“It is unquestionable that an owner of land is not permitted to perform activities which contravene the restrictive title conditions or the zoning restrictions” (extract from judgment below)

You decide to open a home business, or perhaps you are about to buy a house in order to run a business from it. You apply for rezoning but the council is taking forever to decide (although it has happily started charging you rates and taxes on the business tariff), your immediate neighbours are supportive, you won’t cause any nuisance, you know of many other businesses operating undisturbed “under the radar”, and anyway the suburb’s residential character has been eroding for years. Surely you are safe to just go ahead and open your business?

On the other side of the coin, perhaps you bought your dream house in a leafy suburb, secure in the knowledge that its residential character is protected by strong and effective zoning laws. Then businesses start moving in – what can you do about it?

A recent High Court decision addresses both questions directly…

A suburban office and the interdict application

• A construction company opened an administrative office in a suburban area, manned from 8 am to 4.30 pm on weekdays by a staff of four (with the occasional visitor).
• Three complainants in the suburb, objecting strongly to this move, applied to the High Court for an interdict against the running of any business on the property. They had, they said “acquired their properties with a keen expectation of residing in a residential suburb with amenities that are consistent with a residential suburb and with a residential character” – sentiments which will no doubt resonate with many other home-buyers.
• Critically, one of the restrictive conditions in the offending property’s title deeds read “this erf shall be used for residential purposes only and no trade or business or industry whatsoever shall be conducted thereon”. That, said the Court, rendered the property’s usage illegal. Full stop.

All the defeated defences

The property owner and the business (let’s refer to them together as “the business” for simplicity) raised a series of defences to the interdict application, all of them rejected by the Court on essentially the same ground that “the use or continuation to use the property for any business or trade other than for residential purposes constitutes an illegal act” –

• The suburb’s character had been changing over the years with businesses moving in, including a large shopping mall. Not relevant.
• The business had applied to the local council for re-zoning and removal of the title deed restriction over a year before, no objections had been received and it had in fact been supported by at least one neighbour. Not relevant.
• Although the rezoning application had yet to be granted or declined, council was already collecting rates and taxes payable by business and commercial properties. Not relevant.
• The office caused no nuisance to anyone in the area. Not relevant.
• Other property owners in the area were also in contravention of the law. Not relevant.

Who can object and who can’t?

The business also argued that only property owners living “in close proximity” to the office had any right to object. That, it said, excluded not only the complainant who was not an owner (she lived with her parents) but all three of the complainants because they all lived about a kilometer away from the office.

No problem, said the Court, “the essence of town planning schemes is conceived in the interest of the community to which it applies” and the complainants lived “in an area affected by an applicable zoning scheme”. All the complainants had “protectable interests” and therefore locus standi (in plain English, the ‘right to bring a legal action’) and were entitled to enforce their rights under the planning scheme.

The interdict and the request to suspend it

“Once it is accepted”, quoted the Court from an earlier judgment “that the nature of the right in question is a public right, then it must follow … that for continuing infringements of that right the only effective remedy is an interdict, all the more so where such infringements amount to an offence.” Final interdict granted with costs.

Finally, the Court rejected a request by the business to suspend the application of the interdict. The business had been continuing to act in an unlawful manner for at least fifteen months, it was “hell-bent to do so without the necessary relaxation of the restrictive conditions” and to suspend the interdict would be to support or give approval “to an ongoing illegality which is also a criminal offence … tantamount to the subversion of the doctrine of legality and undermining of the rule of law”. The business “must be brought into line immediately when such matters are brought to the attention of the court.” Interdict effective immediately.

Owners – must you always rezone?

Have your attorney check what title deed restrictions your property is subject to, what your current zoning is and what it allows and doesn’t allow. Your local town planning scheme may perhaps let you run a small scale “home enterprise” or “micro business” either without any municipal consent (there will be conditions attached) or with a municipal permit. Or you may need to formally apply for rezoning and removal of title deed restrictions. Every local authority will have its own rules on this and the important thing is to comply with them or risk unhappy neighbours applying to close you down.

“It takes seven times more money, effort and time to get a new client than it does to keep an existing one”

We’ve all heard of “dog whisperers”, “cat whisperers”, “horse whisperers”, even “elephant whisperers” – but “client whisperers”? Is that even a thing?

It is, and with your clients being the lifeblood of your business, retaining them is fundamental to its profitability and success. For a take on how to do that – to your mutual benefit – read “The Client Whisperer” on the CleanFax website.

The article specifically addresses carpet cleaning businesses but the principles it espouses, and the advice it gives, are universal. They apply to every type of business you can think of.

So protect your client base – become a client whisperer!

raffic accidents, your fault or not, are traumatic affairs. Even minor dings come with their hassles – panel beaters, tow trucks, shock and recriminations, reams of paperwork, having to get a Crash Report Number for the insurers…

That last bit has always been a major added stress factor, requiring a trip to the local police station (unlikely to be a happy experience) and yet more paperwork.

No longer – life just got a little bit easier with the new online reporting service from NaTIS (the National Traffic Information System) on its website here. The submission of the report is legally binding and only applies to “minor damage crashes”, not in cases of injury or death. Note the time limit – “All crashes must be reported within 24 hours or the next working day. (Non-Working days Saturday, Sunday and Public Holidays).”

Get your lawyer’s help urgently if it’s anything but a minor accident!

“I always advise people never to give advice” (P. G. Wodehouse)

If you want to send shivers down the spine of any investor, mention “Steinhoff”, or “Sharemax”, or any one of the many other spectacular corporate collapses that have plagued both local and overseas investors in recent times.

Quite apart from the high-profile failures it’s been a hard few years for investors generally, and if your nest egg has taken a painful tumble recently you may well wonder whether you can sue your financial advisor for giving you bad advice.

The short answer, as several recent cases have highlighted, is “It depends…”.

Case 1: A R2.5m claim succeeds

• A widow, still reeling from her husband’s death and unversed in financial products, invested R2m in Sharemax on the advice of her trusted financial advisor, an authorised Financial Services Provider (FSP).
• She made it clear that she needed a safe, low risk investment and “that she could not risk losing even two cents as the money was earmarked for her son’s upbringing”.
• The advisor did not explain any other investment products and emphasized that “it was so good that he did not even want to introduce other financial instruments and/or investments to her.”
• Sharemax of course collapsed, and the investor duly sued the advisor for her R2m plus interest – a total of almost R2.5m by the time this case found its way through the High Court and an appeal to the Supreme Court of Appeal (SCA).
• The advisor was found liable on the basis of having been negligent “and even dishonest” and to have “failed to exercise the degree of skill, care and diligence which one is entitled to expect from a FSP”.

Case 2: An R11m claim fails

• A UK couple temporarily in South African sought a local financial advisor’s advice on how best to invest some “spare cash”.
• They ended up putting GBP 565,000 and R700,000 (about R11m in all) into investment products offered by UK based investment companies. The companies failed and the investments were rendered worthless.
• The investors successfully sued the advisor in the High Court for R11m in damages, but on appeal to the SCA their claim was dismissed.
• The investors, said the Court, had failed on the evidence to “identify what a reasonably skilled financial service provider would know about products in the market place; what due diligence they would have done before making a presentation to a prospective client and what sources of information they would have consulted.”They had failed to prove that any negligence on the advisor’s part in “making a presentation without adequate knowledge of the proposed investments, resulted in advice materially different from that which a reasonably competent advisor would have given.” (Emphasis supplied).
• End result – the investors lose their R11m and face a (doubtless substantial) legal bill.

Case 3: A R5m claim fails

To the High Court now for some insight into the range of factors that a court is likely to take into account in deciding liability –

• This was another Sharemax investment, this time for R5m.
• The difference was that this investor was found to have been an astute and wealthy businessman who managed his own share portfolio and went into the investment understanding the risks and “with his eyes open” after taking independent advice.
• Claim dismissed.

The bottom line, and some advice for investors

Let’s start off with this thought –unless you are fully qualified to make your own investment decisions, seeking help from a financial advisor is a no-brainer. A trained and certified professional advisor brings elements of insight, knowledge and objectivity that you can never match on your own.

Just be sure that your chosen advisor is the right advisor for you and is both competent and trustworthy. As a first step check for FSCA (Financial Sector Conduct Authority) authorisation (and a list of products the advisor is approved to provide) here.

If worst comes to worst and you feel that your advisor has let you down and should refund you, the bottom line (in a nutshell) is that to successfully sue you will have to prove that you suffered loss in consequence of following your advisor’s negligent advice.

The million dollar question (literally perhaps) is of course – how do you establish that necessary element of negligence? Whilst it will never be easy, and whilst each case will be treated on its own merits, the SCA (in the R11m case above) usefully held that an advisor’s legal duties are mirrored in the FAIS (Financial Advisory and Intermediary Services) Act and its Codes of Conduct. So perhaps start off by proving a breach of the General Code of Conduct’s provision that “an authorised financial service provider ‘must at all times render financial services honestly, fairly, with due skill, care diligence and in the interests of clients and the integrity of the financial services industry’.”

There’s also the FAIS Ombud option

You may not need to go to court to recover your losses, in that the “FAIS Ombud” (Ombudsman for Financial Services Providers) has the power to resolve complaints against FSPs. It can award “fair compensation for the financial prejudice or damage suffered” up to its jurisdictional limit of R800,000. In at least two Sharemax complaints, compensation orders have been issued, but many more have been dismissed.

Ask your lawyer which route is best for you.

And last but not least, some advice for financial advisors

Make sure that all your documentation protects you from liability as much as possible, that you have insurance cover in place in case you are sued (in the R2.5m case mentioned above, the insurers were ordered to indemnify the advisor against the claim), and that you comply strictly with FAIS and its Codes.

“People who say they sleep like a baby usually don’t have one” (Psychologist Leo J Burke)

It has taken over a year of confusion and delay around when new changes will be implemented, but finally your extended rights to parental leave and to an Unemployment Insurance Fund (UIF) claim have fully commenced.

Here’s an update/refresher –

• New mothers are still entitled to 4 consecutive months’ maternity leave.
• New “parents” (which would include fathers and same-sex partners) are entitled to 10 consecutive days’ “parental leave”.
• An adoptive parent of a child under 2 years old is entitled to 10 consecutive weeks’ adoption leave. Where there are two adoptive parents, the other is entitled to only the 10 consecutive days’ “parental leave” (the two adoptive parents should decide between them who gets 10 weeks and who gets 10 days).
• Commissioning parents in a surrogacy agreement have the same entitlements as adoptive parents.
• The law does not force your employer to give you paid leave – the above entitlements are for unpaid leave only. So unless your employment contract entitles you to paid leave you are limited to claiming from the UIF (assuming you are a qualifying contributor). That will give you 66% of your salary subject to a standard earnings cap.

And a note for employers: if you haven’t already done so, take advice now on reviewing your maternity and parental leave policies.

“Close your eyes –
Landlord knocking
On the back door”
(Jack Kerouac; Northport Haiku)”

Your residential fixed-term lease expires but for whatever reason you don’t sign a new one. Nor does the lease say anything about what will happen on expiry. Is there still any form of valid lease in place and if so what terms and conditions apply? What rent is payable?

To avoid confusion over the answers to those questions, the Rental Housing Act (“the RHA” – which, as its name suggests, applies only to residential leases) says that you are deemed “to have entered into a periodic lease, on the same terms and conditions as the expired lease, except that at least one month’s written notice must be given of the intention by either party to terminate the lease.”

Your fixed-term lease is now a “month-to-month” lease. Nothing changes except that the lease is no longer for a specific period but rather continues indefinitely unless and until a month’s written notice is given by either party.

Critically, the rent remains unchanged, unless…

The case of the verbal rental increase

• A tenant rented a residential property for a year at a rental of R30,000 p.m. The written lease was extended for another year at a rental of R32,400 p.m. When that expired, there was no written extension, but verbally the tenant agreed to pay an increased rental of R34,500 p.m. and in fact paid that amount for another nine months.
• When the landlord then gave notice to vacate to the tenant he declined, only moving out four months later. The landlord sued him for various amounts, including damages for “holding-over”. The concept with “holding-over” is that where a tenant remains unlawfully in the property and thereby prevents the landlord from re-letting the property, the landlord can recover his losses from the tenant in the form of damages.
• The tenant fought back, and one of the defences he raised (the one relevant to this article) was that the orally-agreed increase in rental to R34,500 p.m. was invalid. In terms of the RHA, he argued, the rental remained at the R32,400 p.m. applicable at the date of expiry.
• Not so, held the High Court (this being an appeal from a Magistrate’s Court ruling). The subsequent oral agreement to change the rental was valid – all the RHA says is that the terms and conditions of the lease (including the agreed rental) are deemed to be unchanged, which is “rebuttable”. In other words if you can show that different terms and conditions were agreed upon, verbally or in writing, they will be valid.
• The end result – the tenant must pay damages in the full amount of R69,000 (2 months at R34,500 p.m.) plus interest and costs.

The bottom line, and what your lease should say about expiry

Of course your lease may have been a month-to-month lease from the start – we are talking in this article only about the concept of fixed-term leases expiring and automatically becoming month-to-month. It is in such a case that the upshot of this new High Court decision is that the answer to the question “What rental must the tenant pay under a month-to-month lease?” is that the rental remains unchanged unless – as in this case – the evidence shows clearly that a new rental was agreed upon.

That of course opens the door to uncertainty and dispute, and to avoid that make sure that your fixed-term leaseprovides clearly in writing exactly what will happen when it expires Some leases for example provide that they will continue automatically on a month-to-month basis, but incorporating any changes to rental or other terms notified in writing by the landlord to the tenant. Without such a clause you could be in the same position as these parties, battling your way through the courts and hoping that a magistrate or judge (probably both in the end result) will uphold your interpretation of whatever you think was verbally agreed.

Avoid verbal leases!

As a final note, remember that verbal leases (in fact verbal contracts of any sort), and/or verbal amendments to them, are a recipe for misunderstanding, duplicity and dispute.

So although our law accepts the validity of verbal leases (written leases will be compulsory only when the latest amendments to the RHA finally come into force), in practice you should always insist on everything being in writing and signed by both parties, with a clause providing that no amendments will be valid and binding unless likewise reduced to writing and signed.

“Few of us ever test our powers of deduction, except when filling out an income tax form” (Laurence J. Peter of The Peter Principle)

Letting out property can give you an excellent “annuity” income, and if that concept appeals to you and a buy-to-let property comes your way at the right price put an offer in right now; before the current ‘buyer’s market’ runs its course.

In your financial planning however remember the tax implications, because as a landlord you must add your rental income to your salary and other taxable income in your tax return every year. Not to do so is tax evasion, and that carries heavy financial penalties as well as the very real threat of criminal prosecution.

Having to pay tax on your rental income could be make-or-break when it comes to deciding on how much you should pay for a particular property, so do your homework before you put your offer in.

Our tax laws are complex and specialised, so professional advice on your particular circumstances is essential here. These general concepts will however help you in your initial planning –

• You must declare all property rental income

You must declare your gross rental income to the taxman whatever type of accommodation you rent out – whether a whole house or apartment, just a room/garden flat or anything similar – or if you are in the guesthouse/B&B/Airbnb business.

• You can claim some expenses, but not all

Your taxable income will be calculated by subtracting allowable deductions from your gross income.

In general, only “expenses incurred in the production of that rental income can be claimed” (SARS). So you can claim things like levies, rates and taxes, bond interest, advertising, agent’s fees, homeowner’s insurance, garden services, electricity and water, repairs and maintenance to the leased area (which would, says SARS, “usually take place when a person attempts to restore an asset to its original condition as a result of damage or deterioration”). Beware the “beginner’s mistake” of thinking that your full bond repayment instalments are deductible – not so, only the interest portion can be claimed and not the capital repayments.

In regard to VAT (per SARS): “The supply of accommodation in a dwelling is an exempt supply for VAT purposes, and consequently you may not deduct VAT incurred on expenses in respect of supplying accommodation in a dwelling.”

And when it comes to renting out only a portion of a property (a room say in the house you live in) you can only claim pro-rata to total floor area. Click here for a practical example from SARS.

Take advice also on claiming depreciation on furniture and the like – your allowable deduction there might be worthwhile.

Not allowed are “expenses that are capital in nature or that are not in the production of rental income” (SARS). So the cost of improvements to the property – which would normally “result in the creation of a better asset” (SARS) – cannot be claimed. Improvements can however be added to the “base cost” of your property – important when you come to pay CGT (Capital Gains Tax) on eventual disposal.

• How are you taxed, and what about “ring-fencing”?

Your total taxable income (i.e. including net rental income) will be taxed as per current tax tables.

What if your letting business shows a loss? Per SARS – “should the expenses exceed the rental income, the loss should be available for set-off against other income earned by the individual, provided that the loss is not “ring-fenced” in terms of prevailing anti-avoidance provisions”. In other words SARS could ring-fence your letting business losses to stop you from setting them off against your regular non-rental income. But if that happens you don’t lose those losses, they are just carried forward so that when your letting business starts turning a profit the losses can then be set off against that profit.

Keep an eye also on your obligation to register for and pay provisional tax. As an individual if you earn taxable income of R30,000 p.a. or more in “rental from letting of fixed property” you fall into the net.

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