Property Law Update


Issue 04 – 2019

BUILDING OBJECTIONABLE, UNSIGHTLY OR DISFIGURING OF AREA? APPLY LEGITIMATE EXPECTATION TEST

Trustees of the Simcha Trust v Da Cruz and Others; City of Cape Town v Da Cruz and Others (CCT125/18; CCT128/18) [2019] ZACC 8 (19 February 2019)

This Constitutional Court judgment provides clear guidelines as to the proper import and interpretation of section 7(1) of the Building Standards Act which finds application when a local authority is asked to approve building plans. The Court confirmed that the ‘legitimate expectation’ test must be applied by the decision-makers, who must, amongst other things, objectively determine whether the proposed building will probably, or in fact, be so disfiguring of the area, objectionable or unsightly that it would exceed the legitimate expectations of a hypothetical owner of a neighbouring property. The judgment illustrates the practical application hereof.

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The Judgment
Summary of the Judgment

IS AN ARBITRATION CLAUSE IN AN (ALLEGED) VOID AGREEMENT ENFORCEABLE?

Seabeach Property Investment No 28 v Nunn (18310/18) [2019] ZAWCHC 9 (22 February 2019)

If you conclude a contract for the sale of a property and include an arbitration clause to deal with disputes, will that clause still stand if the validity of the sale agreement is disputed because of a material misunderstanding relating to the nature of exclusive use areas that were included in the sale? This question was addressed in the judgment under discussion. Ultimately, the answer depends on the intention of the parties when they contracted, as it appears from the wording used in the agreement.

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The Judgment
Summary of the Judgment

Issue 03 – 2019

LEASE WORDING: AGREEING TO AGREE TO RENEW ON NEW TERMS: ENFORCEABLE?

Violetshelf Investments (Pty) Ltd v Chetty (24858/18) [2019] ZAGPJHC 1 (28 January 2019)

This judgment deals with the scenario where a tenant is granted an option to renew a lease “provided that the parties agree in writing to the rental, conditions and provisions” of the new lease. Such a provision, if a court were to enforce it, would be to coerce a landlord to conclude an agreement with a tenant with whom it perhaps no longer wants to have as a tenant. In our law it is unenforceable, unless a way out is provided for. The judgement illustrates how.

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The Judgment
Summary of the Judgment

EXPROPRIATION BY LOCAL AUTHORITY: DECISION-MAKER MUST BE APPRISED OF ALL FACTS

Kohler Bricks (Pty) Ltd v City of Cape Town and Another (21362/2017) [2019] ZAWCHC 6 (15 February 2019)

When there is real urgency to secure continued access to a landfill for solid waste disposal, a municipality can contemplate issuing expropriation notices to ensure it can address waste generated daily in its jurisdiction. The matter in consideration dealt with a scenario where the City approved an expropriation notice after it seemed that they had reached a deadlock in negotiating access to the landfill. However, as a last resort, between the initial commencement of the paperwork to effect expropriation and submitting it to the mayor’s office for sign-off, the land-owner granted an extension to the City. This was not communicated to the decision-maker and the notice was issued. Was this fair administrative action as required by PAJA?

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The Judgment
Summary of the Judgment

Issue 02 – 2019

ONCE-OFF LENDERS NEED TO REGISTER WITH CREDIT REGULATOR

Du Bruyn NO and Others v Karsten (929/2017) [2018] ZASCA 143; 2019 (1) SA 403 (SCA) (28 September 2018)

For a while now in our law, there was some uncertainty whether or not a person who makes a once-off arm’s length loan to another really needs to register with the Credit Regulator in order to ensure that the law treats the agreement as valid and binding. In this matter, the Supreme Court of Appeal held that this was indeed the condition stated in the National Credit Act. Despite the apparent reasonableness of not requiring such registration in such instance, the Court stated that it was bound to give effect to the clear and unambiguous wording of the Act.

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The Judgment
Summary of the Judgment

TAKE CARE HOW YOU WORD YOUR WILL AND TRUST DOCUMENT WHEN MAKING PROVISION FOR DESCENDANTS

Harvey NO and Others v Crawford NO and Others (1016/2017) [2018] ZASCA 147 (17 October 2018)

This judgment deals with a stinging issue: where a trust donor made provision that his children’s descendants or’ issue’ would inherit, would this include the adopted children of his daughter who never had her own children? At the time the Trust deed was executed (1953), the Wills Act required that such will or trust deed should clearly convey an intention to include them, otherwise they would be excluded. The applicable legislative provisions have changed over time, but our law still upholds the principle of freedom of testation.

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The Judgment
Summary of the Judgment

Issue 01 – 2019

SUSPENSIVE CONDITION FULLFILLED? ESTATE AGENCY SUCCESSFULLY CLAIMS COMMISSION

PG Sharedealing (Pty) Ltd v First Realty Randburg (Pty) Ltd t/a Chas Everitt International Property Group (A5058/2017) [2018] ZAGPJHC 645 (3 December 2018)

This judgment dealt, amongst other things, with the question whether an estate agent exercised a discretion afforded to it to extend a bond due date. The seller argued the wording of the bond clause in the Offer to Purchase did not constitute an ‘automatic extension’, or failing that and furthermore, that the estate agency was not entitled to commission due to alleged non-compliance with the Estate Agency Affairs Act’s Fidelity Fund Certificate requirements. This is how things unfolded…

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The Judgment
Summary of the Judgment

POWERS OF ADJUDICATORS OF THE COMMUNITY SCHEMES OMBUD

Evergreen Property Investments (Pty) Ltd v Messerschmidt (A409/2017) [2018] ZAGPPHC 786 (10 October 2018)

The Office of the Community Schemes Ombud is empowered to address a wide range of disputes arising in communal living schemes. On this understanding, the claimant (and holder of a life right in a retirement scheme) challenged the developer of the scheme (as owner of the land) before the Ombud. He argued that the benefit of a rebate granted by the municipality to owners of retirement schemes, which the relevant policy stated had to be “passed on” to holders of life rights, meant that he had the right to claim the rebate amount from the developer if the levies were not adjusted to reflect the rebate. The Act however limits which orders an adjudicator may grant in respect of financial issues, and the Court concluded that in granting an order in favour of the claimant, the adjudicator acted beyond the powers granted in the legislation. The judgment highlights how important it is to understand the extent of the powers and functions of the Ombud’s office and its adjudicators, before referring a dispute to that office.

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The Judgment
Summary of the Judgment

Issue 20 – 2018

THE HOUSE IS MINE, SAYS THE DIVORCE ORDER. NOT SO, ARGUES EX-SPOUSE’S CREDITOR: WHEN IS THE SPOUSE’S TITLE UNASSAILABLE?

Fischer v Ubomi Ushishi Trading and Others (1085/2017) [2018] ZASCA 154 (19 November 2018)

An interesting conundrum arose in this matter. X and Y’s marriage in community of property was dissolved pursuant to divorce proceedings. The settlement agreement that was made an order of court provided that Y would acquire X’s half share in the property. Subsequently a creditor of X obtained judgment against X and sought an order allowing execution against X’s half share, as the deeds office records still reflected X and Y as joint owners. Could Y’s objection that she became owner of X’s half share when the divorce order was handed down succeed?

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The Judgment
Summary of the Judgment

NO FLATS IF ACCESS ROAD LESS THAN 9M WIDE: DO NEARBY LANDOWNERS HAVE STANDING TO ENFORCE SUCH GENERAL PROVISIONS?

Tavakoli and Another v Bantry Hills (Pty) Ltd (1251/2017) [2018] ZASCA 159 (28 November 2018)

Litigation following on building plan approval often involves interpretation of municipal planning laws that bind the general public in the relevant municipality’s jurisdiction, or certain groups within the municipality’s jurisdiction. The distinction can become a crucial issue. This judgment is a case in point and dealt with a provision forming part of City of Cape Town’s general Planning By-Law which precludes the construction of apartment blocks in some instances where access roads are less than 9m wide. Did the claimants, as owners of properties 80m away, have the necessary standing to dispute compliance with the provision?

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The Judgment
Summary of the Judgment

Issue 19 – 2018

INCOME TAX QUESTIONS WHEN DEVELOPER SELLS PROPERTY IN ONE TAX YEAR AND REGISTERS TRANSFER IN THE NEXT

Milnerton Estates Limited v Commissioner for the South African Revenue Service (1159/2017) [2018] ZASCA 155 (20 November 2018)

From an income tax point of view, where a developer sold erven in a new development in terms of agreements concluded in one tax year (and during which the suspensive conditions were fulfilled), but transfer registering only in the next tax year, in which year did the purchase price accrue to the developer? The Court here confirmed that in the circumstances of this matter, it would be deemed to be in the year that the sale agreements were concluded.

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The Judgment
Summary of the Judgment

CONSEQUENCES OF FRAUDULENT NON-DISCLOSURE IN A SALE AGREEMENT

Rossouw v Hanekom (741/2017) [2018] ZASCA 134 (28 September 2018)

This matter deals with an instance where a seller had fraudulently failed to disclose a defective roof and sewerage system and that he had not obtained municipal approval for alterations to the home. The purchaser was successful in a delictual claim for damages, based on the seller’s fraudulent misrepresentation and fraudulent non-disclosure, the fraudulent actions trumping the voetstoots clause in the sale agreement.

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The Judgment
Summary of the Judgment

Issue 18 – 2018

LENDERS: IF IT IS A “CREDIT TRANSACTION”, REGISTER OR THE LOAN IS VOID

Du Bruyn NO and Others v Karsten (929/2017) [2018] ZASCA 143 (28 September 2018)

For some time now there has been confusion whether it is necessary for a lender, in a once-off loan, to register with the National Credit Regulator where the loan reached a certain threshold. The Supreme Court of Appeal confirmed now that although it would be reasonable and sensible to interpret the National Credit Act as being inapplicable to once-off transactions where the role players are not participants in the credit market, the current wording did not support this. The Court suggested that the legislature should address this aspect.

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The Judgment
Summary of the Judgment

STBB’s STSMA REFERENCE GUIDE

In this, the sixtieth set of notes for your STSMA Reference Guide, Prescribed Conduct Rule 8 is discussed.

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Prescribed Conduct Rule 8
(N.B. Print in landscape)

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.

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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

STBB Meerkats

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