August 8, 2018
“Beware the wolf in sheep’s clothing” (Aesop’s Fables)
Cybercrime levels are surging, and it didn’t take the scammers long to figure out that when you buy and sell property you become a prime target because of course –
- Property transactions provide rich pickings, often very rich pickings.
- Electronic communication between attorneys and clients, which is all-pervasive these days, creates a fertile ground for interception and deception.
Consider this nightmare scenario
You’ve sold your property for R5m, transfer to the buyer has been registered but the money doesn’t show up in your bank account (let’s call it “account A”). You phone your conveyancer only to be told “but we did pay you, we followed your instruction to pay into account B.” Of course account B was set up by a scamster and your R5m is long gone. What happened?
How the scams work
Cyber criminals are resourceful and creative so this is by no means an exhaustive list of your risk areas, but currently the two main ones seem to be –
- Your attorney’s payments to you: As a seller, when you give the transfer instruction to your attorney you will nominate a bank account – account A in this example – to receive the sale proceeds. Before transfer however (often at the very last minute) the firm receives a genuine-looking email “from you” changing your banking details to “my new account, account B”. Your emails to and from your attorney have been intercepted, and your details cleverly spoofed. Your money is gone – forever.
- Your payments to the attorney: The main risk here is to the buyer paying the whole or a large portion of the purchase price to the transferring attorney. Of course transfer duty and other costs of transfer can also add up to a tidy sum, whilst as a seller you will be paying for things like bond cancellation costs, rates, agent’s commission and so on.The scam here is that once again emails are intercepted, and this time you receive an authentic-looking but entirely fraudulent email asking you to pay into “account C”. The email appears to come from the conveyancing firm but of course it is again a clever (often very sophisticated) spoof, this time of the firm’s branding, details and email address.The false account details might be in the email itself or in a falsified attachment – nothing is safe. The email may be in the form of a “we’ve changed our banking details” notification, or the criminal may work on the basis that you just won’t notice the change. And of course account C isn’t the conveyancer’s trust account at all, and the minute you make a payment into it your money is – once again – gone forever.
How can I protect myself?
The problem normally starts with criminal interception of emails or hacking of online data and what follows is a classic case of a “wolf in sheep’s clothing” deception.
Here’s your essential checklist to minimise the risk –
- Keep all your anti-virus, anti-malware and other security software updated, learn all about protecting yourself from malware/spyware/phishing attacks (your bank will have tips for you – see e.g. Nedbank’s “Fraud Awareness” page here), and generally treat all electronic communications with caution – even those appearing to come from a trusted source like your attorney.
- Read “Is That Sender For Real? Three Ways to Verify the Identity of An Email” on FRSecure’s blog. All the tips given there are important, but at the very least use the methods given to find out where the email really comes from. Then check back to see that it matches in every detail the email address you were given at the start of the transfer process.
- Be suspicious if anything in the email just feels “not-quite-right” – perhaps only a cell phone number is given, or a free generic email address (like Gmail) is used, or the wording is somehow “off”. If the email makes you even the slightest bit uneasy, err on the side of caution and investigate further.
- Most importantly, never accept notification of any change in your attorney’s banking details without visiting or phoning your attorney to check all is in order (don’t of course use the phone number given in the suspicious email!).
A final thought – are you the weakest link?
As a client it’s no use relying on your attorneys to have all the latest security systems and procedures in place. Think of how banks enforce stringent security protocols and protections, yet still their customers are regularly scammed. If your own computer, network or actions are the weakest link in the chain, then that’s what the criminals will exploit!
Follow the above tips to protect yourself and if you ever have even the slightest doubt about anything, take no chances and contact your attorney to check!
August 8, 2018
“…aye, there’s the rub” (Shakespeare)
Levies are the lifeblood of a sectional title scheme, and the Body Corporate has a duty to recover arrears from defaulting owners. It has the power, in addition to following standard debt collection procedures and perhaps approaching the Community Schemes Ombud for assistance, to apply for the sequestration of the owner’s estate. Indeed just the threat of a sequestration application is sometimes enough to frighten a recalcitrant debtor into paying up.
But, as Shakespeare might have put it, there’s an alarming “rub” here that body corporate trustees ignore at their peril. It arises from ‘the danger of contribution’ in insolvent estates. In a nutshell, where the ‘costs of sequestration’ exceed the funds in the estate available to pay them, proved creditors may well have to contribute towards those costs in addition to losing their claims. Talk about adding insult to injury!
A R46k shortfall – must the body corporate contribute?
- A body corporate successfully applied for the sequestration of the personal estate of a defaulting section owner.
- The property was bonded to two banks who duly proved their claims against the insolvent estate. Wisely, no other creditors proved claims and the trustee of the insolvent estate drew an account providing for the two banks alone to pay pro-rata contributions to cover the R46,663-16 shortfall in the costs of sequestration.
- The banks objected to the account on the basis that the body corporate should also contribute as ‘petitioning creditor’, although it hadn’t formally proved a claim. The Master of the High Court ruled that the body corporate was protected from contributing as its claim related to arrear levies (and the costs of recovering the arrears) – claims which didn’t need to be formally proved and would by law be paid out of the proceeds of the property anyway.
- The banks asked the High Court to set aside the Master’s ruling, and the Court duly held that as “petitioning creditor” the body corporate must indeed contribute to the shortfall pro-rata with the bondholders.
The bottom line – trustees of bodies corporate should, before applying for a defaulting owner’s sequestration, make certain that there is no danger of contribution.
July 19, 2018
“What’s in a name? That which we call a rose
By any other name would smell as sweet” (Shakespeare)
You cannot lawfully use any surname in South Africa other than the one shown in the National Population Register (NPR), and trying to do so will land you in a lot of hassle and probably in legal trouble as well. So tread carefully when it comes to any event in your life involving a possible name change.
Don’t be caught out trying to decide at the altar!
As a woman about to get married for example, you have to decide what surname you want to use after the marriage.
There are many pros and cons to consider when deciding between your various options, but ultimately the choice is yours by law. Think about it beforehand, because it’s important and you don’t want to be caught out trying to make a decision at the altar – whatever choice you show in the marriage register (in the “Surname after marriage (wife)” field at the end) will be recorded by Home Affairs in the NPR.
These are your choices on marriage, divorce and widowhood
- Take/keep your husband’s surname, or
- Use/revert to your maiden name or any prior surname, or
- Join the two surnames into a double-barreled surname.
Must you apply to change your name? And what about men?
As a woman, your choices as above don’t need any form of application, but do advise Home Affairs of any changes in writing or they won’t be recorded in the NPR.
For any surname changes other than as above, you need to formally apply to Home Affairs for authorisation. You will have to give a “good and sufficient reason” for the application, and publication in the Government Gazette will be necessary before approval.
Note: The reference to only “a woman” in the “Assumption of another surname” section of the Births and Deaths Registration Act could well be challenged as unconstitutional at some stage, but for the moment men are stuck with the formal name change process as above.
What about buying and selling property?
When you are buying, selling or otherwise dealing in property, your conveyancer will know how to reflect your choice of name and may in some circumstances need you to confirm your choice on affidavit.
July 19, 2018
“Suretyship is the precursor of ruin” (Thales of Miletus, one of the Seven Sages of Ancient Greece)
As the philosopher and mathematician Thales pointed out two and a half millennia ago, signing surety for another’s debts carries huge risk. Yet every day directors of property holding companies happily sign personal suretyships for their company’s (usually substantial) debts.
The problem is that it all seems so safe in the beginning. You need a bank loan to buy or develop a property, you’ve done your homework and the deal’s a good, sensible one. It’s only when things go wrong down the line that your signature on that suretyship document comes back to haunt you, and by then it’s far too late – or is it?
A recent High Court decision illustrates one of the very restricted circumstances in which you may be able to escape from the trap you signed yourself into.
The developer, the trust and the bank
- A property developer lent some R10m to an associate’s companies for a shopping mall development. The associate’s companies then borrowed a further R5m from a bank, which took a R5m mortgage bond over the one company’s property as security. And – here’s the rub – the developer also signed suretyship to the bank for the R5m both personally and on behalf of his family trust.
- The developer signed these suretyships believing that there was enough equity in the bonded property (valued at R12m) to cover both the R5m bond and another bond that he was told about of R2.7m. What he didn’t know at the time was that there was yet another bond over the property, and this was a big bond for R15m. Neither his associate nor the bank had told him about it.
- Only when both of the associate’s companies failed did the developer realise that there was no equity in the property at all, with bonds totalling R22.7m against a value of R12m, and that the bank’s liquidation dividend would leave it with a large shortfall.
- The bank duly sued the developer and his trust as sureties for R5.7m (R5m plus interest). To understand how that turned out in court we need to look at when our law will let you off the hook, and when it won’t…
So when can you escape from a suretyship?
- Our law will generally hold you to the agreements you make, and a suretyship is no exception. You can only free yourself from it if it “was induced by fraud, duress, undue influence or mistake, whether induced by misrepresentation or otherwise”.
- Without going into all the legal niceties (you definitely need your lawyer’s specific advice if you ever find yourself in this unhappy position) the general principle is that, where you rely on a “justified error as to the nature or contents of the [suretyship] document”, you must show that you were “misled as to the nature of the document or as to the terms which it contains by some act or omission (where there was a duty to inform) of the other contracting party.”
- In lay terms, you have to prove that the bank either actively misrepresented, or failed to disclose, something “material” (significant or vital) to you. And where you rely on a failure to disclose something (as in this case) you have to further show that the bank had a “duty to speak” i.e. had a duty to tell you about it. That’s because our law generally requires you to be aware of what you are contracting yourself into, rather than requiring the other party to “tell all”. The exception to that is where you can prove that the other party had “exclusive knowledge” of something material and your right to know about it “would be mutually recognised by honest men in the circumstances”.
- That’s quite a mouthful and it’s not easily proved, but in the particular circumstances of this case the developer succeeded in doing so. The Court had accepted that the developer wouldn’t have signed surety if he had been aware of the R15m bond, and that the bank officials knew of his concern about there being enough equity in the property to cover the R5m. Moreover the developer hadn’t done a deeds search (which would have revealed the extra R15m bond) because as he saw it there was a “relationship of trust” between him and the bank’s officials and he would have expected them to tell him about it.
- Critically, the bank’s disclosure to the developer of the R2.7m bond but not of the R15m one led the Court to conclude that, having thus made an incomplete disclosure to the developer, “a duty arose requiring the [bank]’s officials to speak and to make a full and honest disclosure to the [developer] of the material facts in their knowledge.”
The developer and his trust are accordingly off the hook. But there’s a strong confirmation there of just how narrow your potential escape route is from a suretyship.
So as always take legal advice before signing anything!
June 14, 2018
“There ain’t no such thing as a free lunch” (Wise old adage)
You sign a two year lease for a nice little apartment (or a large family house if you have a spouse, 3 kids and a dog) but after 6 months your employer transfers you and you have to cancel early.
“Fine” says your landlord “but you are breaching your lease and I am holding you liable for the remaining 18 months’ rental”.
What are your rights? As is often the case in life, that depends…
Check the terms of your lease
First things first, generally your most important consideration is this: “What does my lease say about termination?”
Most leases specify what happens if you don’t comply with the terms of your lease and our law will generally hold you to your agreements. So if you have agreed to be bound to a two year lease, your starting point should be that you are at risk if you cancel early.
Before you concede anything however, consider the following –
Does the CPA apply?
First step is to decide whether the Consumer Protection Act (CPA) applies to your lease.
The CPA gives its protections to “fixed-term agreement” tenants but only if your landlord is leasing to you “in the ordinary course of business” and it’s unfortunately not yet clear how our courts will interpret that definition in property leasing scenarios. For example, if your landlord is a property investor running a full-on letting business with a whole selection of apartments or houses, you will definitely fall under the CPA. But what about a private home owner who is overseas for a year and rents to you on a temporary basis? Or a pensioner letting out a “granny flat” to boost their retirement income? You can certainly argue that in both cases the landlord is making “a business” of the letting out, but expect your landlord to disagree.
The 20 day notice provision in the CPA
If the CPA does indeed apply, this is the crux: The CPA allows you to give your landlord 20 business days’ notice, at any time, and for any reason.
“Hooray” I hear you shout, “I get off scot free”. But not so fast!
The CPA also allows your landlord –
- To recover any amounts still owed by you in terms of the lease up to the date of cancellation, and
- To impose a “reasonable cancellation penalty”. The principle here isn’t to punish you by allowing your landlord to, for example, automatically hold you liable for the full remaining period of your lease. The idea rather is to let the landlord recover all actual losses resulting from your early cancellation – rental lost until a new tenant is in place, re-advertising costs, new agent’s fees, new lease preparation costs and so on. Particularly if you are cancelling a fixed-term lease early on, expect to pay for the privilege.
Note that this all applies regardless of what your lease says – you can’t be contracted out of these protections. In other words if your lease imposes a set “early cancellation fee” or the like, it must still be a reasonable one. Note also that you must give the required notice “in writing or other recorded manner and form” (keep proof).
What if the CPA doesn’t apply?
In this case, you have no specific right of early cancellation and will be bound by the terms of your lease.
But you still aren’t entirely at your landlord’s mercy. Any penalty imposed on you must still be reasonable. Per the Conventional Penalties Act, a court can reduce a penalty if it is “out of proportion to the prejudice suffered” by the landlord.
June 14, 2018
“Agree, for the law is costly” (Marcus Tullius Cicero, Roman lawyer and statesman)
We all know how easy it is for misunderstandings and disputes to arise between landlords and tenants, and whilst most can be resolved with a bit of open communication and negotiation, sometimes independent intervention is needed.
Enter the Rental Housing Tribunal, which uses the Rental Housing Act to “speedily resolve” landlord/tenant disputes, to balance the rights of both sides and to protect them both from “unfair practices and exploitation”.
Note that this applies only to residential housing, not to commercial or industrial leases.
What’s the cost and how does it work?
It’s free, and to get going you lodge a complaint with your local Tribunal. An impartial mediator is then appointed to help you settle the dispute and reach an agreement. If that fails a formal hearing is held and a ruling issued. Either side can take the ruling (which is binding and must be complied with on pain of criminal prosecution) on review to the High Court.
You can if you like draw up your own complaint and represent yourself in the hearings, but – particularly if there’s a lot at stake – taking legal advice upfront is far safer.
Because the Tribunal cannot order eviction (only a court can do so) and needs time to resolve complaints, landlords faced with a non-paying tenant will usually go straight to court.
For most disputes however, both landlords and tenants should seriously consider following the quick, cheap and easy Tribunal route.
Prevention being better than cure…
Of course first prize is as always to avoid disputes altogether. Start off with a properly-worded, clear and comprehensive lease. Make sure you comply with Rental Housing Act basics like joint inspections for damage, investment and refund of deposits, avoiding unfair practices and so on.
Ask your lawyer for assistance here – blindly using a generic lease without taking advice is a recipe for disaster.
April 16, 2018
“If you hear something (straight) from the horse’s mouth, you hear it from the person who has direct personal knowledge of it” (Cambridge Dictionary)
We all know by now that the VAT rate increased from 14% to 15% on 1 April. How does that affect your residential property sale/purchase?
We are talking big money here – if for example you bought a house from a developer for R10m + VAT, that extra 1% adds R100,000 to your cost. Fortunately a little-known (until now) section of the VAT Act provides some relief to residential property buyers.
This is what SARS has to say about it (slightly simplified) –
Question – “Is there a rate specific rule which is applicable to me if I signed the contract to buy residential property (for example, a dwelling) before the rate of VAT increased, but payment of the purchase price and registration will only take place on or after 1 April 2018?”
Answer – “Yes. You will pay VAT based on the rate that applied before the increase on 1 April 2018 (that is 14% VAT and not 15% VAT).
This rate specific rule applies only if –
- You entered into a written agreement to buy the dwelling (that is “residential property”) before 1 April 2018;
- Both the payment of the purchase price and the registration of the property in your name will only occur on or after 1 April 2018; and
- The VAT-inclusive purchase price was determined and stated as such in the agreement.
For purposes of this rule, “residential property” includes –
- An existing dwelling, together with the land on which it is erected or any other real rights associated with that property;
- So-called plot-and-plan deals where the land is bought together with a building package for a dwelling to be erected on the land; or
- The construction of a new dwelling by any vendor carrying on a construction business.”
But what about commercial property?
Let’s quote SARS again on property generally (once again, slightly simplified) –
Question – “How will the rate increase work generally for fixed property transactions?”
Answer – “The rate of VAT for fixed property transactions will be the rate that applies on the date of registration of transfer of the property in a Deeds Registry, or the date that any payment of the purchase price is made to the seller – whichever event occurs first.
If a “deposit” is paid and held in trust by the transferring attorney, this payment will not trigger the time of supply as it is not regarded as payment of the purchase price at that point in time.
Normally the sale price of a property is paid to the seller in full by the purchaser’s bank (for example, if a bond is granted) or by the purchaser’s transferring attorney. However, if the seller allows the purchaser to pay the purchase price off over a period of time, the output tax and input tax of the parties is calculated by multiplying the tax fraction at the original time of supply by the amount of each subsequent payment, as and when those payments are made. In other words, if the time of supply was triggered before 1 April 2018, your agreed payments to the seller over time will not increase because of the increase in the VAT rate on 1 April 2018.”
April 16, 2018
“Co-ownership is the mother of disputes” (Roman law maxim)
Buying property can be an excellent investment, but it can also be expensive. So sometimes it makes a lot of sense to share the financial burden with someone else. Perhaps for example you are spouses or life partners buying your first home. Perhaps you are a group of families planning to share a holiday house, or two firms looking to co-own business premises.
Just be very careful here…
What can go wrong?
Co-ownership (or “joint ownership” – it’s the same thing) always starts off all fine and friendly. You’re life partners, or business partners, or best friends (you may even be all of those things together) and all is good between you. So nothing can go wrong, right?
Unfortunately it can, and as many bitterly fought court cases can attest, it does. “The sting’s in the tail” as the old proverb has it, and problems tend to raise their ugly heads only down the line, long after you first became joint owners. Imagine a scenario where you can’t agree on how to run the property and/or cover its expenses, or you need to wind up your co-ownership but can’t agree on how to do so. What happens if one of you wants to buy the other out but the other refuses or you can’t agree on a fair price? Or if (as co-owners are entitled to do if not bound to a contrary agreement) they sell their share/s to a total stranger? Or the time may come when you need to/want/must sell your share and your co-owner refuses to co-operate.
The issue here is that when you are co-owners of property you don’t each hold separate title to your own physically-delineated “share”. Your title deed (registered in our Deeds Office) will reflect each co-owner as holding an undivided share in the property. You have to act jointly or call in the lawyers.
A great deal of unhappiness and dispute – perhaps even the cost, delay and hassle of litigation – beckon. For example, a court can order one of you to buy the other out, or to subdivide the property, or even to order its sale (commonly by public auction) – but it really is a last resort to ask a court to decide what is best for you.
A simple solution and a checklist for you
The trick of course is as always to plan ahead. Before you buy the property, take advice on the best structure to use for your particular circumstances. Factors to bear in mind would include things like ease of ownership, cost of ownership, the tax angle, ultimate disposal, estate planning, asset security, protection from creditors, and so on.
A whole multitude of factors, unique to each situation, will determine whether you should own the property in a legal entity like a company or trust, or register it in your names jointly, or find some other way of ensuring that you share equally in both the costs and the benefits of property ownership.
Critically, you need to put in place a written, signed agreement setting out as clearly and as simply as possible –
- Your agreed method of ownership, and whether your undivided shares will be 50/50 or in another proportion.
- Who will cover what expenses, and how? Think about all the transfer costs, the moving costs, the costs of municipal services, maintenance costs, bond instalments, and so on. If it’s an office held by a company for example, what rental will each of you pay? Who will pay the rates? Can co-owners make improvements to the property and if so how will they be compensated?
- If you are trading with the property (perhaps letting it out to tenants), will you share profits and losses in the same proportion as your shares?
- Who will attend to administrative duties? You need to cover things like paying the bond, arranging insurance, keeping financial records, dealing with tenants, and the like.
- Who will enjoy what benefits of the property, and how? In an office-sharing scenario for example, define exclusive-use and common-use areas, who gets the best undercover parking etc. If it’s a holiday home, who gets to use it and when? Who gets the Summer Holidays each year? If you are a life partnership couple you should have a cohabitation agreement in place anyway – if you don’t, ask your lawyer to draw one up for you and to integrate your co-ownership deal into it.
- Last, but certainly not least, you have to plan for the end game part. Without an agreement to the contrary, a co-owner can sell his/her share without the other’s consent – a recipe for dispute. And if your relationship falls apart, you need to be able to wind up your joint ownership without all the hassle, stress, delay and cost of legal action. Consider also what happens if one of you goes insolvent or is liquidated, or if a co-owner’s creditors attach his/her share for sale in execution. Specify what happens to a co-owner’s share on death. Agree on how you will value the property, or each co-owner’s share in it, if you need to.
The above is of course just a summary of some common issues, so ask your lawyer to help you with your own checklist.
March 12, 2018
Both sellers and buyers (of anything – houses, cars, you name it) need to understand how the CPA (Consumer Protection Act) has impacted on the very common “voetstoots” (“as is”) clause.
Firstly, what’s the difference between “patent” and “latent” defects?
Before we get into the meat of this question, let’s understand two important terms –
- “Patent defects” are those that can be easily identified on inspecting the goods – like a broken door, damaged tiles, cracked mirror or windscreen, and so on.
- “Latent defects” on the other hand are hidden or non-obvious. They “would not have been visible or discoverable upon inspection by the ordinary purchaser”. Think for example of seasonal roof leaks, broken underground drains, leaking geysers and the like.
Exactly what is a voetstoots clause?
A general rule in our law is that when you sell something, you give the buyer an “implied warranty” against defects. That can be disastrous for the seller as it allows the buyer, on finding a defect, to claim a price reduction (or sometimes cancellation of the whole sale).
Hence the very common voetstoots or “as is” clause. In effect as seller you are telling the buyer “you agree to take the goods as they are, the risk of defects is on your shoulders, and I give no guarantees”. Note however that a seller cannot always hide behind such a clause – if he/she is aware of a latent defect and deliberately conceals it with the intention to defraud the buyer, all voetstoots protection falls away.
And then along came the CPA
The Consumer Protection Act has been a game changer when it comes to consumer rights. In a nutshell, as a buyer you are entitled to receive goods that are of good quality, “reasonably suitable” for the purposes for which they are generally intended, defect-free, durable and safe.
If anything you buy fails, or turns out to be defective or unsafe –
- You can return the goods to the supplier – without penalty, and at the supplier’s risk and expense – within 6 months of delivery, and
- You can require the supplier to give you a full refund, or to replace the goods, or to repair them. The choice is yours; the supplier cannot dictate your options to you.
But does the CPA apply to all sales?
Here’s the rub for buyers – the CPA applies only when the seller is selling “in the ordinary course of business”, so generally “private sales” will fall outside its ambit.
In other words, if you buy a movable like a car from a trader or dealer, the CPA applies and overrides the voetstoots clause. But if you buy from a private seller, the voetstoots clause applies and you have no CPA protection.
What about property sales?
Developers, builders, investors and the like are clearly bound by the CPA. But for private sellers the position is less clear. Although it seems very likely that one-off private sales of residential property don’t fall under the CPA, there is some suggestion that we won’t be 100% sure on that until either our courts rule definitively on it, or the CPA is amended to provide clarity. On the “better safe than sorry” principle, don’t take any chances – cover yourself as below.
Practical advice for sellers
Cover yourself by disclosing any defects you know of to the buyer, and record any such disclosure/s in a written and signed annexure to the deed of sale. A buyer cannot complain if you have informed him/her of the condition of the goods and they have been bought on that basis.
Then if you are selling in the “ordinary course” of your business, be very aware that the CPA applies to you. Understand its very strict requirements (what is said above is of necessity only a brief overview) and the risks of not complying.
If on the other hand you are a “private seller”, make sure you are covered by a properly-drawn “voetstoots” clause. On the off-chance its validity is challenged, you can avoid later disputes with a “belt-and-braces” approach – have the goods checked out by an independent expert (like a home inspection service when selling a house) and have your lawyer incorporate that into the sale agreement.
Practical advice for buyers
Don’t risk having to fight in court over whether or not the CPA applies to your purchase, and over whether or not any voestoots clause is valid. Be warned that depriving a private seller of the protection of a voetstoots clause is never going to be easy, particularly since you will need to prove that the seller intended to defraud you by concealing a defect.
Rather be sure of the condition of the goods before you buy. If the seller hasn’t provided you with an expert report as above, commission one yourself.
January 22, 2018
“Buy land, they’re not making it anymore” (Mark Twain)
Buying a house is an important and exciting experience. One of the first decisions you must make is whether to buy an existing house (the “turnkey” option) or to buy from a developer on a “plot-and-plan” (“off-plan”) basis.
Which option is best for you only you can decide, but with the popularity of security estate living soaring and with the flexibility of creating your own dream home, off-plan is an increasingly attractive choice both for investment and for lifestyle.
Just remember that the many benefits of “buy and build” come with some important cautions. Apart from practical considerations, there are many legal pitfalls to watch for, so have your lawyer check the agreements (normally two – one to buy the plot and the other to build the house) before you sign anything.
The building deadline – benefit and risk
One area to be particularly aware of is the common requirement that you build on your new plot within a certain period of time. In fact as a buyer you should check for such a requirement – otherwise you could be subjected to years of construction activity in the estate with all the attendant noise, dust, inconvenience and security concerns.
Your risk is that, to enforce such time limits, developers commonly provide for defaulting buyers to be subject to penalty levies and/or buy-back/retransfer clauses entitling them to take back the plot.
A recent Supreme Court of Appeal (SCA) judgment provided strong warnings in this regard for both developers and buyers.
Developers – the perils of prescription
- Two buyers of plots in a large estate failed to build on them within the required 18 month period (this requirement was registered on their respective title deeds).
- Their sale agreements entitled the developer to take back the plots against repayment of the purchase price (without interest) and the developer asked the High Court to order re-transfer to it accordingly.
- The SCA on appeal held that the developer’s claims had prescribed (become unenforceable) because it had waited more than three years before taking legal action.
- The three year period applied, said the Court, because the developer’s right was a “personal right” not a “real right”. The difference between the two is of great interest to lawyers, but all that really counts for developers and buyers is that the developer should have enforced its retransfer right within three years of the deadline date by which the purchasers were required to have built a house.
Bottom line for developers: Don’t delay in enforcing buy-back clauses!
Buyers – developers can enforce buy-back clauses
An earlier High Court decision, involving the same developer and the same clause but another buyer, had held that the buy-back clause was “grossly unfair”, and that such clauses generally “do not pass constitutional muster”. Which led to speculation that buy-back clauses might be dead in the water.
Not so. The SCA commented that the High Court should not have considered the question of constitutionality at all in the particular circumstances of that case, so (for the time being at least) buy-back clauses remain enforceable.
Bottom line for buyers: You could lose your plot if you don’t build by deadline.