Tenant ‘Red Flags’ and How to Avoid Them
The wrong tenant can have a lasting negative effect. The residential property industry continues its upward trajectory, and investors are getting in on the action. However, with the rise of investors choosing to take advantage of low prices and invest in ‘buy-to-let’ properties comes an excess supply of rental properties in areas with high supply and low demand. Residential rental vacancies in Gauteng are currently sitting at a high rate of 11.9%, while the Western Cape is sitting at a slightly lower 11.4% vacancy rate, according to TPN’s 2021 Q4 data. Although landlords may be getting desperate, industry experts advise you to think twice before signing on the first tenant who comes your way. Placing a tenant in your vacant property might help curb your losses in the short term, but putting the wrong tenant in can have a lasting negative effect. Contrary to popular belief, the law protects both the landlord and the tenant’s rights—and both parties are strongly urged to do their due diligence prior to signing a lease agreement. In terms of obligations, those of the tenant include the requirement to pay rent promptly, to take care of the property, and to return the property in the same condition in which it was received. Landlords, on the other hand, are required to provide the tenant with access to a safe home in good working order. They are also required to maintain the exterior of the building and to protect the tenant’s deposit. While some properties are enjoying an influx of rental applications, others are desperately seeking tenants—both of which are at risk. Receiving a rental application is a big relief for a landlord, so much so that they often overlook several red flags. Unfortunately, the price of avoiding the warning signs and securing a problem tenant carries a high price for landlords. This is because evicting tenants is a long and costly process in South Africa, requiring landlords to serve tenants with a ‘tenant eviction notice’ before they are entitled to a court hearing. Even if the court process rules in the landlord’s favour, only a court-appointed sheriff is allowed to remove the tenant’s belongings – and this process can take weeks, if not months. The obvious red flags While some of these red flags can be avoided by using a reputable letting agent (and agency), some of these obvious ones are often overlooked. A poor credit score A credit score refers to one’s ability to pay back their debt on time. The COVID-19 pandemic has further exacerbated high levels of debt in South Africa, and this will be a prevalent issue for years to come. Therefore, prior to signing on a tenant, a thorough credit check should be run. A credit score of 610-plus is generally acceptable. Affordability The general rule of thumb is that one’s monthly rental should not exceed 30% of their monthly salary. Accordingly, an assessment of a prospective tenant’s affordability will give a landlord a clearer idea of their monthly income and expenditure. Agents and landlords should ensure that the tenant has enough income left over to pay their rent, electricity, and water (where required). References A tenant will require a reference from previous landlords to determine their behaviour as a tenant. A reference tells the landlord who the tenant is, and whether they are reliable. If the prospective tenant has no prior rental history, they will need to either arrange a co-signature on their lease agreement or offer to put another credible reference forward, such as their employer. The not-so-obvious red flags This list of potential red flags includes those that do not readily come to mind, which results in many landlords overlooking them in the tenant screening process: Employment history Employment is hard to come by. However, some prospective tenants’ short employment histories can tell a different story. Job hoppers or people who run into trouble in the workplace can sometimes display this kind of behaviour in their home lives as well. Criminal history Performing a criminal background check may sound extreme, but this is a standard part of the hiring process in many industries—and rentals should be no different. Some companies such as TPN provide a SAPS criminal background check to landlords as part of their Credit Check offering to ensure that your tenant is safe, honest, and reliable. General behaviour Quite often there are red flags from the very first engagement with a tenant. In some cases, they are hard to reach, or can be extremely difficult and demanding for no apparent reason. This is another reason why it’s important to use a rental agent whose judgement you can trust. Ensuring a good tenant-landlord relationship Here is some advice that will help landlords to ensure a smooth relationship with their tenant: Always communicate In cases where the tenant already occupies the property, be sure to communicate—and put everything in writing. Remain calm and rational should something go wrong and seek advice from estate agents and, when necessary, your attorney. Don’t be fooled by fast cash Don’t fall into the trap of accepting a large sum of cash upfront instead of regular rental payments. Just because they have the money now, doesn’t mean they’ll have it in four months’ time when the next payment is due. Don’t rush In cases where the tenant is dragging their feet about signing the rental agreement, don’t lose hope yet. Try your best to clearly communicate, perform all the necessary checks, answer any questions they may have, and spend a few days mulling over your decision before jumping into a lease agreement. Trust your gut Much like in any relationship, if something feels off when you’re engaging with a prospective tenant, trust your instincts. Paperwork can be forged, but your intuition is rarely wrong. WRITTEN BY GRANT SMEE Grant Smee is a property entrepreneur and a managing director. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles
Complex Living: Be Aware of the Hidden Costs
When considering the purchase of a unit within a complex, it’s crucial to look beyond the surface-level expenses such as the advertised levies. Without thorough research, potential buyers may find themselves facing unexpected financial burdens. The structure of sectional title schemes In sectional title schemes, you own your unit but share ownership of the property’s common areas with other unit owners. This collective ownership, known as the body corporate, is responsible for the maintenance of exteriors, gardens, security, and the overall upkeep of the complex. These responsibilities are funded through monthly levies, which can be more complex than they first appear. Monthly administrative levy The administrative levy is the primary fee in sectional title schemes, varying based on your unit’s size, which means that larger units contribute more. This levy covers not just the utilities—such as electricity and water, billed collectively to the scheme and then apportioned to units based on usage—but also the maintenance of common areas, operational expenses, and building insurance. Reserve funds and special levies Since 2016, a law has mandated that a portion of levies be allocated to reserve funds for long-term maintenance, guided by a 10-year capital expenditure plan. This fund, typically no less than 15% of the administrative levy, is designed to prevent the sudden imposition of special levies for major maintenance projects. Despite the reserve fund’s intent to cover large expenses, unforeseen costs like significant repairs or utility billing errors can necessitate special levies. These are decided by the trustees and can represent a significant additional cost. CSOS levy The Community Scheme Ombud Service (CSOS) levy, another cost in sectional title schemes, is the lower of R40 or 2% of an owner’s levy when it exceeds R500, with no levy charged for amounts under R500. This is collected quarterly by managing agents. The risk of non-paying owners Non-paying owners in sectional title schemes pose a significant risk, which can strain the scheme’s finances. Trustees can address late levies by seeking an adjudication order from the Community Schemes Ombud Service (CSOS) or taking legal action through an attorney to enforce payments. However, these steps can take time, and in the interim, compliant owners may face unexpected special levies as the scheme manages these financial shortfalls, directly impacting your budget and financial planning. Make an informed decision Before committing to a purchase, prospective buyers should request the latest levy statement to fully understand monthly charges, particularly since utilities are included in sectional titles. The actual cost, including utilities, can far exceed initial quotes. It’s also vital to review the most recent AGM pack, current budget, and financial statements to understand the financial health of the scheme and avoid investing in a poorly managed, financially unstable scheme. 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.
The Subdivision of Agricultural Land Act No. 70 of 1970 Explained: Part 2
When considering the subdivision of agricultural land or dealing with inherited farmland that may be subject to disputes, there are several important factors to keep in mind. The Subdivision of Agricultural Land Act No. 70 of 1970 regulates the subdivision of agricultural land and elaborates on various aspects within the Act. This includes definitions relevant to the operation, actions that are excluded and prohibited by the Act, and rules governing the succession of subdivided agricultural land. In Part 2 of our series, “Explaining the Subdivision of Agricultural Land Act No. 70 of 1970,” we will examine the actions prohibited in relation to the subdivision of agricultural land, including any activities that constitute such subdivision. Additionally, we will explore the available remedies for violations of these provisions. Once again, it is emphasised that the primary purpose of The Subdivision of Agricultural Land Act No. 70 of 1970 (hereafter referred to as “the Act”) is to prevent the subdivision of farming units or their creation when such units are not economically viable. This objective is essentially achieved through the Act as the Minister of Agriculture, Land Reform and Rural Development of South Africa has to give his or her consent before any subdivision may lawfully be effected. The first three actions, which are prohibited by the Act, are: agricultural land may not be subdivided; no undivided share in agricultural land shall vest in any other person if such undivided share is not already held by a person; and no part of such undivided share in agricultural land shall vest in any other person if such part is not yet held by another person. The fourth action, which is prohibited, concerns the leasing of agricultural land and the renewal of such lease. The Act states that no one may enter into a lease for which the period of such lease is 10 years or longer. Neither may the length of the lease be the natural life of the lessee and/or the life of any other mentioned person in such lease. Further actions that are prohibited surrounding the leasing of agricultural land by the lessee, are the renewal of such lease either by the continuation of the original lease or by entering into a new lease and such continued and/or renewed lease being for an indefinite period or for the combined period of 10 years. The following actions are prohibited by the Act, except where such actions relate to the purposes of a mine as defined in section 1 of the Mines and Works Act. These actions include the selling or advertising for the sale of a portion of agricultural land, whether or not the latter is surveyed or contains any building thereon. Additionally, the sale or granting of a right to such a portion is prohibited if it extends for more than 10 years, lasts for the lifetime of any individual, or is granted to the same person in consecutive periods totalling more than 10 years. Section 3(f) of the Act states that no area of jurisdiction, local area, development area, peri-urban area or other area referred to in paragraphs (a) and (b) of the definition of “agricultural land” in section 1 of the Act, shall be established on, or enlarged to include any agricultural land. Lastly, it is necessary to provide public notice when a plan concerning agricultural land, or any part of it, has been submitted or prepared under the relevant ordinance. Therefore, if a person finds themselves in a situation where they are involved in the subdivision of agricultural land that aligns with any of the scenarios described above, such activities will be prohibited under the Act and deemed null and void. This means that such actions will need the prior consent of the Minister in order to comply with the Act. In part 3 of the series on “The Subdivision of Agricultural Land Act No. 70 of 1970 Explained”, we shall look at the procedure on how to apply for consent as required by the Minister. This will include the imposition, enforcement, or withdrawal of conditions by him or her, as well as any miscellaneous provisions. References: T Sewapa “Subdivision of Agricultural Farmland” 2016 p 1. Section 3(a)-(c) of the Act. Section 3(d) of the Act. 27 of 1956. Section 3(e)(i)-(ii) of the Act. 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.
Understanding Tenant Rights to Property Possession
It often happens that a tenant, for whatever reason, refuses, neglects or is unable to pay rent and falls into arrears. A landlord, frustrated with the tenant and the legal eviction process, may be tempted to find ways to get rid of the tenant. Cutting off water and electricity, changing locks, and using intimidation tactics are just some of the examples being used by landlords to dispossess a tenant. The tenant, however, is protected by law and has a right to undisturbed use and enjoyment of the property for the duration of the lease agreement. When a situation arises that disturbs this use and enjoyment, a tenant may approach the court for a spoliation order, otherwise known as a mandament van spolie, to restore his possession and/or use of the property. This article briefly explains the application and what needs to be proved by the tenant for the successful application of a spoliation order. The history and basis of a mandament van spolie South African property law is rooted in Roman and Roman-Dutch law. A distinction is drawn between ownership and possession, and different remedies exist to protect these rights. Ownership is seen as a real right and an owner can protect their right to property by the rei vindicatio action. The right to property, on the other hand, is the right to possess and use the thing and not a right to the thing itself, which is attributed to the owner of the thing. Only certain rights are protected, and they include servitutal rights (e.g. right of way or access to water) and contractual rights found in lease agreements (e.g. rights to electricity, water, and telecommunications). When an application is made, the court’s focus should not be directed at the merits of the case – it is not relevant at the time who the owner of the property is. The only factor that the court needs to establish is whether the applicant had possession and use of the property or thing and that their right to possess the property or use thereof was unlawfully interfered with (spoliated). The protection of specific performance (contractual right) cannot be enforced by using a spoliation application. For example, a lessee cannot use a spoliation application if the lessor refuses to hand over the keys to the lessee before occupation takes place, or if a tenant refuses to vacate a property after it is sold and a new tenant needs to take occupation. In these instances, the party will have to find recourse in contractual remedies or the eviction process. The application process and implications of a spoliation order A mandament van spolie is a remedy to restore possession and is usually brought on an ex parte urgent basis. Ex parte means that you do not have to give notice of the application to the other party before it is heard by the court. Its objective is to restore the possession of the applicant to the status it had before spoliation took place. The applicant will bring an application on notice or ex parte, and then an interim order with a return date (rule nisi) will be issued. The applicant must satisfy two requirements: that they were in peaceful, undisturbed possession and use of the property and that they were unlawfully deprived of that possession. The applicant will file a founding affidavit to set out the facts and establish the requirements. After an interim order is granted, the landlord is ordered to restore possession to the tenant. The Sheriff of the Court can be instructed to assist the applicant if the landlord still refuses to restore possession to the tenant. The landlord may file an answering affidavit and on the return date (rule nisi) the landlord will have the opportunity to prove that he legally took possession. The spoliation order is final; however, it can be taken on appeal. A landlord must be weary of tactics that will make him guilty of taking the law into his own hands. A spoliation order is not often refused, and the court may order that the landlord pay the costs of the application. The tenant may also lawfully refuse to pay rent while he is unlawfully deprived of the use and enjoyment of the property. 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.
The Pivotal Role of Technology in E-Conveyancing
Legal conveyancing is a crucial aspect of property transactions in South Africa. It involves the transfer of property ownership from one party to another, and historically, this process has been known for its paperwork-intensive nature and time-consuming procedures. However, in recent years, technology has emerged as a game-changer in the field of legal conveyancing, streamlining processes, reducing delays, and improving overall efficiency. In this article, we will explore the pivotal role of technology in modernising legal conveyancing in South Africa. The traditional conveyancing process Before delving into the role of technology, it is essential to understand the traditional conveyancing process in South Africa. Property transactions involve a huge number of manual tasks, including title deed searches, drafting of sale agreements, and obtaining various certificates. This process is not only time-consuming but also prone to errors and delays. Parties often have to physically visit government offices and banks, leading to inefficiencies and increased costs. THE DIGITAL REVOLUTION: E-CONVEYANCING The advent of technology, particularly in the form of e-conveyancing, has brought about significant changes to the traditional process. E-conveyancing leverages digital tools and platforms to streamline property transactions. Here are some of the key ways in which technology has transformed legal conveyancing: Online property registers: One of the most significant advancements is the creation of online property registers, which provide easy access to property information. Property buyers and sellers can now conduct title deed searches, check property histories, and obtain essential documents online, reducing the time and effort required for due diligence. Electronic signatures: Technology has enabled the use of electronic signatures, allowing parties to sign documents digitally. This eliminates the need for physical presence and paper documents, making the process faster and more convenient. Automated workflows: Conveyancing software and platforms offer automated workflows that guide practitioners through each step of the transaction. This ensures that all necessary tasks are completed in the correct order, reducing the risk of errors and omissions. Secure online payments: Technology has made it possible to facilitate secure online payments, reducing the reliance on physical checks and bank visits for financial transactions related to property transfers. Communication and collaboration: Digital tools enable efficient communication and collaboration between all parties involved in a property transaction, including buyers, sellers, attorneys, estate agents, and government departments. This real-time connectivity reduces delays and improves transparency. CHALLENGES AND REGULATORY FRAMEWORK While technology has revolutionised legal conveyancing in South Africa, there are challenges and considerations that need to be addressed: Security and privacy: Ensuring the security and privacy of sensitive data in online transactions is crucial. Regulations and cybersecurity measures must be in place to protect parties from fraud and data breaches. Training and adoption: Legal practitioners and stakeholders must adapt to new technologies and undergo training to use e-conveyancing platforms effectively. Regulatory compliance: There is a need for comprehensive regulatory frameworks to govern e-conveyancing processes and ensure their legality and fairness. Digital divide: It is essential to address the digital divide to ensure that all citizens, regardless of their technological proficiency, can participate in property transactions without discrimination. Technology has undoubtedly played a pivotal role in modernising legal conveyancing in South Africa. The transition from traditional, paper-based processes to e-conveyancing has significantly improved efficiency, reduced costs, and minimised errors in property transactions. As technology continues to evolve, it is crucial for the legal profession, government authorities, and stakeholders to work together to create a robust and secure e-conveyancing ecosystem that benefits all South Africans involved in property transactions. Embracing technology in legal conveyancing is not just a convenience but a necessity for a more accessible and efficient property market in South Africa. 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.
Understanding homeowners associations (HOAs)
If you are considering buying a property in a housing development, it’s essential to understand what a Homeowners Association (HOA) is and how it operates. HOAs are legal entities responsible for managing and regulating housing development schemes. Although homeowners own their individual properties, the HOA maintains and oversees communal infrastructure, such as roads, security systems, and other shared amenities. When purchasing a property in a housing development, the title deed will typically include a condition that mandates automatic membership in the HOA for the new owner. Additionally, the transfer of ownership cannot occur without the HOA’s approval. During the registration process, you will receive access to the HOA’s Constitution and Conduct Rules. Here is an example of the language you might find in the title deed: “SUBJECT to the following condition contained in Deed of Transfer Number Txxxx/20xxx, imposed by Stormers Country Estate (Pty) Ltd, Registration Number XXXX/XXXXX/XX, as developers, and as stipulated in the Stormers Country Estate Homeowners Association Constitution, established under Section 29 of the Land Use Planning Ordinance No 15 of 1985, and approved by the City of Cape Town under Section 42 of the same ordinance, regarding the subdivision of Erf XXXX Cape Town: ‘That the within property may not be sold or transferred without the prior written consent of the Stormers Country Estate Homeowners Association, of which the Transferee shall become a member. Such consent shall not be unreasonably withheld.’” HOAs can be established through two legal structures: as a non-profit company or a common law association. Non-Profit Company: An HOA set up as a non-profit company operates under a Memorandum of Incorporation and is governed by the Company Act. Common Law Association: An HOA established under common law operates according to its Constitution, guided by Common Law. In both structures, the HOA’s governing documents serve as binding contracts for homeowners/members within the development. These financial and governance documents must be submitted annually to the Community Schemes Ombud Services (CSOS) for record-keeping and oversight. The Constitution and Core Duties of HOAs The Constitution of a common law association outlines the operational obligations and governance structure of the HOA. It allows members or executive members to create regulations and rules that bind all members. The Constitution details the scope of the HOA’s activities and the powers of its executives, which are typically defined during general meetings. Core Duties: Maintenance and Repairs: One of the HOA’s primary responsibilities is the upkeep and repair of communal spaces and shared amenities. This includes tasks such as landscaping, pool maintenance, parking lot upkeep, and the management of recreational facilities. By collecting membership fees, the HOA ensures these areas are well-maintained, enhancing the living experience for all residents. Enforcement of Rules and Regulations: HOAs establish and enforce community guidelines, which may cover architectural standards, noise restrictions, pet policies, and parking regulations. These rules are essential for maintaining the community’s appearance and ensuring a high quality of life for all members. Financial Management: The HOA board oversees budgeting and financial management, ensuring funds are allocated transparently and effectively. While HOAs do not have inherent powers to impose penalties on members, their governance documents may grant them the authority to pursue legal action for collecting overdue levies, fines, or other fees owed by members. A well-managed HOA, with effective oversight by elected executives, can foster a strong sense of community and potentially enhance the market value of individual properties. Before purchasing a property within a housing development scheme, reviewing the applicable governance documents and familiarising yourself with the rules and regulations you will be expected to follow is crucial. Reference: Home Owners’ Survival Manual by Graham Paddocks 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
Are you obligated to pay arrear levies when purchasing a sectional title unit? Part 1
Recently, the High Court and the Supreme Court of Appeal (SCA) was required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The Sectional Titles Act 95 of 1986 stipulates in Section 15B(3)(a)(i)(aa) that the registrar of deeds shall not register a transfer of a unit or an undivided share therein unless he is presented with a conveyancer’s certificate attesting to the fact that, as of the date of registration, the body corporate has certified that all monies owed to the body corporate by the transferor in respect of the said unit have been paid, or that payment has been made to the satisfaction of the body corporate. In this matter, Mr Steinmuller bought a property in a sectional title scheme sold by the sheriff in a sale in execution. The previous owner of the property owed money to the body corporate of Marsh Rose in respect of arrear levies. The body corporate obtained a judgment against the previous owner for the said amount. When Mr Steinmuller purchased the property at the sale in execution, the judgment debt was still due. The body corporate sent Mr Steinmuller an invoice stating that an amount was owed to them for the property purchased (the clearance figures), which had to be paid before the body corporate would provide the clearance certificate. According to the terms of the sale in execution, Mr Steinmuller was required to pay any levies that were owed to the homeowners’ association or body corporate. He insisted on receiving the ledgers containing the sums claimed for levies for the specific period, as well as the resolutions passed by the body corporate’s trustees regarding the interest charged thereon. The body corporate declined to give the requested information. It stated that Mr Steinmuller was not yet the owner and therefore not entitled to receive it. Due to this, he filed an application with the High Court of Gauteng, requesting an order directing the body corporate to sign all documents and take the required actions to enable the transfer of the property into his name, against payment of R150 000 into a trust account as security for the levies that the body corporate was owed. The High Court granted his application with an increase of the sum to be paid into a trust account as security. The judgment debt that the body corporate acquired against the property’s former owner was not included in the sum granted. According to the court’s ruling, a judgment debt is not an obligation owing to the property and thus should not be a burden on the new purchaser. The body corporate appealed to the SCA with the National Association of Managing Agents (NPC) as co-appellant. The SCA ruling will be discussed in part 2 hereof. 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 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
What Implications Does a Lien Have on Eviction Proceedings: Part 1.
In conflicts between property owners and tenants seeking compensation for property improvements before leaving, eviction proceedings are possible, but success depends on location and lease terms. “I have been renting out my property to tenants for the last couple of years and the time has come for them to vacate the property. The tenants, during the period of their lease, effected certain permanent extensions and renovations to the property and now refuse to vacate the property unless I reimburse them for the extensions and renovations that they made to my property. What are my options as the property owner?” The relationship between owners and tenants can become strained when the lease agreement comes to an end and there exist disputes between the parties, especially when such a dispute relates to who is to be held liable for the extensions, renovations and/or building work (hereafter collectively referred to as “improvements”) that have been made to the owner’s property by the tenant. Some tenants may argue that they have a lien over the said property until the owner reimburses or compensates the tenant for such improvements. A lien is defined as a right that the retentor (in these circumstances, the tenant) obtains when they are in possession of another person’s property (in these circumstances, the leased property) and effects or performs work or spends money on such property. The right, which the retentor acquires, is to retain the property in their possession as security for payment from the owner of the value of the debt that accrues due to the improvements or maintenance effected on the property. Considering the above, there are a few factors that need to be established to answer the question of what the rights of a property owner are when tenants refuse to vacate the property. Firstly, the property owner will need to disclose whether the property being rented is situated in a rural or urban area. The second question will be what terms were agreed to when the lease was concluded between the owner and the tenant. The respective answers to the above questions will be discussed in separate articles. Regarding the first question: In the 17th century the Estates of Holland promulgated the placaeten, which determined that a tenant who leases immovable property which is situated in a rural area does not have a lien over such property if they made any improvements thereto. The tenant thus cannot raise the existence of a lien as a defence to eviction proceedings instituted by the owner of the property, and the tenant will be required to vacate the property immediately without considering the improvements made to the property. The tenant will, however, have the option to institute a claim for the value of the improvements made at a later stage. This principle was confirmed by the court in the case of Business Aviation Corporation (Pty) Ltd and another v Rand Airport Holdings (Pty) Ltd [2007] 1 All SA 421 (SCA). The court further found that the placaeten does not apply to property situated in urban areas. As a result, a tenant who rents property that is situated in an urban area, and who effected improvements to that property, may allege the existence of a lien over the leased property in their favour. Consequently, if eviction proceedings are instituted by the property owner against the tenant, the alleged lien is a factor that the court will consider in such eviction proceedings, and which may carry substantial weight in the circumstances. In conclusion, tenants who have made improvements to an owner’s property in a rural area cannot claim a lien in their favour to retain the property, and this argument holds no weight in eviction proceedings once they’ve been initiated. On the other hand, a tenant who made improvements to an owner’s property situated in an urban area will not suffer the same fate, as the tenant’s lien will carry weight in eviction proceedings brought against them. However, it is important to note that the outcome of the aforementioned scenario may vary depending on the terms of the lease agreement concluded between the owner of the property and the tenant prior to the improvements having been made to the property. Thus, a property owner in both abovementioned scenarios will be able to institute eviction proceedings but the success of the proceedings may vary depending on whether the leased property is situated in an urban or rural area. Regarding lease agreements concluded for properties situated in urban areas, the outcomes may differ further based on the specific terms which the tenant and owner agreed to in the lease agreement. This will be discussed in part two. Reference list: United Building Society v Smookler’s Trustees and Golombick’s Trustee 1906 TS 623 at 627 – 628. LAWSA vol 15 par 54. The principles contained in the placaeten have been found to be accepted and received into South African law. Eviction proceedings in rural areas are done in terms of the Extension of Security of Tenure Act, 62 of 1997. Eviction proceedings in urban areas are done in terms of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act, 19 of 1998. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of 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.
Are You Using Your Residential Property for an Unauthorised or Illegal Purpose?
Residential homeowners must be aware of the judgment handed down by the Supreme Court of Appeal (SCA) in the case of the City of Johannesburg Metropolitan Municipality v Zibi (234/2020) [2021] ZASCA 97 (9 July 2021). The outcome of this case carries significant implications for residential homeowners who utilise their homes for commercial purposes without the necessary authorisation from the municipality. Rates payable by residential landowners are governed by the Municipal Property Rates Act 6 of 2004 (the Act). This legislation confers and regulates the local municipality’s power to value property and levy rates accordingly. The zoning of property is determined by various categories created by the Act, such as residential, commercial, or agricultural. One category for homeowners to be aware of, and which is discussed in detail in this judgment, is that of unauthorised or illegal use. When landowners use their property in an unauthorised manner, this category becomes applicable. In this matter, the respondents (Mr and Mrs Zibi and their two children) owned and resided in a residential home consisting of five bedrooms and two bathrooms. They decided to rent out two of their unused bedrooms as accommodation to students and young professionals, thus using the home for commercial purposes. The respondents did this without prior authorisation from the municipality. Several inspections were completed at the property, and the municipality discovered that it was being used as a commune (a commercial concern). In response, the municipality issued several notices to the respondents to terminate the unauthorised use of the property and further imposed a penalty rate per the rate category for unauthorised or illegal use; however, the property was not rezoned. Due to further non-compliance with the notices, the municipality obtained a High Court order interdicting the respondents from continuing to use the property in an unauthorised manner. The matter escalated when the respondents launched an application in the High Court challenging the validity of the municipality imposing a penalty rate. The High Court found in favour of the respondents, and this matter was finally taken to the SCA. The ultimate finding of the SCA was that where property is used in an unauthorised or illegal manner, it is within the municipality’s powers to impose penalties on homeowners. As a result, homeowners currently renting out space in their residential properties or intending to carry on a commercial concern in property zoned for residential use must obtain authorisation from the municipality to do so. Without such authorisation, property owners run a high risk of being penalised with higher rates. Reference List City of Johannesburg Metropolitan Municipality v Zibi (234/2020) [2021] ZASCA 97 (9 July 2021). Municipal Property Rates Act 6 of 2004. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of 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.