Understanding your rights: Breach and penalty clauses in property agreements
When buying immovable property, the offer to purchase serves as an agreement between buyer and seller. Within this document, certain clauses demand meticulous attention from both parties. These clauses outline the rights, obligations, and procedures that govern the transaction. Understanding these key provisions is essential for ensuring that the interests of both the buyer and seller are protected and that the purchase process proceeds smoothly and transparently. Breach of contract clause: Once the offer to purchase is signed by both parties, it is a valid contract. The relationship between the seller and purchaser is governed by the law of contract. A standard clause in the offer to purchase is a breach of contract clause. This breach occurs when either party, without a lawful reason, fails to honour their obligation under the contract. In this event, the aggrieved party, depending on the wording of the breach clause, will have to allow the defaulting party to remedy the breach. Should they fail to comply, the aggrieved party typically has the option to either cancel the contract and seek damages or to file a court application for specific performance. This means they can demand the enforcement of the contract, requiring the defaulting party to proceed with the transfer as agreed. If the aggrieved party elects to cancel and claim damages, it is at this stage that they must take into consideration the Conventional Penalties Act 15 of 1962 (the Act), when quantifying the damages to be paid by the defaulting party. The following paragraph deals further in detail with the claim for damages. Forfeiture clause (penalty) or non-refundable clause: It’s a misconception that the seller is entitled to the deposit, held in the conveyancer’s trust account, in the event of the purchaser breaching the contract. The forfeiture (penalty) clause might create the impression to the seller that should the contract be cancelled due to a breach by the purchaser, the seller will be entitled to the deposit paid or any monies paid into the conveyancer’s trust account. However, after the cancellation of the contract, the seller will not be automatically entitled to retain all the amounts as a claim for damages or as a non-refundable deposit. In terms of clause 3 of the Act: “if upon hearing of a claim of penalties, it appears to the court that such penalty is out of proportion to the prejudice suffered by the creditor, by reason of the act or omission in respect of which penalty was stipulated, the court may reduce the penalty to such an extent as it may consider equitable in the circumstances…” The case of Matthews vs Pretorius (1984) (3) (SA547W), deals with a penalty clause. If the amount being claimed for damages is out of proportion to the detriment of the guilty party, the court may reduce the penalty to such an extent as it may consider equitable under the circumstances, taking in due consideration the interests of all concerned. Estate agents should be wary of creating the expectation to the seller that they will be entitled to the non-refundable deposit, or any monies paid to the conveyancer or estate agent, should the contract be cancelled due to a breach by the purchaser. Conveyancers do not have the authority to be judge and jury when dealing with the monies in their trust account. If there is a dispute between the parties regarding the refund of any monies due to breach and cancellation of the contract, the conveyancer should be guided either by an agreement between the parties or a court order made on how the monies are to be distributed. Rouwkoop clause: Occasionally, an offer to purchase may include a rouwkoop clause, which must be clearly differentiated from the forfeiture (penalty) clause. Rouwkoop is a common law concept and in its simplest form means “regret purchase”. The rouwkoop clause in an offer to purchase affords a party to the contract to pay a sum of money if they wish to withdraw from the contract. The parties would have agreed on a fair and reasonable amount payable, which is considered rouwkoop. The primary distinction between the forfeiture (penalty) clause and the rouwkoop clause lies in the fact that the latter does not require the party wishing to withdraw from the contract to be in breach of it. Unfortunately, there is confusion as to the interpretation between monies paid in respect of penalties and rouwkoop. It is therefore important to have a clear understanding of the difference between the forfeiture (penalty) clause and the rouwkoop clause, to avoid unnecessary litigation. Reference List: 1. Conventional Penalties Act 15 of 1962 2. Matthews vs Pretorius (1984) (3) (SA547W) While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup
Understanding living wills
When one thinks of a will, the first thing that comes to mind is probably a last will and testament. This type of will expresses a person’s wishes after they have died. However, a living will, despite sharing some similarities with a last will and testament, is not the same thing. It can be described as a legal document outlining an individual’s preferences for medical decisions in the event they are unable to communicate these wishes themselves. It can be a very helpful tool for family members and healthcare providers when they are faced with making medical decisions on someone’s behalf. Validity requirements for a living will Like most legal documents, certain requirements must be met for the document to be considered valid and binding. According to the Living Will Society of South Africa and the South African Medical Association, there are four requirements which must be met for a living will to be valid. 1. The person making the living will must be 18 years or older. 2. At the time of making the living will, the person must have the necessary mental capacity. 3. The person making the living will should only be allowed to refuse medical treatment if they have been fully informed of the condition and the proposed treatment thereof. 4. The doctor treating the person must be satisfied that they have not changed their mind. Requirement 1: This requirement is very straightforward. A living will can only be valid if the person who made such a will is 18 years or older. Requirement 2: This requirement states that a person must have the necessary mental capacity to make a living will, which means that they must understand the decisions they are making. Under normal circumstances, proving that an individual has the necessary capacity is not a difficult task, however, this becomes more complicated if the individual is elderly or has an intellectual disability. An individual’s mental capacity can be assessed in several ways and by several professionals such as a doctor, psychologist, or psychiatrist. Requirement 3: The third requirement holds that a person may only refuse medical treatment where they have been informed of their condition and the possible treatment thereof. This requirement will be unproblematic where an individual has a chronic or terminal illness and decides to draft a living will after finding out their diagnosis. In this instance, the individual is likely to have discussed all possible treatments with their healthcare provider and are properly informed. However, this can become slightly more problematic when a person suddenly becomes ill or in case of an emergency. Requirement 4: This requirement is focused on the subjective opinion of a specific healthcare provider. Doctors have an obligation to protect their patients’ lives, subject to certain limitations of course. As a result, withholding lifesaving treatments will have to be carefully considered by healthcare providers. The subjective nature of this requirement means that the individual has less control. However, some steps can be taken to assist healthcare providers in their decisions. For example, one can ensure that their living will has recently been attested to. The more recently a living will has been drafted and signed, the less likely healthcare providers are to question a patient’s possible change of heart. This can be particularly helpful where the living will has been signed after life changes in an individual’s life such as getting married or having children. Formal requirements for a living will There are no prescribed requirements for the format of a living will. However, some important details should be included such as: 1. Full names as they appear on the individual’s identity document. 2. The current residential address of the individual. 3. A list of directives and what the individual does not consent to. 4. When and where the living will was signed. 5. The individual’s signature. 6. The full names and signatures of two witnesses who were present when the living will was signed by the individual. Should you wish to learn more about living wills or need assistance drafting living wills, contact us. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup
Registered antenuptial contracts vs agreements between spouses
The term ‘antenuptial contract’ can refer to either an informal contract or a contract complying with the formalities required by s 87 of the Deeds Registries Act 47 of 1937. The public is not always aware of the fact that a verbal or written contract can be binding inter partes (between the parties) because an antenuptial contract (“ANC”) is usually understood to mean a contract registered at the deeds office which regulates the matrimonial property between the parties and against third parties. This article briefly explores the above two concepts and case law dealing with the issues that arise when parties have both entered into a registered contract and a verbal or written agreement before or after marriage. In terms of the Deeds Registries Act 47 of 1937 (“the Act”), an antenuptial contract executed in South Africa shall be attested by a notary and shall be registered in the deeds registry within three months after the date of its execution or within such extended period as the court may on application allow. In the case of Ex Parte Minister of Native Affairs in re Molefe v Molefe 1946 AD 315, it was held that under common law, parties may mutually regulate their proprietary rights post-marriage through agreement, which holds binding force between them but does not extend to third parties. In B v B 820/2021 SCA the matter was heard on appeal from the Gauteng High Court. The Supreme Court of Appeal had to adjudicate on the validity of a separate agreement entered into by the parties after concluding a registered ANC, which excluded community of property and the accrual. The defendant in the main action claimed the enforcement of the separate agreement in her counterclaim. The separate agreement, among other things, included the payment of life-long maintenance to the wife on the death of the husband or by divorce. The court found that the separate agreement was indeed enforceable. The court’s reasoning in the above matter was that the ANC determines the matrimonial property regime and its effect on third parties, and the separate agreement does not attempt to change the marital regime. The agreement is valid and enforceable, and the court should uphold the principle of pacta sunt servanda (agreements must be kept). The agreement does not restrict the court’s discretion under the Divorce Act in terms of s 7(1) and s 7(2). The ANC and the separate agreement can coexist as long as they don’t contradict each other. When parties intend to change the matrimonial property system, an application should be made by both spouses in terms of Section 21 (1) of the Matrimonial Property Act and such change can only be effected by leave of the court. The court will grant leave if there are sound reasons for the proposed change, sufficient notice was given to any creditors of the parties, and no other person will be prejudiced by the proposed change. In Odendaal v Odendaal 2002 (1) SA 763 (W) the Court accepted the husband’s evidence that there was a verbal antenuptial agreement in terms of which they were married out of community of property, with the exclusion of the accrual system. Section 88 of the Deeds Registries Act further deals with postnuptial executions of antenuptial agreements and reads that a court may, subject to such conditions as it may deem desirable, authorise the execution of the notarial contract entered into after marriage but if the terms thereof were agreed upon between the intended spouses before the marriage was concluded. For an antenuptial contract to be valid and enforceable, it does not need to be registered. The effect of registering an antenuptial contract is that it gives notice to third parties on how matrimonial property must be dealt with and the necessary formalities that need to be complied with for obligations to be effective or valid against third parties. Therefore, contracts that have been entered into between spouses before marriage, whether it is verbal or written, will be valid between the spouses and will be enforceable. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup
Property advice in an election year
Buy now, sell later. This year, almost half of the world’s inhabitants will head to the polls to elect their new governments, including eight of the world’s 10 most populous countries. In South Africa, we can expect our own election to put the property market into a temporary holding pattern, dragging on the subtle buyer’s market we have been experiencing. However, while owners are advised to wait until the end of the year to consider selling their property, buyers are cautioned against getting caught up in election fears and missing out on real estate bargains. The impact of sentiment All market behaviours are driven by sentiment. South Africans face uncertainty around the outcome of the election and the likelihood that, for the first time in its history, the country will be led by a coalition government at the national level. This creates negative sentiment that is also being fuelled by the heightened and increasingly populist rhetoric of competing political parties—and persistent factors, like the delay in interest rate cuts and a declining rand, only add to the doubt. While we were all hoping for a downturn in the rate cycle at SARB’s May or July meeting, it is now doubtful that anything will happen before September. The MPC remains hawkish and seems unlikely to move interest rates downwards before the US Federal Reserve has lowered its policy rate. That’s expected well after the election, and these compounded concerns are pushing people to take a wait-and-see approach—including in the buying and selling of property. A first for South Africa All countries with a proportional representation electoral system eventually face a coalition government scenario. The likelihood of a national governing coalition is therefore a sign that our political system is maturing. This will be South Africa’s first coalition government at a national level, and the norms associated with such a structure have never been firmly established among the political class or the voting population. While national coalitions are a sign of progress and maturity, it is likely to lead to a lot of short- to medium-term noise that is likely to have a continuing and unpredictable impact on sentiment in all markets, including the property market. Countries like Belgium with older proportional representation systems have developed the advanced bureaucracy necessary to almost run the country on autopilot, even without a government. South Africa, however, still needs to find its footing in any coalition pacts and develop the necessary protocols among participants intent on promoting their own interests. This means that things will probably be noisy and messy for some time after the election, as parties attempt to nail down the terms of their respective alliances. At the moment, the nearest we have to some agreement is the Multiparty Charter whose only purpose is to counter a national coalition between the ANC and EFF. What to expect from property Currently, it’s still a buyer’s market for property, and it definitely won’t turn into a seller’s market until after the election and a rate cut. Until then, we can expect that property price growth will remain low. However, once the election outcome is known, and provided we have avoided worst-case scenarios, and the rate cut is at hand, we can expect pent-up demand for property to spill into the market and significantly increase demand. In addition, weak economic growth means that sellers who can afford to wait should indeed wait until spring or summer to see if they can fetch a good price for their property relative to the market. Winter is historically not a great time for selling homes anyway. Despite the general mood brought on by politics and the interest rate cycle, the market in the Western Cape remains buoyant—and there are signs of buyers returning in earnest to areas like southern Gauteng and areas east of Pretoria. The smart money of property investors also remains in the market, signalling that opportunities exist. Along with low property price growth, this means that astute buyers can still pick up bargains while others hesitate. If you want to buy, buy now—and don’t be put off by sentiment-driven hesitance that currently prevails in the market election sentiment. In the South African property market, due to structural factors, what goes down must eventually come up. WRITTEN BY RENIER KRIEK Renier Kriek is a property specialist. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup