions and recognise the need to conscientiously enforce compliance with rules – both factors mentioned by the Court in reaching its decision.
- “The HOA is applying the rules in a discriminatory manner and shouldn’t be allowed to”
The owner’s argument here was that the HOA was discriminating against him and could not be permitted to do so. This being a contractual right, held the Court, any failure to enforce it against other owners would have no legal bearing on its right to enforce it against this owner. The Court did however warn that “An irrationally discriminatory system of enforcement might well in a given case justify a decision by the court in a matter like this to refuse to grant the interdictory relief in the exercise of its equitable discretion.” In other words, HOAs should be careful to avoid any form of “irrational” discrimination in enforcing rules.
The result – the owner is “prohibited from parking his vehicles, motor bikes, caravans, boats or trailers anywhere … other than in his garages or outside his house wholly within the boundary of his property.” He must also pay the HOA’s legal costs.
An end note on the CSOS dispute resolution service
The CSOS (Community Schemes Ombud Service) provides a dispute resolution service and can adjudicate a wide range of disputes in community schemes. In this particular case it had no jurisdiction to grant an order against the owner, but it should always be your first port of call if possible – take specific advice.
November 9, 2020
“Only in our dreams are we free. The rest of the time we need wages” (Terry Pratchett)
The flood of lockdown lay-offs and salary reductions has left many tenants struggling to find rent money, and their landlords wondering how to cover their bond repayments and other expenses.
Whether you are a landlord or a tenant (note that we are talking here only about residential leases) you need to be aware of the new Alert Level 1 Regulations applicable to evictions “for the duration of the national state of disaster”.
In a nutshell (this is of necessity only a brief summary of some highlights from the full regulations so take professional advice specific to your circumstances) –
- Evictions can take place but only with a court order.
- Courts have the power to suspend eviction orders until after the “lapse or termination of the national state of disaster”. Expect courts generally to lean towards suspending eviction orders; in other words landlords will in all probability have their work cut out for them.
- Landlords will in practice have to convince the court that it would be “not just or equitable” to suspend the order, taking into account a whole range of listed factors such as health considerations (public health as well as that of the parties), the tenant’s ability to immediately access another residence and basic services, the impact of the disaster on both parties (with the court balancing the prejudice to each of them from delaying eviction) and whether the landlord “has taken reasonable steps in good faith, to make alternative arrangements with all affected persons, including but not limited to payment arrangements that would preclude the need for any relocation during the national state of disaster”.
- The Rental Housing Tribunal has new powers to urgently restore occupation and/or services to tenants deprived of either by the landlord. This would be by way of an “ex parte spoliation order”, i.e. without the landlord having any right to be heard, although the landlord can ask for an urgent hearing on 24 hours’ notice.
- “Unfair practice” is presumed where –
- Services are terminated without reasonable notice, alternative payment arrangements have unreasonably not been made, or where “no provision has been made for the ongoing provision of basic services during the national state of disaster”’
- Any penalty for late payment of rental (where the default is caused by the disaster) has been levied (only interest can be charged),
- Either the landlord or the tenant have failed “to engage reasonably and in good faith to make arrangements to cater for the exigencies of the disaster”,
- “Any other conduct prejudicing the ongoing occupancy of a place of residence, prejudicing the health of any person or prejudicing the ability of any person to comply with the applicable restrictions on movement that is unreasonable or oppressive having regard to the prevailing circumstances.”
Notes for landlords and tenants
Keep a full record of everything in case your dispute ends up before the courts or the tribunal.
Both landlords and tenants will have to act fairly and reasonably towards each other here, taking into account your respective abilities to comply with the terms of the lease during the state of disaster.
Where tenants are struggling to pay rent as a result of the lockdown, landlords should be open (to whatever extent possible) to any reasonable request for rental deferments or reductions. Tenants in turn should be fair and reasonable in asking for relief. Good faith negotiation is key if landlords can expect to have any chance of obtaining an immediately-enforceable eviction order.
November 9, 2020
“By failing to prepare you are preparing to fail” (Benjamin Franklin)
The media is still awash with warnings about the dangers of not complying with POPIA (the Protection of Personal Information Act). The risks of non-compliance are indeed substantial but whilst much is made of the fact that the Act itself is now in force, references to the one-year grace period for compliance expiring on 30 June 2021 appear only in the fine print (if at all).
But – and this is a big but – there are major benefits to understanding POPIA and starting the compliance process long before it becomes compulsory. The penalties for getting it wrong are sizeable, “preparation makes perfect”, you are giving yourself lots of time to get it right, and for many businesses there is also good marketing potential in being able to tell your customers and clients that you are already addressing the situation.
Four practical steps to start with…
Before we start on your action plan, get to grips with the fact that you will almost certainly have to comply fully with POPIA. As soon as you in any way “process” (collect, use, manage, store, share, destroy and the like) any personal information relating to a “data subject” (customers, members, employees etc etc), you are a “responsible party”. Very few businesses will fall outside that net. Equally you are unlikely to fall under exemptions like that applying to information processed “in the course of a purely personal or household activity”. Get going with these steps –
- Assess what personal information you hold, how you hold it, and why: Figure out what personal information you currently hold, how you hold it, and why you hold it. To collect and “process” such information lawfully you need to be able to show that you are acting lawfully, reasonably in a manner that doesn’t infringe the data subject’s privacy, and safely.You must show that “given the purpose for which it is processed, it is adequate, relevant and not excessive”, data can only be collected for a specific purpose related to your business activities, and can only be retained so long as you legitimately need to or are allowed to keep it.
There’s a lot more detail in POPIA, but you get the picture – you cannot collect or hold personal information without good and lawful cause.
- Check security measures, know what to do about breaches: You must “secure the integrity and confidentiality of personal information in [your] possession or under [your] control by taking appropriate, reasonable technical and organisational measures to prevent … loss of, damage to or unauthorised destruction of personal information … and unlawful access to or processing of personal information.” You are going to have big problems if there is any form of breach from a risk that is “reasonably foreseeable” unless you can prove that you took steps to “establish and maintain appropriate safeguards” against those risks. Bear in mind that whilst cyber-attacks tend to get the most media time, there are also other risks out there – brainstorm with your team all possible vulnerabilities and patch them.
Any actual or suspected breaches (called “security compromises” in POPIA) must be reported “as soon as reasonably possible” to both the Information Regulator and the data subject/s involved.If third parties (”operators”) hold or process any personal information for you, they must act with your authority, treat the information as confidential, and have in place all the above security measures.
- Check if you do any direct marketing: Most businesses don’t think of themselves as doing any “direct marketing”, but the definition is wide and includes “any approach” to a data subject “for the direct or indirect purpose of … promoting or offering to supply, in the ordinary course of business, any goods or services to the data subject…”. So for example just emailing or WhatsApping your customers about a new product or a special offer will put you firmly into that net.If your approach is by means of “any form of electronic communication, including automatic calling machines, facsimile machines, SMSs or e-mail”, you must observe strict limits. Whilst you can as a general proposition market existing customers in respect of “similar products or services” (there are limits and recipients must be able to “opt-out” at any stage), potential new customers can only be marketed with their consent, i.e. on an “opt-in” basis.
- Get a start on procedures and training: Identify an “Information Officer” who will take on all compliance duties, establish procedures, and train your team in implementing them. Cover how you will collect the data, process it, store it, for how long, for what purpose/s and so on. What consent forms do you need and when/how are they to be completed and stored? You are much less likely to have a POPIA problem if everyone in your business (and most importantly you!) understands what your procedures are and implements them as a matter of course. Make sure that no functions “fall between two stools” – assign individual compliance tasks to named staff members and make sure everyone understands who is to do what.
This is a complex topic and there is no substitute for tailored professional advice. What is set out above is of necessity no more than a simplified summary of a few highlights.
November 9, 2020
The sharp upsurge in businesses operating remotely as a result of the pandemic lockdowns means a lot more people working from home – most presumably in low-profile home offices, but inevitably some in the form of full-on business activities from home. What effect is that having on the property market?
Work-from-home and what’s hot in property market trends
Let’s firstly have a look at what trends are emerging in the “hot property” market, driven by both the work-from-home phenomenon and by the general economic fallout from the pandemic and the lockdowns –
- Increased interest in coastal and country properties from employees and businesses looking to work remotely away from congested highways and crowded cities.
- Upsizing by stay-at-home workers looking for extra home office space and facilities.
- Downsizing by financially-stretched homeowners reducing costs and looking to realise the value in large houses they no longer need (either by selling or by renting out).
- Increased demand for rental properties in some sectors, driven presumably by owners selling homes to cut costs, perhaps also by sales in anticipation of emigration or semi-gration.
The next question of course, regardless of whether you are selling, buying or staying put, is this – what does the law have to say about home businesses? As a small business are you clear to move your business into your house? As an employee is there anything in the law to stop you from setting up a home office? As a neighbour do you have any right to object?
Those are of course important questions to ask before you buy a “home-office-house” and before you open up a home business in your existing house. The last thing you want is to be shut down by unhappy neighbours or the local municipality.
The two questions to ask
The High Court has confirmed that there are essentially two questions to ask –
- Is the activity in question allowed by local zoning and land use laws?
- Is there any other legal block in place, for example are there any title deed restrictions or, if the residence is part of a community scheme like a Home Owners Association (HOA) or a Sectional Title complex, do the complex’s rules allow it?
Living in a complex – the hair salon allowed by zoning laws but closed down by the HOA
- A homeowner had for many years run a hair salon business from her home in a complex, although both the HOA’s constitution and its conduct rules allowed only residential usage of houses except with authorisation via a special resolution. She was bound by the constitution and rules both by the terms of her purchase agreement and by her title deeds.
- When she refused to cease business the HOA approached the High Court for an interdict. Her central argument was that her home business was permitted by the local zoning regulations in terms of which certain small scale non-residential activities were allowed in the area.
- Not relevant, held the Court in interdicting the homeowner from continuing her business. She had agreed to a limitation of her rights, she had agreed to forfeit her right to use their land for anything but residential purposes and the HOA had not purported to change the zoning scheme and was “well within its rights to seek to preserve the residential character of the development”.
In other words, HOA and Body Corporate rules can in principle be more restrictive than local zoning laws and effectively override them in such a case. Bear in mind that each case will be decided on its facts, and in addition there has been some speculation recently that the National State of Disaster regulations and orders could be used to justify a departure from that principle. Much safer however to assume that you are bound by your complex’s rules (which may in any event allow you to work from home and/or to run a small business, although perhaps only with consent).
Must you apply for rezoning or municipal consent? 3 categories to consider
If you don’t live in a residential complex or if you do but are in compliance with the complex’s rules, you need to check that you aren’t going to be stopped from operating (perhaps even fined) by your local authority.
Your local municipality will have its own land use and zoning regulations and bye-laws, but generally speaking your business activities will fall into one of three categories –
- Micro business: Depending on the zoning of your particular area, working alone from home in a home office is highly unlikely to cause any issues either legally or practically, and you are also likely to be allowed to conduct small scale business activities from home without consent where your business activities fall into your municipality’s “micro-business” or “home enterprise/undertaking” category (check with your local municipality on its rules in this regard).
- Municipal consent: As soon however as your activities go further (there are normally limits on things like the nature of the business, number of staff, percentage area of the house used for the business, parking availability, noise/nuisance factors and the like) you will probably have to apply for municipal consent or a permit to operate.
- Rezoning: In other cases you may need to go further and apply for complete rezoning of the property, possibly also for removal of title deed restrictions.
Take specific advice in any doubt!
September 21, 2020
We are in the month of September 2020. Spring has come and lockdown 1 has arrived. In a sense I am reminded of the power of a tornado or hurricane. A huge force of nature and can destroy almost everything in their path. In the warning stage before the storm we are given instructions on our best options to survive the storm. We then prepare as best we can so we have the best chance to survive the storm. Some are better prepared than others. Some have better support systems around them than others. We all do what we can with what we have at the time given, before the storm hits.
Then the storm hits and we are all in it. No one is exempted. We are in the storm as long as it lasts. In this time crises control becomes a norm. The extent of the crises in your environment is dependent on your preparation. Some are better prepared than others, yet we all weather the same storm.
Then suddenly the storm has past, leaving bare the destruction it caused. Again the damage done differs from area to area. Now what?, we ask as we look at the destruction. We pick up the pieces and start rebuilding our lives, business and properties. Some need to fix a roof, another rebuild his entire house. The extent of the damage differs from house to house, yet this is not the issue. Our attitude and our preparation before the storm hit us is the THING.
Bill Gates, in his tenure as CEO of Microsoft, ask the question:
What is the worst thing that can happen in the next 30 days? Once he knew the answer, he prepared for exactly that. He was not right all the time. Yet he was best prepared to weather a storm as it hit.
For now, we rebuild and prepare for the next storm, because it is on its way. At KVV we are richer because of our experience on how to weather a storm. We know we are better because of what we learned. We know that to surrender the outcome to God is key. We know that preparation is important. We do the work to prepare, yet we surrender the outcome. The outcome is: all things works out for the good to those who believes in Jesus.
September 21, 2020
“… in certain circumstances the principal may be liable to pay commission to both agents where it is impossible to distinguish between the efforts of one agent and another in terms of causality or degrees of causation.” (Extract from judgment below)
With many property sellers allowing multiple estate agencies to market their properties in their attempts to sell during what is still (for the moment at least) a buyer’s market, now is perhaps a good time to remind both sellers and buyers of the double commission danger.
Consider this scenario – you mandate an agent who introduces a potential buyer to your property, but no acceptable offer results. Later on you bring another agent in, and this time the same buyer makes an acceptable offer. Which agent must you pay commission to – the agent who originally introduced the buyer to the property, or the agent who eventually closed the deal?
In a nutshell, an agent must be the “effective cause” of the sale to be entitled to commission and our law reports are replete with disputes between sellers and agents over who is and who isn’t the effective cause of a particular sale. As the High Court put it a few years ago: “Our Courts have repeatedly acknowledged how difficult it is, when there are competing estate agents, to determine who the effective cause of the sale that eventuates is.”
The big danger for the seller of course is being held liable to pay full commission to two estate agents. The factual disputes that arose in the High Court case in question illustrate…
R1.6m commission claimed
- A property seller engaged agency A to sell the property, and later signed a sole and exclusive mandate with agency B to sell the property by auction.
- One (unsuccessful) auction later, and after much negotiation and to-ing and fro-ing, the first agency (A) presented an offer from buyer C which the seller accepted.
- Agency B claimed to have been the effective cause of the sale to C and sued the seller for R1.6m in auctioneer’s commission. The seller, at risk of paying (substantial) double commission, resisted vigorously.
- Most of the relevant facts were in dispute, with A and B presenting the Court with substantially different versions of events in virtually every important respect. B’s application was dismissed by the Court on the ground that because of the critical disputes of fact it should have proceeded by way of “action” not “application” – a technical distinction of great interest to the legal fraternity but not relevant here.
- What is highly relevant to sellers, buyers and agents is the ease with which the seller’s decision to engage the services of two agencies led to such bitter disputes of fact and law.
Sellers, Buyers and Agents: How to protect yourself
Sellers: As always, agree to nothing without legal advice, and insist on formal agency mandates. If you give mandates to multiple agencies, ask them each for a list of the prospective buyers they have introduced, and insist on the buyer indemnifying you against multiple commission claims (necessary because you might not know if your buyer has dealt with more than one agency). You may be advised in some cases to have the various agents give you a similar indemnity.
Buyers: Again, agree to nothing without advice! When viewing a property tell the agent if you have viewed it before with another agent and in particular if the offer/sale agreement you are asked to sign contains any warranties/indemnities, make sure it is safe to agree to them.
Agents: Don’t put your hard-earned commission at risk – avoid uncertainty and dispute with clear, properly-drawn mandates. Comply also with the EAAB’s Code of Conduct’s requirements on exposing a client to the risk of double commission.
September 21, 2020
“It is only where the enforcement of a contractual term would be so unfair, unreasonable or unjust so as to be contrary to public policy that a court may refuse to enforce it” (extract from first judgment below)
Leases often give tenants an option to extend or renew at the end of the current term, and tenants who lose sight of the value and importance of such an option are flirting with disaster.
In a nutshell, when the time comes to exercise your option do comply fully with the clause’s requirements. Make sure also that you understand and accept the exact wording of the renewal clause before you sign the lease. Drop the ball in either respect, and if your landlord wants you out for whatever reason, you will struggle to convince a court to come to your rescue by forcing an unwilling landlord to renew.
Four recent court cases – one in the Constitutional Court, two in the Supreme Court of Appeal (SCA) and one in the High Court) illustrate, but before we get there here’s a quick note for landlords…
This is of course also highly relevant to you – the last thing you want is for a poorly-worded clause to lumber you with an unwanted tenant, or an unrealistically low rental, or even just with a bitter and expensive legal fight over what the clause actually means. Nor, as we shall see below, do you want to run the risk of a court holding the terms of your lease to be so unfair as to be unenforceable.
First case: Non-compliance v unfairness, Ubuntu and public policy
- As part of a black empowerment initiative, a business hiring out tools and building equipment to builders had set up four of its ex-employees in a franchise operation. The business premises were let to them by the building owner, a trust linked to the hiring business.
- The leases were for 5 years and contained options to renew for a further 5 years, on the giving of notice six months before termination, and subject to the rental for the renewal period being agreed. A mechanism for the agreement of rental was set out in each lease. The franchise agreements were for 10 years, presumably indicating an anticipation of renewal.
- The tenants didn’t exercise their options on time, and when they did try to do so, it wasn’t in the terms required by the lease.
- When the landlord told two of the tenants to vacate (the others were offered a month to month temporary arrangement), they asked the High Court for an order allowing them to remain. They conceded that on the strict terms of the leases they would have no case but argued that on the basis of fairness and Ubuntu the leases should not be terminated.
- After winning in the High Court but losing on appeal to the Supreme Court of Appeal, the tenants took their appeal to the Constitutional Court, explaining “that they were unsophisticated and not versed in the niceties of the law.”
- The Court dismissed the appeal, holding that although Constitutional values such as Ubuntu (which encompasses values of fairness, reasonableness and justice), “form important considerations in the balancing exercise required to determine whether a contractual term, or its enforcement, is contrary to public policy … It is only where the enforcement of a contractual term would be so unfair, unreasonable or unjust so as to be contrary to public policy that a court may refuse to enforce it.”
- In other words, the highest court in the land has held that if you want to avoid the strict terms of the lease you must show that they are against public policy. You can use constitutional values to do that because those values “underlie and inform the substantive law of contract” but the acid test remains – have you proved that enforcement of the lease’s terms would be contrary to public policy? The tenants in this case had, said the Court, failed to do so. They have 30 days to leave.
Second case: Renewal clause void for vagueness
For ten years a tenant occupied premises in terms of an original lease and agreed renewals. When it gave notice of a further renewal, the parties were unable to agree on a rental, the renewal clause providing that … “the rental and costs shall be mutually agreed upon in writing between the Landlord and the Tenant when the right of renewal is exercised”.
The landlord applied for eviction and the SCA held that the term was unenforceable, being merely an agreement to agree rather than containing any “legally enforceable obligations”. The renewal clause was void for vagueness and the tenant was given 14 calendar days to vacate.
Third case: No agreement on rental, too late to call in a third party
A tenant gave notice of renewal, the lease in this case providing that “the rental consideration will be determined by agreement between the parties based on the prevailing market rental’s applicable to the property”, and if they could not agree, a third party would determine it.
The lease, held the SCA, had terminated because the tenant had only tried to invoke the third party clause after the lease had lapsed. The rental must be fixed or agreed for the renewal to be valid.
Fourth case: No notice of renewal and no deadlock breaking mechanism
The tenant in this case failed to give notice of renewal on time, his attempts to negotiate an extension with the landlord failed, and the High Court ordered his eviction. The tenant’s argument that over the years it had become “customary” for the landlord just to remind him about an upcoming expiry and ask him if he wanted to renew was, said the Court, irrelevant because the clause itself was not “definite and complete”.
The clause provided “that the parties agree in writing to the rental, conditions and provisions of the proposed lease” and even if the tenant had given proper notice of an intention to renew, the parties would still have had to negotiate terms, and there was no “deadlock breaking mechanism” in the lease.
September 21, 2020
“The purpose of the legislature in enacting s 34(1) is to protect creditors by preventing traders who are in financial difficulty from disposing of their business assets to third parties who are not liable for the debts of the business, without due advertisement to all the creditors of the business.” (Extract from judgement below)
With our economy in trouble and the ongoing pandemic and lockdown damaging more and more businesses by the day, sales by distressed companies and traders are likely to rocket.
If you are a prospective buyer here, be aware of one particular danger lurking in the wings for you.
Follow this rule to protect yourself – before you buy any business, its goodwill or assets forming part of the business, take legal advice as to whether or not the sale must first be advertised in terms of section 34 the Insolvency Act. You stand to lose both the business and the purchase price if section 34 requires the sale to be advertised and it isn’t.
Your risk is that if an unadvertised sale is challenged by a liquidator/trustee (or by a creditor if there is no liquidation/sequestration) within 6 months of the sale, it is likely to be declared void. In that event, you will be lucky to get even a portion of your purchase price back – with the seller in financial difficulty your concurrent claim is probably worthless.
As a creditor…
The advertising requirement is designed to protect you as a creditor from having to claim from a debtor which suddenly becomes a worthless shell having quietly sold away its business and/or assets beyond your reach.
Note that you only have protection if you have instituted proceedings against your debtor “for the purpose of enforcing [your] claim” before the transfer of the business – a good reason not to drag your heels when suing a recalcitrant debtor.
When advertisement isn’t necessary
The sale will only be valid without advertisement if –
- The sale was made “in the ordinary course of business” (unlikely where the business subsequently fails), or
- It was made for “securing the payment of a debt” (unlikely to be under your control as buyer), or
- The seller wasn’t a “trader”. As “trader” is widely defined in the Act, and as the onus of proof here is squarely on the buyer, that’s not going to be easily proved. As we shall see below, you can be a “trader” in property as much as in any other commodity.
As a general rule therefore, it is safest to insist on the sale being properly advertised before you pay out the purchase price, but there are grey areas and pitfalls here so take specific advice. Note also that the Act’s requirements for the timing and manner of advertisement are strict and must be followed to the letter.
As a recent High Court case shows, as a buyer (in this case of a property business) you could lose everything if you lose sight of this very real danger…
An R8m claim and a property transfer (and bond) set aside
- A property owner bought and developed a property firstly into a shopping centre and later into a shopping centre with 11 sectional title units.
- Whilst being sued by a creditor for R8m, the owner sold a section to a buyer and transferred it to him, and a bank registered a bond over the property.
- The creditor obtained judgement against the owner only to find that it had been placed into liquidation. It asked the High Court to set aside the sale on the basis that the sale had not been advertised in terms of section 34 and was therefore void.
- The buyer countered by denying that it was a “trader” as defined in the Insolvency Act. Its core business, it said, was to acquire and then rent out properties, “its business objective was not the buying and selling property per se as its stock in trade”.
- Finding on the facts that the owner was indeed a “trader” when it sold the property to the buyer, the Court set aside the sale, the transfer to the buyer, and the bank’s mortgage bond.