Property Law Update


Issue 17 – 2018

TITLE DEED CONDITION ALLOWING RE-TRANSFER OF PROPERTY IF OWNER DOES NOT BUILD ON TIME: CAN THIS REVERSIONARY RIGHT PRESCRIBE?

eThekwini Municipality v Mounthaven (Pty) Ltd (CCT 05/18) [2018] ZACC 43 (31 October 2018))

Municipalities regularly sell vacant property to developers for commercial and residential development. Often a title deed condition is imposed that the property must be improved within a certain time period and, if this is not done, then the municipality may claim re-transfer of the property back to itself. This reversionary right, the Constitutional Court confirmed here, is a personal right which is susceptible to prescription after three years.

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The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-ninth set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 7 is discussed.

read more
Prescribed Conduct Rule 7
(N.B. Print in landscape)

Rising Damp in Sectional Title Schemes

Many sectional title owners are under the impression that their body corporate is automatically responsible to arrange and pay for the repair of damage to their section if it results from some defect or failure in the common property.

Maintenance duties of role-players

The basic maintenance and repair responsibilities of role-players in a sectional title scheme are set out in the Sectional Titles Schemes Management Act, 8 of 2011 (STSMA). Section 3, with the heading “Functions of the body corporate” and section 13, titled “Duties of owners” provide the essentials. These sections provide that the body corporate must maintain all the common property and keep it in a state of good and serviceable repair whilst, on the other hand, an owner must repair and maintain his or her section in a state of good repair.

What is the ‘common property’ that the body corporate must maintain?

“Common Property”, in terms of the Sectional Titles Act, 95 of 1986 (the STA) includes the land on which the building or buildings is or are situated. Apart from land, the common property also comprises all parts of the building or buildings which are not included in a section, for example the outer shell, the roof and the foundations of the building that are intended to serve all the sectional owners. The STSMA reflects a similar definition of common property.

The question arises as to where the boundaries between a section and the common property lie. The STA provides a definite answer but it is hidden in technical language. Without discussing the legal-technical aspects, it is sufficient for purposes of this article to state that the boundaries of a section reaches to the middle of the floor, the middle of the walls and the middle of the ceiling board that separates the ceiling cavity from the rooms below. If you own a freestanding housing unit in a sectional title scheme, the inner half of the walls will be part of the section, while the outer half of the walls are common property. Up to the middle of the ceiling board is part of the section, and the roof is common property. This is important because, as was indicated before, the owner is liable for maintenance of his part of the section, and the body corporate is responsible for maintenance of the part of the section that is common property. Doors and windows are not always positioned exactly in the middle of a wall. Amendments introduced to the STA in 2011 determine that the median (`middle’) line is deemed to pass through the centre of any door/window or other structure that divides two sections or a section and the common property. This means that, in principle, the body corporate is always liable to share the costs of maintaining doors and windows if the `outer part’ is part of the common property. This means that, where, for example, an owner’s leaking shower causes damage to a section below, the owner must have his shower repaired, and where a leaking roof causes damage to sections below, the body corporate must repair the roof.

Who is liable for ensuing damage?

Whilst the STSMA apportions the legal responsibility for maintenance and repair of the common property to the body corporate, and maintenance and repair of sections to their owners, it does not deal with a body corporate’s responsibility for consequential (ensuing) damage. No automatic liability follows. Since the STSMA does not expressly deal with the question of liability to pay for consequential damage to a section, which is caused by defects arising from the common property, an owner will have to look to the common law remedies if the body corporate is not willing to pay for the cost of repair.

The common law requirements for the recovery of damages (i.e. pure economic loss) will have to be applied in order to hold the body corporate liable for such consequential damage. An owner may therefore request the body corporate to pay for the damages caused by defects arising out of the common property, but if the body corporate refuses to pay, the owner must then proceed to either enforce their common law rights, or consider filing an application with the Ombud against the body corporate for an order requiring the them to have the repairs and maintenance carried out. In this regard, the Community Schemes Ombud Service Act, 9 of 2011 (CSOS) finds application. Section 38 of CSOS allows an owner to approach the Ombud with an application if such person is a party to or affected materially by a dispute.  A “dispute” is defined as:

“…a dispute in regard to the administration of a community scheme between persons who have a material interest in that scheme, of which one of the parties is the association, occupier or owner, acting individually or jointly”

In terms of Section 39 of CSOS, an application made in terms of section 38 must include one or more of the following orders: “(6) In respect of works pertaining to private areas and common areas – …(a) an order requiring the association to have repairs and maintenance carried out”.

Offshore Property and South African REITs

REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors. These companies have to meet certain requirements to qualify as REITs. Most REITs trade on the major stock exchanges and own several kinds of commercial properties in SA, such as warehouses, factories, hospitals, shopping centres, office buildings and, to a lesser extent, residential properties. Some also invest in properties overseas.

A JSE-listed SA REIT must inter alia:

  • Own at least R300 million worth of property;
  • Keep its debt below 60% of its gross asset value;
  • Earn 75% of its income from rental or from property owned or investment income from indirect property ownership; and
  • Pay at least 75% of its taxable earnings available for distribution to its investors each year

One advantage of REITs is that they are not subject to capital gains tax on the disposal of immovable property, or shares in a ‘property company’.

The South African listed property sector has exposure in over 25 countries. 45% of the FTSE/JSE SAPY Index earnings come from outside South Africa and over 50% of listed property in SA is exposed to offshore markets. International markets offer attractive initial yield spreads and the offshore investment destinations have higher GDP growth rates than SA.

To date, no SA REIT has achieved true global exposure i.e.: being invested in all the major global markets in the world. Some REITs do, however, have large representative businesses in specific markets, for example, NEPI Rockcastle is the largest real estate firm in Central and Eastern Europe (CEE) and Growthpoint Properties Australia is the 11th largest REIT on the ASX.

Our REIT sector had a poor showing in terms of overall performance in the first quarter of 2018. The listed property sector’s rebased second-half showing is set to be driven by a combination of domestic and international macro-developments. According SBG Securities, global monetary policy shifts in developed markets sparked a broad sell-off in emerging markets. Catalyst Fund Managers’ director and portfolio manager, Zayd Sulaiman, has also been quoted saying that the global political and economic events, including trade wars, EU stimulus tapering and the rising foreign interest rate environment do not bode well for emerging markets in the short-term. Adding to the challenging period ahead are oversupply (especially in the office sector), costly capital and increased scrutiny into quality of earnings and governance.

For more information on the above, please contact MichaelB@stbb.co.za

SA REIT Association to Update Best Practice Recommendations in Early 2019

The SA REIT (real estate investment trust) Association is currently in talks with government and other interested parties regarding an update to their 2016 Best Practice Recommendations (“BPR”) for financial reporting. Once all necessary discussions have taken place and all submitted commentary is reviewed, they will release the update. This is expected to happen in the first quarter of 2019.

The SA REIT Association purports that best practice compliance is necessary to standardise reporting and ensure greater transparency within the sector. According to the Association, improved transparency and reporting assist in building better relationships with regulators and improves public and investor confidence.

The 2016 BPR was overseen by the SA REIT Best Practice Committee comprising of Laurence Cohen from Hyprop (Chairman), Nick Hanekom from Resilient and Gerald Völkel from Growthpoint. Input from representatives from KPMG and Deloitte was also included.

The 2016 BPR covered issues and recommendations for specific sector matters, ratios and accounting and financial reporting matters. The report stated that REITs do not have to comply with the best practice recommendations:

  • If a recommendation is prohibited by a REIT’s legal, regulatory or other requirements;
  • If a recommendation relates to an amount or item that is immaterial; and / or
  • If compliance with a recommendation would lead to substantial additional costs in gathering information.

Examples of issues and recommendations raised in the 2016 BPR include:

Issue: Number of Shares in Issue for Dividend Per Share

The number of shares used to determine the dividend per share for the period is often not the same as the number of shares used to determine earnings or headline earnings per share in terms of IFRS.

Recommendation

The number of shares in issue used to determine dividend per share should be disclosed.

Issue: Borrowing Costs

In terms of IAS 23 (Borrowing Costs) an entity is not required to apply the standard to borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset measured at fair value.

Recommendation

Where development projects meet the criteria for capitalisation, borrowing costs should be capitalised.

“The improvements introduced by the 2016 BPR will be enhanced through the 2019 update, which will continue to focus on improving disclosures and achieving consistency across the sector. The 2019 update is being drafted in consultation with a broader stakeholder base and intends to address concerns raised by the investment community, regulatory bodies and other affected parties”, says Bram Goossens from the SA REIT Association.

The 2016 Best Practice Recommendations can be found on the SA REIT website and comments for the 2019 update can be submitted to info@sareit.com by end of January 2019.

 

 

Issue 16 – 2018

BONDED PREMISES: DOES THE BONDHOLDER OR OWNER SUE FOR EVICTION?

Pacific Paramount Properties (Pty) Ltd v Burchell t/a Top Wash and Another (8418/2018) [2018] ZAWCHC 124 (19 September 2018)

It happens frequently that when a bank grants a mortgage to a lender, it stipulates in the agreement that the right to sue for rental received from the property and the right to apply for eviction of unlawful occupiers, rights usually exercised by the landowner, are made over to the bank. In the present matter the tenant invoked this arrangement in defence against the landowner’s application for eviction. The landowner was successful and the judgment provides an important call for attention to the interpretation of such provisions in mortgage bond agreements.

read more
The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-eighth set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 6 is discussed.

read more
Prescribed Conduct Rule 6
(N.B. Print in landscape)

Issue 15 – 2018

VOETSTOOTS, WARRANTIES, THE SELLER’S RESPONSIBILITIES

Van Rooyen v Brown and Another (A3104/2015) [2018] ZAGPJHC 453 (28 June 2018)

This judgment again illustrates how important it is for the seller of a home to be as candid as possible about patent defects that he knows of, failing which he risks being held liable to the purchaser for damages. Of interest in this judgment too is the consequences of granting a warranty with regards to the condition of fixtures and fittings: Where a fixture becomes defective within a month after the sale, a seller may, in certain circumstances, be held liable.

read more
The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-seventh set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 5 is discussed.

read more
Prescribed Conduct Rule 5
(N.B. Print in landscape)

Issue 14 – 2018

BUILDING PLANS: APPEAL TO REVIEW BOARD UNCONSTITUTIONAL

City of Johannesburg Metropolitan Municipality v Chairman of the National Building Regulations Review Board and Others (CCT186/17) [2018] ZACC 15 (7 June 2018)

In terms of the National Building Regulations and Building Standards Act, a municipality is charged with the duty to approve or reject building plan applications in its jurisdiction. Since the Constitution further grants municipalities autonomy with regards to building regulations and municipal planning, another or ‘higher’ arm of government cannot usurp these powers. The question which arose here was whether the Review Board, established in terms of the aforementioned Act and at national government level, could validly adjudicate appeals against decisions of the municipality to approve plans? The Constitutional Court held that insofar as the Review Board adjudicated on objections, the municipality’s powers was usurped, and the action unconstitutional. Going forward, the make-up of an appeals board will therefore have to be amended so as to retain the decision-making authority within the municipality.

read more
The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-sixth set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 4 is discussed.

read more
Prescribed Conduct Rule 4
(N.B. Print in landscape)

Issue 13 – 2018

LESSER BOND AMOUNT OBTAINED BUT BALANCE SECURED ON TIME – SUSPENSIVE CONDITION FULFILLED?

Basson and Another v Reddy and Others (11695/2017) [2018] ZAKZDHC 9 (30 April 2018)

Property practitioners know that the details of a suspensive condition must be met to the tee for the condition to be considered fulfilled. In this matter, this was the essence of the enquiry, being: if a sale agreement is subject to a suspensive condition that the purchaser must secure a 100% bond by a stipulated date, and the purchaser secures only a 90% bond but pays the balance in cash within the due period, has there been compliance?

read more
The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-fifth set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 3 is discussed.

read more
Prescribed Conduct Rule 3
(N.B. Print in landscape)

Issue 12 – 2018

ESCAPING LIABILITY UNDER A SURETYSHIP: WHEN THE LENDER MUST BE UPFRONT WITH DETAILS

Absa Bank Limited v Van Eeden and Others (4078/2012) [2018] ZAECPEHC 14 (27 March 2018)

Generally, when one puts pen to paper as a borrower or surety, it is your own responsibility to acquaint yourself with the details of the transaction and responsibility undertaken. However, as this case shows, there are limitations and in very specific circumstances, the lender (in this instance the bank) has a duty to disclose certain details within its knowledge. Failure to do so, allows the surety to escape liability under the suretyship.

read more
The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-fourth set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 2 is discussed.

read more
Prescribed Conduct Rule 2
(N.B. Print in landscape)

Issue 11 – 2018

CANNOT (WITHOUT MORE) LOOK TO A TRUST’S ASSETS FOR THE SATISFACTION OF A TRUSTEE’S PERSONAL DEBTS

Osborne v Cockin NO and Others (549/2017) [2018] ZASCA 58 (17 May 2018)

When you lose several million rands in a business arrangement with Mr X, and X’s estate is later sequestrated whilst it appears that X’s family trusts are faring much better, you may well wonder whether recourse could be had from the trusts. If it appears that X used the trust as an alter ego for his personal dealings then, in very specific circumstances, one can ‘pierce the veil’ of the trust. This judgment tells such a story and although the application was unsuccessful for technical reasons, it is important to take note to differentiate between transacting with an individual in his personal capacity and in his capacity as trustee of a trust.

read more
The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the fifty-third set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 1 is discussed.

read more
Prescribed Conduct Rule 1
(N.B. Print in landscape)

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