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Losing Your Property to Acquisitive Prescription

“… a person shall by prescription become the owner of a thing which he has possessed openly and as if he were the owner thereof for an uninterrupted period of 30 years or for a period which, together with any periods for which such thing was so possessed by his predecessors in title, constitutes an uninterrupted period of 30 years.” (Prescription Act)

Here’s another warning to be vigilant when it comes to someone else occupying any part of your property for 30 years or more – you could wake up one day to find you’ve lost your ownership altogether. With not a cent’s purchase price to show for it.

And whilst 30 years may seem like a long time, judging by the cases that come before our courts it does regularly take property owners by surprise.

A feature of our law since Roman times, “acquisitive prescription” is a legal process that allows a person to acquire ownership of a property through long-term occupation.

The requirements for acquisitive prescription

To succeed in such a claim under our Prescription Act, the possessor must prove at least 30 years of continuous “possession” both openly, and as if the owner. “Possession” in this context refers to “civil possession”, a concept which (to put it as simply as possible) means physical possession with the intention of owning the property. Whether or not you think you are the true owner or know that you aren’t, is irrelevant here.

Somewhat more colourfully, you may also come across the Latin phrase (beloved in legal circles) “Nec vi, nec clam, nec precario” – meaning in essence that your possession must be “without force, without secrecy, without permission.”

Let’s have a look at a recent and illustrative case in which a property owning company’s attempts to retain ownership of a piece of its land came to nought.

The buyers who didn’t notice a nursery and park on their land – for 31 years
  • In 1993, two individuals bought a property-owning company and were appointed directors. Their plan was to develop and sell the thirty-nine plots owned by the company.
  • Unknown to them, a neighbour had since 1990 occupied a portion of the (then undeveloped) property. The possessor had at her own cost transformed the land into a nursery and community park, using water and electricity from other neighbours and reimbursing them.
  • The directors had never noticed the nursery and park as they drove past because neither was visible from the road, being hidden by dense vegetation. They assumed the nursery was on neighbouring land.
  • After 31 years of continuous occupation the possessor asked the High Court to order registration of the occupied land into her name.
Was the possessor’s illegal use of the property a factor?
  • One can imagine the directors’ shock at learning that they stood to lose a portion of their property, with zero compensation.
  • One of the defences they raised was that the possessor’s illegal use of water and electricity on the property, her failure to apply for rezoning, and her unauthorised use of the property as a nursery all prevented her from meeting the requirements for acquisitive prescription.
  • Not so, held the Court, her possession was in itself not unlawful and her illegal usage did not affect her possession of the land as owner.
  • The property will now be registered into the possessor’s name.
Owners – monitor your property!

As a registered owner monitor your property and take action against any occupiers. Or indeed against anyone using your property for anything, because “servitudes” (rights of use or access over your property) can also be acquired by prescription.

Before you buy…

The losers in this particular case would have saved themselves a lot of pain if back in 1993 they had checked properly for occupiers on the company’s land – don’t fall into the same trap!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Buying Property as an Investment – Some Strategies for Success 

“The only bad time to buy property is later.” (Steve Bolton)

Buying property – whether to live/work in or on a buy-to-let basis – could be one of the most important investments you make.

Here are some strategies to help you on your way.

Twelve strategies for success
  1. Map out your investment goals: Do you plan to “buy-to-let” to provide steady income? Or as a wealth-builder to hold for long-term capital growth? Or to “flip” (quickly resell, with or without renovation)? Formulate your strategy accordingly.
  2. Do your homework: Before making any big property investment decisions, research the property market, the area where you want to invest, and the type of property you want to buy (see below).
  3. Choose what type of property you want to buy: You have a wide choice here – vacant land (to develop or to hold), residential property (to live in or to let out), commercial/industrial property, agricultural land etc. You might also consider an indirect property investment via for example a REIT (Real Estate Investment Trust).
  4. Location, Location: Look for properties in areas with a high demand for rental properties (even if you are buying a house to live in, the time may come when you decide to rent it out), good infrastructure, and potential for capital growth.
  5. Consider diversification: If you plan to go big on this, you could invest in different types of properties and in different locations to spread your risk.
  6. “Buy Low”: It seems self-evident, but more than a few investors lose sight of the fact that a big part of success when it comes to property investment is “buying low”. Some ways to achieve that –
  1. Negotiate: Don’t be shy to negotiate on price, or to bring in a professional if your negotiating skills aren’t up to it.
  2. Consider a “renovation” property: Properties in need of renovation can be bought at a lower price and renovated to increase their value and rental potential.
  3. Look for bargains: Repossessed properties, properties in insolvent estates, distress auctions, sellers wanting to sell quickly (perhaps for financial or personal reasons) – all could be a source of well-priced property. But tread with care because this type of property can come with more pitfalls than normal.
  1. Take professional advice: For most of us, property should be just one element in a balanced investment portfolio, structured to meet our particular needs and goals, so ensure that you take competent financial advice upfront. Then go to the property professionals in your target area and market. Your first port of call in this regard should be your lawyer who can share valuable insights into the local property market and can in need refer you to other trusted professionals in the area.
  2. Choose wisely when it comes to financing options: Using mortgage finance to purchase property can provide leverage and enable you to invest in more properties than you would be able to with cash.
  3. Manage your cash flow: Ask your lawyer to help you draw up a full budget for your purchase costs so you plan properly both for your cash flow and for profitability.
  4. Manage the risks: If you have a bond, build into your calculations the possibility of interest rate increases in the future – a highly-leveraged property leaves you little room to maneuver if the market turns against you. If you are letting out to tenants, provide for vacancy rates and periods of low demand for rental property. Budget for worst-case scenarios!
  5. Property management might pay for itself: Consider using a property management company to manage your rental properties, as this can take the stress and workload off you and provide a more professional service to your tenants.
  6. Don’t forget the tax implications: This is vital – there are both potential tax benefits and tax pitfalls awaiting the property investor, and taking upfront professional advice to structure your investment for tax efficiency could make all the difference between an acceptable return and an exceptional one.

Investing in property can be a great option for you if you are looking for long-term growth and a steady income. However, it’s important to do your research, to seek professional advice, and to consider all the available options before making any investment decisions.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Installing Home Solar – How to Comply with the Regulatory Requirements

“We have this handy fusion reactor in the sky called the sun; you don’t have to do anything, it just works. It shows up every day” (Elon Musk)

Eskom’s no-end-in-sight loadshedding, rising electricity costs, South Africa’s abundance of sunshine, and the global move to sustainable energy solutions have all contributed to the current boom in home solar photovoltaic (PV) roof installations.

They don’t come cheap, but quite apart from the direct practical and financial benefits of going as much off-grid as possible, you will be boosting your property’s resale value (supposedly by between 4% and 8% depending on the system you install and your current house value). And at least one municipality is already planning to pay you for any excess power you feed back into its grid – expect that to become a growing trend.

Moreover, in addition to the existing tax incentives for businesses installing solar, the Budget Speech has promised both an expansion of the tax incentives and the introduction of a new tax incentive for individuals in the form of a 25% tax rebate (maximum R15,000 per individual) of the cost of “new and unused” solar panels (not inverters or batteries) – available for 1 year only (1 March 2023 to 29 February 2024) “to encourage investment as soon as possible”.

Step 1: How to choose an installer for a safe and legal installation

Before you accept a quote for your solar project (typically some solar panels, an inverter and a battery or two), there are several regulatory requirements to bear in mind, and the best way to ensure that you comply with everything (quite apart from the safety aspect) is to choose an installer with a good track record and the right qualifications. Bear in mind that you will need your installer to issue a valid compliance certificate for the system for several reasons –

  • To complete the process of getting the system authorised (see below),
  • To add the system to your homeowner’s insurance,
  • To ensure that the system’s warranties aren’t voided, and
  • To allow you to claim the new tax rebate as above.

Questions to ask a prospective installer: Here’s a list of questions to ask (adapted from the excellent list in “City of Cape Town’s Checklist for safely going solar” on cape{town}etc) –

  • What prior experience do you have in solar PV installations?
  • What three recent clients of yours can I phone for references?
  • Did you design, supply and install the systems, or did you only carry out one or two of these steps?
  • Are you an accredited service provider under PV Green CardSAPVIA or P4 Platform?
  • Can you supply proof of electrical Certificates of Compliance and/or professional engineer sign-offs on previous installations?
  • Can you prove that your previous installations were correctly authorised by the local authority (or Eskom if direct customers)?
  • Do you employ or subcontract qualified staff to design and install systems? (Note: The City of Cape Town suggests you ask for “proof of up-to-date registration (a wireman’s licence and DoLE registration)”).
  • Is the inverter you are quoting for on the local authority’s approved inverter list? (Note: Find the City of Cape Town’s list here; if you are told that your local authority has no such list, get written confirmation).
  • If you propose a “grid-tied system” (see definition below) do you have available an Engineering Council of South Africa (ECSA) registered professional to sign it off?
  • Are the solar PV panels in compliance with SANS/IEC standards? (Note: The City of Cape Town article recommends you get a certificate of compliance for SANS/IEC 61215:2015 / SANS/IEC 61646:2016).
  • Are you registered with SAPVIA and the ECB? (Note: Per The City of Cape Town “it’s not compulsory but shows commitment to industry best practice.”)
  • What warranties apply to your installation and the components? (Keep proof, with all manuals).
  • Is your quote comprehensive and does it include installation of circuit breakers (specialized to the DC current from the panels), obtaining SSEG registration (see below) and a Certificate of Compliance?
Step 2: How to comply with all regulatory requirements
  • Next, comply with the SSEG (Small Scale Embedded Generation) process – have your chosen installer do everything on your behalf. You will need to register the system for authorisation with either Eskom or your local municipality (whichever supplies your electricity).
  • Note that authorisation is needed whether or not your system will be feeding electricity back into the grid. If your system will connect to the grid (via your distribution board or directly) it will be a “grid-tied” one – either “feed-in” or “non-feed-in” depending on whether or not it will export excess power to the grid. If it’s “non-feed-in” you will need to have “Reverse Power Flow Blocking” installed to prevent any excess electricity feeding back into the grid. If it’s a “feed-in” you have more hoops to jump through as an Electricity Supplier. To complicate matters further, you also get “hybrid” systems which can be either on-grid or off-grid. For more detail read the City of Cape Town article referenced above (“The three types of systems” section).

    Incidentally none of this is just bureaucratic red tape – suppliers need to know when it is safe for their technicians to work on the grid, there are issues related to grid management, and there are home safety issues around risk of fires and other hazards.

    Check with your supplier (local authority or Eskom) whether you need any authority for a standalone (“off-grid”) system. At date of writing, at least one municipality – City of Cape Town – does require registration “to ensure they are not mistaken for grid-tied systems”.

  • The process itself, let alone the terminology and technical requirements (such as wiring diagrams and an engineering sign-off), is complicated. Have your installers do everything for you, and in doubt contact your municipality’s electricity department (or Eskom direct if applicable) for more information.
  • Failing to register and obtain written authorisation prior to installation could be an expensive business, with some municipalities threatening to use aerial photos, inspections and billing analysis to locate unauthorised systems, which will then attract penalties, contravention notices, and supply disconnection. Failure to register might even cause your insurers to reject a claim and that could be disastrous – think for example of a system failure causing a house fire.
  • If you live in a “community scheme” like a sectional title complex or a homeowner’s association complex, check your Rules and Regulations and get necessary consents upfront.
  • Make sure that all aspects of the installation comply with local regulations to reduce the risk of any future insurance claims being rejected for non-compliance. For example, check the technical requirements for roof structures (ensure that they can cope with the weight and wind load of panels), also you may or may not need building plans, plus some municipalities have lists of approved inverter makes and models.
    Talking of which, don’t forget to send the compliance certificate to your insurers with an instruction to add your new system to your homeowner’s policy.
Safety and recourse for poor work

The City of Cape Town checklist referenced above is well worth a full read regardless of where you live – read in particular the sections on safety and “Recourse for poor work”.

A final thought – should you ditch Eskom altogether?

A final thought – you could of course go off-grid entirely. It’s tempting isn’t it to wave Eskom and all its issues a cheerful good-bye, you’ll be avoiding a lot of the paperwork mentioned above, plus you won’t be paying Eskom’s “fixed service connection fees” any longer. But then you really will be on your own, with no connection whatsoever to your municipal or Eskom supply. Think about the effect on your resale value as well as the short-term pros and cons of making that sort of decision!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Neighbours Behaving Badly: Illegal Buildings and Demolition Orders

“The approval of building plans is not a mere formality in town planning and compliance with building standards promote public safety … The courts should not permit landowners to erect illegal structures on their land and then present the authorities with a fait accompli created by their illegal actions” (Extracts from judgment below)

What do you do if your neighbour starts building next door without municipal plans? A recent High Court decision confirms your right to apply for demolition.

The pensioner who built an apartment block illegally
  • A property owner decided to build a multi-story block of eight apartments on his land. According to media reports he is a pensioner who spent his R900,000 pension payout on the project and planned to live off the resultant rentals of some R40,000 p.m.
  • The building, which he had told his neighbours was just going to be a garden cottage, was illegal on four counts –
    • No building plans were approved by the local Council,
    • The structure encroached on building line restrictions imposed in the Town Planning Scheme,
    • The structure did not comply with the zoning of the property,
    • A restrictive condition in the title deed was contravened in that the title deed permitted only one dwelling on the property and the owner was erecting a second.
  • The owner failed to comply with two “stop building” orders from the Council. Then he undertook to cease the works but instead accelerated them.
  • Two of his neighbours urgently applied to the High Court to interdict further building, and the Court ordered the owner to demolish the building.
  • The owner appealed this order to a “full bench” of the High Court asking for the demolition order to be postponed whilst his application to the Council for rezoning and removal of the restrictive conditions was finalised.
  • Although the Council had approved the rezoning of the property it had specifically noted that it did not condone the partly constructed building, which was illegal because no building plans had been approved and the building encroached on the building lines.
  • The neighbours, held the Court, had standing to apply for a demolition order, in that although their land had not been encroached upon, their rights had.
  • In deciding to exercise its discretion in favour of demolition, the Court noted that the neighbours had taken steps to protect their rights immediately it became apparent that the owner was not constructing a garden cottage but an apartment block. They reported the illegal structure to the Council, and it weighed heavily with the Court that the owner carried on building even when he knew it was an illegal structure.
  • The owner must demolish the building.

Bottom line – if your neighbour starts building illegally, take immediate action!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Check All Emailed Bank Details for BEC (“Business Email Compromise”) Frauds

“…sending bank details by email is inherently dangerous, and so must either be avoided in favour of, for example, a secure portal or it must be accompanied by other precautionary measures like telephonic confirmation or appropriate warnings which are securely communicated.” (Extract from judgment below)

Before you make any payment to a supplier’s bank account on the basis of an emailed invoice, check that the bank account details in the invoice are genuine.

If your supplier’s or your email system have been hacked in a BEC (“Business Email Compromise”) scam, the invoice details could easily be fraudulent and if so you will be paying into a scammer’s bank account.

Property transactions are prime BEC targets, but not the only ones!

You will have seen many warnings about the global problem of conveyancing email scams, where emails are intercepted and false bank account details appear in invoices or in the mails themselves.  Property sales are usually high value transactions and thus a natural target for fraudsters.

Increasingly though, other non-property related business-to-business and business-to-customer transactions are being targeted – the higher the value of the deal, the more likely it is to be subjected to online crime.

Let’s take a topical example…

It’s high-value inverter time, and the bad guys are taking note…

You decide to install a high-value inverter, courtesy of Eskom’s “no end in sight” loadshedding. Inverter installers – let’s call them “Speedy Sparkies Inverter Systems” – email you a quote for R145,000. You accept. Back comes an emailed invoice from asking you to pay R100,000 upfront to cover materials. You transfer R100k to the X Bank account on the invoice and ask when they will install. The friendly return email reads “Thanks for the payment, we’ll fit you in next week Thursday. Best, Fred”.

Thursday rolls around but no Fred. You phone him. “But you haven’t paid us yet” says Fred. “Yes I have, I paid into your account last week and you emailed confirmation of receipt of payment”. “No, definitely no payment received and no email from us confirming receipt.” “That’s impossible Fred, I have your email in front of me”. At which stage you notice, with a sinking heart and rising panic, that that last email came from – with a hyphen. “Nope, really sorry” says Fred, “there’s no hyphen in our email address and we bank with Y Bank not X Bank. You’ve been scammed. We’ll try to help you but you need to pay the R100k again before we can install”.

Denial, anger, acceptance, then off to the bank to ask for help and off to SAPS to lay charges. Your bank and the police are sympathetic but not hopeful of recovery. So what happened?

How did you just lose R100k?

Using phishing tactics, the scammers hacked into Speedy’s email system then monitored all their emails, waiting for a high value contract to pop up. They pounced, intercepted the email to you with the invoice, changed only the return email address and the bank account.

You suspected nothing – the look and feel of the email and invoice are totally genuine, the wording of the mails is Fred’s (right down to his trademark sign-off “Best, Fred”), the email address difference is so subtle you don’t notice it. Sometimes scammers can even “spoof” an email address, where the sending email address appears to be the same as the legitimate one.

It all looks 100% authentic and of course by the time you and Fred realise anything is amiss, your money is long gone.

The only winners here are the scammers and the question now is “who is the loser?”

Who takes the loss? Who pays for your inverter now? Can you sue?

Here’s the rub – you blame Speedy for allowing their system to be hacked. You accuse them of negligence and of failing in their duty to keep your data safe in compliance with POPIA (the Protection of Personal Information Act). But Speedy deny fault and say you carry the risk and anyway it’s your mistake for not noticing the falsified email address and for not phoning Fred to check the bank account details. Speedy’s insurers confirm they have no cover for this sort of fraud.

Do you have a legal claim against the business? There’s no cut-and-dried answer to that, with our case law outcomes to date tending to vary with each particular set of facts, and the courts referring to various questions of proving negligence, compliance with payment instructions, “considerations of legal and public policy”, and reference to a general rule that anyone making a payment to someone else is required to check that they are paying into the correct account.

So as a customer, it’s probably safest to work on the basis that you could well be held to be the party at risk and will almost certainly have to prove (at the very least) negligence on the part of the business in order to stand a chance of establishing any claim against it.

As a business on the other hand, your legal position is far from secure. You will be accused of negligence (and perhaps also breach of POPIA) if it is your system that was hacked. Even if it is your customer’s email account that has been hacked you are still at risk, as confirmed by the recent High Court award of R5.5m (plus interest and costs on the punitive attorney and client scale) in just such a case against a conveyancing firm on the basis of its legal duty of care towards a property purchaser, and on a finding that “but for the negligent transmission of its account details and failure to warn [the buyer] upfront of the inherent danger of BEC, she would not have suffered the loss.” In the Court’s words “sending bank details by email is inherently dangerous, and so must either be avoided in favour of, for example, a secure portal or it must be accompanied by other precautionary measures like telephonic confirmation or appropriate warnings which are securely communicated”.

On a strictly practical level, your reputation is at stake and those 5-star Google Reviews could be in for a knock.

Bottom line – take legal advice specific to your case. Perhaps you will both be advised to cut your losses and to share the pain 50/50. Far from ideal, but a lot better than protracted and bitter litigation.

Prevention being as always a lot better than cure, we share below some ideas on how to protect yourself from this sort of cyber fraud in the first place.

Prevention – here’s what to do
  • Businesses: Most importantly, protect your systems from being hacked! Train all staff in the increasingly sophisticated nature of phishing emails, update all your software and beef up your anti-virus and anti-malware protections and protocols. Consider not putting your banking details on invoices and tell customers to phone you to check any details they are given. Consider using a secure payment portal with two-factor authentication (2FA) and protect any PDF documents you send (it’s a myth that PDFs can’t be altered). Tell customers on every email that you will never advise any change of bank details by email. Check with your insurers whether you can get cover for this risk.
  • Customers: Take the same strong anti-hacking measures. Never pay anything without checking bank details direct with the business, either in person or telephonically (don’t use the phone numbers on the emails or invoices, they could easily have been faked as well). Check email addresses carefully – make sure the return address is the same as the sender’s address (some tips on how to do that here), watch for subtle changes like ‘’ becoming ‘.com’ or vice-versa, and remember that every hyphen, every letter and every number in the email address counts. Use bank-defined beneficiaries for online banking where possible. Be very suspicious of any “we’ve changed our banking details” communications.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

When Your Buyer Can’t Get Finance, Might a Kustingsbrief Save the Sale?

“A kustingbrief … has long been recognised as a superior front-ranking form of security.” (Extract from judgment referred to in the article)

You accept a great offer on your property, the sale agreement is signed and the buyer pays the deposit. You put the champagne on ice. But before you can pop it open, the buyer’s bond applications are rejected by every bank. Your sale is about to die. Is there anything you can do to rescue it?

The “kissing letter” option

A kustingsbrief (literally “kissing letter”) has its origins in old Dutch law and refers to a type of mortgage bond – a “purchase money mortgage bond” – registered in favour of a person or institution to secure the balance of the purchase price (or the full purchase price if no deposit is paid).

Many “bank bonds” and other third-party loans will fall into that definition, but in this article we’ll use the term only to refer to a bond in favour of the seller. For example, a buyer pays a R400,000 deposit on a R4m sale. The buyer can’t get a bank loan so the seller agrees to let the buyer take transfer in return for a bond in favour of the seller for the R3.6m purchase price balance. The buyer then takes transfer and pays off the bond in the same way that a bank bond would work, except of course that all payments go to the seller.

Have a look at the advantages and disadvantages of the concept below before considering this option.

  • The sale is rescued to everyone’s benefit.
  • Interest on the monies due and the terms of repayment are fully negotiable (but note the warning to sellers under “Disadvantages” below).
  • Because the bond must be registered in the Deeds Office simultaneously with transfer of the property, it gives the seller very strong security in the event of non-payment by the buyer. It is by definition a “first bond” so ranks ahead of any further bonds registered down the line.
  • Even if the buyer’s estate is sequestrated within six months of the bond being lodged in the Deeds Office, this security remains strong. As our courts have put it: “A kustingbrief … has long been recognised as a superior front-ranking form of security.”
  • Assuming the bond carries interest, the seller would probably be wise to register as a credit provider. There are exceptions and grey areas here – for example, lending money to a dependant family member might be exempt, and there are limited exceptions applying to “juristic person” consumers. But if the seller should have registered as a credit provider and failed to do so, the whole deal is invalid and unenforceable, and that will leave the seller unable to claim a cent and in fact having to repay any instalments already paid.
  • The seller must be in a financial position to wait for full payment. And whilst being paid in monthly instalments for say 15 or 20 years will be perfect for some sellers, most are more likely to need full payment against transfer.
  • In practice, other than perhaps where close family is involved, the seller is likely to need a lot of convincing about the buyer’s creditworthiness if no bank will grant a bond. Most sellers will be reluctant to go this route without some form of comfort such as a larger-than-normal deposit, third party suretyships or some other avenue of recovery should the buyer default on instalments down the line.
  • The seller will have to administer the process of collecting instalments and so on, for as many years as the agreed term of the bond.

All that said, in the right circumstances this option could be the saving of a great sale. It goes without saying that full advice specific to the circumstances is absolutely essential here.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Websites of the Month: Community Schemes – “CSOS Connect” Services Going Live

If you are in a Community Scheme such as a Sectional Title development or a residential complex with a Homeowners Association (HOA), keep an eye on the “Shared Living” magazine from the CSOS (Community Schemes Ombud Service) on its Newsletter page. Most of the articles are clearly aimed at Bodies Corporate, HOAs and Managing Agents, but owners and tenants will also find value in many of the topics covered.

Click on Issue 19 (October – December) here and go to page 7 for a short presentation (keep your speakers on) on CSOS Connect’s online services. As at date of writing, only some services are already live, with a full roll-out planned for early 2023. Hopefully interacting with CSOS is about to become a lot better and easier!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Selling Property this Festive Season: The Tax Angle

December and January have always been prime months for selling residential property in South Africa, and if you are a “Festive Season Seller”, here are two really important tips for you.

  1. Plan your finances
    Understand and plan for all the financial implications, not just the legal ones.Prepare a cash-flow forecast so that you know what you will receive and when, and what you will have to pay and when. Your forecast will tell you what funds you must have available at all stages of the sale and transfer process, and it will answer your bottom-line question – what will be left in your pocket at the end of it all?
  2. Don’t forget your CGT liability
    There are many expenses you should provide for (ask your lawyer to help you list them), but in this article we’ll only address one of them – the CGT (Capital Gains Tax) aspect.This is vital – if you made a “capital gain” on the sale (more on how to calculate that below) you could be liable to pay CGT. If so, it could well be a substantial liability, and not planning for it will leave you in a world of pain because if you can’t pay your tax bill SARS will be after you with a big stick (SARS has extensive powers when it comes to debt collection).

    There is a bit of good news: 
    The advantages of owning your own family home, and the value of property generally as an investment channel, will for most people outweigh the pain of having to pay tax when you eventually sell. Plus, as we shall see below, paying CGT on a property sale is not nearly as painful as it would be to pay income tax on it. Indeed, if the capital gain on your primary residence is R2m or less, your CGT bill is nil!
How does CGT on a property sale work?

This is a complex topic, so what follows is of necessity a summary of general principles only – there is no substitute for specific professional advice here!

  • What is Capital Gains Tax? CGT forms part of your income tax and is a tax on any “capital gain” you make on an asset, in this case a property. The capital gain is the difference between your base cost and the proceeds of your sale.
  • What is “base cost”? This is what your property cost you to acquire (including transfer costs, transfer duty and the like) when you bought it. Note that CGT only kicked in on 1 October 2001, so if you bought the property before then it is the property’s value at that date that you will use. Qualifying improvement costs (extensions, additions and the like but excluding maintenance or repair costs) are also added to your base cost, so keep a separate note and proof of these as you incur them over the years. Our example calculation below assumes a homeowner who bought a number of years ago for R4m inclusive of transfer costs and duty, then spent a total of R500k on improvements (perhaps adding an extra room and a swimming pool).
  • How do you calculate the “sale proceeds”? From the sale price you can deduct any costs of selling which are directly related to the sale, such as agent’s commission, advertising, legal costs and so on. In our example we assume net sale proceeds of R7m.
  • How do you calculate the “capital gain”? This is the difference between the base cost and the proceeds of the sale (R2.5m in our example, before the primary residence exclusion).
  • What can you deduct from the capital gain? If the property is in your personal name and is your “primary residence” (i.e., where you normally live) you can deduct a R2m exclusion from the capital gain. Note that if you used your house for business purposes or if you didn’t reside in it for the whole period of ownership, you need to take specific advice on how much (if any) of the exclusion is available to you. You can also deduct an “annual exclusion” of R40,000. In our example we assume the seller is entitled to both exclusions in full, resulting in a net capital gain of R460,000.
  • How are you taxed on the net capital gain? The example below will help clarify this. Your capital gain is added to your annual income tax liability at the “inclusion rate” applicable to you. Individuals and special trusts have an inclusion rate of 40%, whereas other trusts and companies have an inclusion rate of 80%. You will then pay tax on that amount at your marginal tax rate (18% – 45% depending on your taxable income). In our example we assume an individual taxpayer paying tax at the highest marginal rate of 45%, the resulting tax liability of R82,800 amounting to just under 1.2% of the net sale proceeds. Our seller’s profit on the sale net of tax would then be R2,417,200.
So how much CGT will you actually pay?

For an individual your calculation is: Capital Gains Tax = Capital Gain x 40% inclusion rate x your marginal tax rate.

Have a look at the example below which assumes an individual home seller entitled to the full R2m primary residence exclusion and paying tax at the highest marginal tax rate of 45%. Then use your own figures and make your own calculation.

 (Source: Adapted from SARS examples)

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Bond Clauses: Beware the Deadlines!

“I love deadlines. I love the whooshing noise they make as they go by.” (Douglas Adams)

Here’s yet another reminder from our courts on the danger of not complying strictly with every provision in a property sale agreement. Don’t be like Douglas Adams and listen to the deadlines go whooshing by – missing a property sale deadline is a mistake, probably an expensive one. The deadline set by every bond clause is no exception…

Sale’s a dead duck. Who gets the R600,000 deposit?
  • A property sale agreement contained a standard “suspensive condition” in the form of a bond clause making the sale conditional upon the buyer obtaining R1.5m in bond finance by a specified date. The buyer could waive the benefit of this clause, and if it wasn’t fulfilled or waived by the deadline date the sale would become null and void – in which event the deposit, with interest, was to be repaid to the buyer within 5 business days.
  • The buyer paid the R600,000 deposit to the estate agent, but had difficulty in raising finance and (before the deadline expired) asked for more time to get the necessary bond approval. Both parties assumed that an extension of the deadline had been validly granted, but in fact there was never any compliance with the requirement in the bond clause that any extension be by “written agreement”. In other words, the sale had lapsed, but neither the seller nor the buyer realised that – they both thought they still had an agreement in place.
  • Two months later, thinking that the sale was still alive and well, the buyer signed a waiver giving up the benefit of the bond clause and stating that the agreement was no longer subject to the suspensive condition.
  • Another two months down the line the buyer told the seller he was no longer proceeding with the purchase (his wife had in fact bought another property in the interim). The seller took that as a repudiation of the contract and cancelled the sale.
  • The buyer demanded his deposit back. The seller wanted it forfeited to him. Off to the High Court they went.
The law, and the result
  • The general rule in our law is that no agreement comes into existence unless and until all suspensive conditions are fulfilled. So the seller has no claim against the buyer unless either the sale agreement provides for such a claim (unlikely) or “where the party has designedly prevented the fulfilment of the condition.”
  • That, in lawyer-speak, is the legal principle of “fictional fulfillment of a suspensive condition”. In lay terms – the law protects the seller and doesn’t allow the buyer to escape from the sale by deliberately ensuring that he doesn’t get a bond.
  • The seller argued that that was exactly what the buyer in this case had done; that he had breached the agreement and had deliberately frustrated the fulfilment of the bond clause.
  • On the facts however, the Court held that both seller and buyer had remained committed to the sale, blissfully unaware that in law the sale agreement was already a dead duck. The buyer only decided to get out of the agreement after it had already lapsed.
  • The buyer gets his deposit back with interest, and the seller is left with an unsold property and a large legal bill.
Buyers – your risk

As the Court put it, what saved the buyer in this case was a lack of evidence that the buyer had – by commission or omission – prevented the necessary finance from being granted. In other words, you risk being sued (which will put your deposit at risk) if you don’t make a genuine effort to get the necessary bond finance by the due date.

Sellers – keep an eye on the bond clause deadline

The seller on the other hand is left to lick his wounds after all the delay, cost and effort this dispute has caused him. He could have avoided all that pain by keeping an eye on the due date and ensuring that the deadline extension was agreed to in writing before it expired. As the Court pointed out “The contract was readily available to all involved and the requirements of clause 6.3 pertaining to an extension were available for all to read. A simple investigation would have revealed what was required.” (Emphasis added).

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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If the Municipality Rejects Your Building Plans, Consider PAJA

“The Constitution guarantees that administrative action will be reasonable, lawful and procedurally fair. It also makes sure that you have the right to request reasons for administrative action that negatively affects you.” (Department of Justice and Constitutional Development)

Bureaucratic decisions can and do have far-reaching consequences for us, both financially and in our personal lives. It’s good to know therefore that whenever your rights are affected by any such decision, you have access to the protections set out in PAJA (the Promotion of Administrative Justice Act).

In a nutshell, PAJA provides that “administrative decisions” by government departments, parastatals and the like must be fair, lawful and reasonable. Decision makers must follow fair procedures, allow you to have your say before deciding, and give you written reasons for their decisions when asked.

If a decision goes against you, your first step should be to use any internal appeal procedures. Ultimately you can go to court, although often a lawyer’s letter or two will solve the problem without the need for litigation.

A recent High Court decision illustrates one way in which PAJA can help you if all else fails –

A service station’s building plans rejected
  • A service station submitted to its local authority building plans for a proposed refurbishment.
  • After a series of meetings with the municipality and alterations to the plans as various issues were raised and resolved, the service station owners thought they were home and dry. But in the end the plans were not accepted on the basis that the application was for an extension of the service station which could not be approved in terms of the local Town Planning Scheme.
  • The High Court however found that factually there was no “extension” involved and that the municipality had therefore made an “error in law”.
  • That opened the door for the Court to review the municipality’s decision, which it duly set aside. In referring the decision back to the municipality for reconsideration, the Court directed it to make a decision within 21 days, and without regarding the proposed refurbishment as being an extension of the building.

A final thought – strict time limits apply with PAJA, so if a decision goes against you seek professional help without delay!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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