Some advice from DTS Attorneys: Disclosing defects when seeing your home

Honesty is the best policy” (Benjamin Franklin)

A recent High Court decision again confirms that when it comes to selling your house, honesty is indeed the best policy.

Specifically, disclose all defects you know of to potential buyers, or risk expensive litigation and damages claims.

Defects and Defences

The buyers of a house, who had paid R2.3m for it (the seller having reduced her original asking price from R3.6m to get a sale), sued the seller for damages in respect of various defects. These, they said, had only come to light after transfer.

The Magistrates Court awarded them R92,352-80 in damages, and the High Court upheld that award on appeal. The seller must also pay legal costs, which will no doubt be substantial. Her loss is a practical lesson in the dangers of trying to hide defects from potential buyers.

The seller did not dispute the existence of the defects complained of, nor did she claim to have shown or disclosed them to the buyers, but she did raise various legal defences to the buyers’ claims –

  • Leaking roofs, defective windows, broken mirrors, defective pool equipment and missing keys: The seller argued that all of these defects were “patent” (easily identified on inspection) rather than “latent” (hidden or non-obvious). The buyers, said the seller, had an opportunity to thoroughly inspect the premises but had chosen not to do so and therefore had no claim. The Court however found that there was no evidence to corroborate this – there being for example no evidence that the buyers had inspected the house on a rainy day when the leaks would have been detectable.
  • The electric fence: In regard to latent defects such as the defective electric fence, the seller claimed protection from a voetstoots clause in the sale agreement. But our law is that a seller has a general duty to deliver the thing sold to the buyer without defects, and whilst a seller should always try to guard against liability for latent defects with a “voetstoots” (“as is” or “without any warranty”) clause, it offers no protection where the seller has acted fraudulently.

Thus a buyer can sidestep a voetstoots clause by proving that the seller “at the time of the conclusion of the contract was aware of the existence of the latent defect in the [house] sold and deliberately concealed the existence of the defect to the purchaser or refrained from informing the purchaser of its existence.” On the facts of this case, held the Court, the seller had deliberately concealed defects such as the defective electric fence energiser.

  • The pool filter and cleaner: The sale agreement included a specific one-month warranty in regard to fixtures and fittings, which included the pool equipment. These, said the seller, had been in normal working order at the time of the sale. But the evidence showed that defects in them, resulting from years of wear and tear and requiring complete replacement, had in fact been discovered within the one month period after the sale. The seller had to honour the warranty.
  • The electrical compliance certificate: The certificate required by the sale agreement and provided by the seller was found after transfer to have been invalid. The house was accordingly not electrically compliant and the buyers could recover their costs of fixing the defects.

A note for sellers

Don’t fall into the trap of assuming that buyers will find defects for themselves, or of believing that a voetstoots clause will automatically protect you from liability. Avoid all doubt by thoroughly inspecting your property, annex to the sale agreement a written list of all defects you find or know about, then get the buyer to sign it in acknowledgment. There is no substitute for proper legal advice here.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

MAINTENANCE IN RENTAL PROPERTY – LANDLORD OR TENANT?

The issue of maintenance in a rental property is arguably one of the most contentious and one that leads to many disagreements between landlords, tenants and agents, often resulting in court cases or the lodging of complaints at the Rental Housing Tribunal. This is usually because of unsound reasoning and a lack of understanding of the legal principles around the maintenance responsibilities in a rental property. There are certainly many grey areas, but we will try to clarify.

By Harry Meyburgh

The Rental Housing Act places an obligation on the landlord to provide the tenant with a dwelling that is in a ‘habitable’ condition. This means the property must be safe and suitable for living with specific reference to: adequate space; protection from the elements and other threats to health; physical safety of the tenant, the tenant’s household and visitors; and a structurally sound building.

Furthermore, the landlord must ensure that the tenant enjoys undisturbed use of the property by maintaining the outside, incl. walls and roof, and the electrical, plumbing, sanitary, heating, ventilation, air conditioning and elevator systems (as applicable). And here is the BIG one – the landlord must repair any damage or replace items caused by fair wear and tear (more about that coming up). The Unfair Practice Regulations of the Rental Housing Act also stipulate that the landlord must effect repairs for which he is responsible (as identified during inspections or on receipt of a notice from the tenant to do such repairs) – within 14 days or such further period as agreed between the landlord and tenant.

That makes sense right? After all, the landlord is receiving money from the tenant to live in the property and therefore the tenant must be able to enjoy the benefits for which he is paying.

The other side of the coin is that the same Rental Housing Act also places certain obligations on the tenant with regards to maintenance and specifies that the tenant must maintain the property in a clean, tidy and safe state of repair; use all electrical, plumbing, sanitary, heating, ventilating, air-conditioning and other facilities and appliances in a reasonable manner and refrain from intentionally or negligently damaging the property. The Rental Housing Act goes on and stipulates that the tenant is also responsible to maintain, replace or repair electrical globes, fittings and switches, water-borne taps, stoves, locks, handles and windows where such damage has not been due to natural causes as well as maintaining the swimming pool (if any) including but not limited to all pumps, hoses & accessories in good order and repair, subject to fair wear and tear. And, of course, maintaining the garden (if any) and keeping it neat and tidy.

That is quite a mouthful, but it makes sense too as the tenant is after all living in the property, using all these items on a daily basis and enjoying the benefit of being there.

Then the BIG one for tenants– to return the property in the same condition as the tenant received it, fair wear and tear excluded. (there it is again!) Remember that this also means that the property needs to be properly cleaned by the tenant before they leave. When cleaning we need to ask – is it clean enough that the new tenant coming will be happy with the cleanliness of this property?

So, let’s look at FAIR WEAR and TEAR – it means the damage or loss to an item which happens as a result of ordinary use and exposure over time. Exposure refers to the effect of natural elements, such as sunlight and rain on the property, furniture or fittings. So, how do wear and tear item affect a tenant?

Marlon Shevelew, one of SA’s top rental property lawyers and a renowned rental expert explains: “To understand it better, a general rule of thumb is that if a tenant has damaged something that does not normally wear out, or the tenant has substantially shortened the life of something that does wear out, the tenant may be charged the pro-rated cost of the item. The landlord should take into account how old the item was and how long it may have lasted otherwise, as well as the cost of replacement.”

The landlord should not be unfairly enriched nor unfairly improve the condition of his property beyond what it was at the time that the tenant took occupation. As an example, if the inside of a property was last painted 4 years ago and the accepted life-span of a good coat of paint is 5 years, and the tenant damaged or dirtied one wall, the landlord cannot repaint the entire property at the expense of the tenant. He should only charge the tenant for the repainting of the wall that was damaged /dirtied and then also take into account that he would reasonably have had to repaint the property within the next year himself anyway. He should therefore apply only a pro-rata cost, based on the 5-year lifespan of the painting, for the repainting of that wall to the tenant.

COMMON EXAMPLES OF FAIR WEAR AND TEAR

Faded paint or wallpaper due to sunlight
Carpet wear caused by normal use
Furniture marks in carpet
Warped doors caused by age, temperature or moisture
Warped windows caused by the flow of the glass
Dents in walls from door handles
Broken appliances, if not from misuse
Faded curtains
Dirty grout.
Tarnish on bathroom fixtures.
Loose handles or doors on kitchen or bathroom cabinets

COMMON EXAMPLES OF WHAT IS NOT FAIR WEAR AND TEAR

Holes in the walls
Broken tiles or fixtures in bathrooms
Clogged Drains and Toilets due to misuse – flushing Pads, Nappies, etc.
Broken or chipped plaster on walls
Removing paint and repainting where the tenant painted a wall badly
Tears, holes or burn marks on carpets, curtains or wooden floors
Animal stains in the carpet caused by domestic animals or leaking fish tanks
Broken windows and window screens
Broken doors and locks
Broken appliances due to negligence
Excessive dirt in oven or on stove
Broken or missing window blinds
Flea and pest extermination
Excessive mildew and mould in bathroom
Excessively dirty bath, shower, sink, mirrors or toilet
Cracked kitchen or bathroom countertops.

A good lease agreement will include the obligations contained in the Rental Housing Act (which will apply even if they were not contained in the lease), but will also contain additional responsibilities that are fair, reasonable and practical.

HOW TO AVOID ARGUMENTS AND LEGAL FIGHTS RELATED TO MAINTENANCE ISSUES:

  • Educate yourself by knowing the relevant law and know what is required of you in terms of the lease that you signed, irrespective of whether you are a landlord or tenant!
  • As a tenant, report items that become defective as soon as you become aware of it, especially if it is an item that the landlord is responsible for. Do not leave them until they become an emergency issue and then also your responsibility!
  • Landlords and agents should conduct regular inspections of the property to identify any potential problems early on.
  • Do any required maintenance when it is required and convenient, don’t leave it until after the lease has ended.
  • Apply generous amounts of common sense and do what is right!
  • Make use of the services of a professional rental management company to handle all issues fairly and correctly.

Be wise!

About the author: Harry Meyburgh is a director with Etchells & Young. He writes regularly on property-related issues for #asketchells blog. This is one of his articles reprinted here

GOING ELECTRONIC WITH TITLE DEEDS REGISTRATION

 

South Africa has a deeds registration system with a solid reputation, but it’s still a manual system. The going trend in everything from car rentals to banking is go the electronic route, so it just makes sense the deeds registrations system should follow the same route, or perhaps it’s not so simple?

Maryna Botha, director with legal firm Smith Tabata Buchanan Boyes, says South Africa has a reputation for a very secure and transparent registration system, illustrated by, for example, the fact that we are one of few jurisdictions where property owners do not have to take out insurance regarding their title.

“It is exceptionally rare that someone can go to a registered owner of a property and allege or prove that he/she has better title to the land. In other words, one can rely on the deeds office information that the person who is shown on the title deed as registered owner, is the person with unassailable title to the land.”

However, the government is battling to catch up with a mountainous backlog of title deeds, reportedly mostly for RDP houses, that must still be issued. The Mail&Guardian reported in 2016 the estimated backlog in issuing title deeds in South Africa’s RDP housing project was estimated to be more than 900 000. The RDP project is reported to be the largest government-subsidised housing project in the world and delivered three million units in the past 20 years.

Last year it was reported that the Department of Human Settlements assigned a team of conveyancers to all nine provinces to assist with eliminating the backlog.

In short, for thousands the value of owning their own home remains unlocked until they are issued with the title deed to their property. Having a title deed gives the homeowner an address and a first entry into the property market. It is an asset to which value could be added over time and it can be left as an inheritance.
Currently it takes around 7 to 8 working days for the registration of a title deed in the deeds office, however, this is not why there is such a backlog with the registration of title deeds.
Botha explains she isn’t aware of any backlogs at deeds offices, but says backlogs rather relate to the housing departments in the various provinces where processes are in place to transfer land to applicants under various government subsidy plans, restitution processes and more.

“The delay is not at the deeds office itself, but in the process to do the paperwork (by the department or its service providers) so that the required documents can be submitted to the deeds office for registration,” she says.

To assist with fast-tracking the registration process, the government is proposing instituting an electronic deeds registration system with the capacity to facilitate the registration of large volumes of deeds. This news has been welcomed by some in the property sector provided that the proper security measures against hacking etc are provided for.

Craig Hutchison, CEO of Engel & Völkers Southern Africa said the industry would welcome an electronic deeds registration system if it leads to efficiency in the time it takes to register a property as well as the security attached to a registration.

“With the current innovations in technology such as blockchain it is the next logical step for the deeds registration process to go the electronic route. I do hope that the overall system would electronically incorporate the clearance figures from municipalities, as this would greatly assist in the time it takes to complete the registration process,” said Hutchison.

Lew Geffen, Chairman of Sotheby’s International Realty in South Africa, suggested a dual system for increased security. “I think that this is a two-edged sword – if done right, it can lead to increased efficiency which will enhance the time factor but, the reverse would be that either the system could be hacked or files deleted by mistake.

“I would only feel happy if there was a dual paper system running at the same time with the actual paper title deed that could be drawn up. In short, a dual system is necessary for security. If the electrification enhances the speed aspect, I’m all for it,” concluded Geffen.

Botha says government must ensure that they have adequate electronic systems, safeguards, back-up, know-how and security of the electronic system in place. Responding to the question of whether she thinks government has the necessary security measures in place, she said it is still to early, but on the face of it, there is every commitment in words that they will put it in place.

In conclusion, she says the bill has been a long way in the making and attempts to align and “compete” with other overseas jurisdictions that has electronic registration systems. “It is a certainty that it will come into operation although not sure when; one hopes that the required back-up systems will be in place by the time it is made effective, Botha says.

The Minister of Rural Development and Land Reform was expected to introduce the Electronic Deeds Registration Systems Bill in the National Assembly during the first quarter of 2018 which didn’t happen, and it is now not clear when the bill will be introduced.

The Mail&Guardian article referred to also reported that according to research done by the Centre for Affordable Housing Finance in Africa for the Estate Agency Affairs Board the low-cost housing sector (homes valued at less than R300 000) accounted for 44% of the total housing sector in 2013. The aggregate value of government-sponsored housing was R200 billion which is 5% of the total R3.8 trillion value of residential property.

THE DOS AND DON’TS OF RENTAL DEPOSITS

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It is fast becoming a common occurrence that landlords manage their own rentals. Websites and Apps have made this possible. However, landlords and tenants alike need to be aware of their rights and responsibilities as they will not have a rental agent assisting them throughout the process.

One of the important aspects of a rental agreement is the deposit. It is important to understand the legal requirements pertaining to rental deposits. These requirements are clearly set out in section 5 of the Rental Housing Act (“RHA”); which governs residential tenant-landlord relationships. Section 5 of the RHA requires that the deposit and interest must be managed as follows:

(c) The landlord may require a tenant, before moving into the dwelling, to pay a deposit which, at the time, may not exceed an amount equivalent to an amount specified in the agreement or otherwise agreed to between the parties.

(d) The landlord must invest the deposit in an interest-bearing account with a financial institution. The landlord must, subject to paragraph (g), pay the tenant interest at the rate applicable to such account which may not be less than the rate applicable to a savings account with that institution. The tenant is entitled to ask the landlord to provide him with written proof of the interest that is accruing on the deposit, and the landlord must provide him with such proof.

The above subsection is subject to paragraph (g) which paragraph states:
(g) On expiration of the lease, the landlord may apply such deposit and interest towards the payment of all amounts for which the tenant is liable under the said lease, including the reasonable cost of repairing damage to the dwelling during the lease period and the cost of replacing lost keys. The balance of the deposit and interest, if any, must be refunded to the tenant by the landlord not later than 14 days of restoration of the dwelling to the landlord.

The Act also requires landlords to provide tenants with a receipt for the deposit, which states the date on which the deposit was paid, the amount, the name of the tenant, the address for which the deposit was paid, the type of dwelling (house, flat, cottage), and the landlord’s name and signature.

Another crucial element pertaining to a rental deposit is the inspection of the property. If an inspection has not been completed, it will severely prejudice the parties’ respective rights to claim against the deposit (in the case of the landlord) or to have the deposit refunded (in the case of the tenant). It is vital for inspections to be undertaken jointly by both landlord and tenant. This inspection must take place before the tenant takes occupation and again when the lease is due to expire. It is always advisable to formulate a list of defects before taking occupation. Both parties can sign off on this list to prevent disputes when the lease expires. This list should be attached to the lease agreement.

There is also an important procedure that must be followed when repaying the deposit. Once the final inspection has been completed, the landlord must determine if there are any damages. If there is no claim for damages and the tenant does not owe rent or additional charges, the landlord must refund the deposit within seven days of the expiry of the lease. If an amount is owed, the landlord must refund the balance (if any) of the deposit within 14 days.

In the event of a tenant refusing to partake in the final inspection, the landlord has 21 days from the expiry of the lease to repair any damages and refund the tenant the balance of the deposit.

Lastly, if a tenanted property is sold, it is the outgoing owner’s responsibility to ensure that the tenants’ deposit is paid over to the new owner. Should the outgoing owner fail to do so, the tenant is entitled to claim the deposit from the new owner.

Check the zoning rights before buying a home for business use

How often do we see those adverts “perfect for home-office” or “ideal for business” on an estate agent’s advertising platform and take it as a given that the said property is in fact ‘ideal for business’? Often these advertising statements are either loosely, incorrectly or deceitfully used in order to make a property more attractive to buyers.

VPJ Veldhuizen, CEO of Gillan and Veldhuizen attorneys, who have a specialist conveyancing and property law division, warns both estate agents and buyers of the danger of not checking if a property you are buying or selling for commercial use is zoned correctly.

Veldhuizen says the Zoning Scheme Regulations laws are aimed at achieving systematic and rational development of land and land use in an area of jurisdiction. The purpose naturally is to achieve a proper balance between competing rights and the interests of residents.

Part III of the Zoning Scheme Regulations serves to determine use zones and the uses to which property in those zones may be put. Regulation 3.11 allows for the practice of a profession or occupation from home. Professionals such as lawyers, doctors, dentists or architects often opt for this type of property as it is most suitable to their commercial needs.

In a recent case in Grahamstown, the court ruled that the owner of a day spa, who was operating her business from her home, was in contravention of the Zoning Scheme Regulations and interdicted her from using her property to trade as a business.

Commenting on the ruling, Veldhuizen says it is reckless for estate agents to advertise such properties without checking with the town planning division on the zoning rights.

“Often estate agents will be told by the seller that the commercial rights are sound and will not do their own due diligence and check the facts. Estate agents and sellers could find themselves in trouble as a complaint could be laid at the Estate Agency Affairs Board (EAAB) and, furthermore, a claim may lie against the seller due to a fraudulent misrepresentation,” he says.

“Re-zoning of a residential property for business use is a specialised service which requires the assistance of a town planner and usually an attorney – the process is not a simple one, nor is it speedy, and business owners could find themselves unable to run their businesses while waiting for re-zoning approval,” says Veldhuizen.

Veldhuizen advises prospective buyers firstly to request the title deed of the property, and secondly to check the zoning rights with the city’s zoning map.

WHAT YOU NEED TO KNOW ABOUT PRE-EMPTIVE RIGHTS

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A pre-emptive right is often referred to as a right of first refusal and is predominantly used in lease agreements. A pre-emptive right may be inserted in a lease agreement where a lessee intends to purchase the property if and when the owner wishes to sell. This may be due to the fact that the owner does not want to sell the property; alternatively, it may be due to the fact that the lessee does not have the funds to purchase the property at present. The owner that grants a pre-emptive right is not restricted from marketing his property as the property can be marketed for sale subject to the lessee being invited to purchase the property.

This pre-emptive right received attention recently in the case of Mokone v Tassos Properties CC and Another. The Constitutional Court had to decide whether a pre-emptive right must be in writing in order to be valid and binding.

In this case, the parties entered into a written lease agreement for an initial period of one year.  The lease agreement gave the lessee a right of pre-emption as she was carrying out her business at the property. After the effluxion of the initial period of one year, the parties orally agreed to extend the lease for another year and a few months. At the end of this extended period, a handwritten entry that read “3/5/06 extend till 31/5/2014 monthly rent R5 500” was made on the front page of the original lease agreement. This was not signed by the lessee.

On 15 July 2009, the owner entered into a deed of sale with Blue Canyon CC (Blue Canyon) in terms of which Blue Canyon purchased the property. The property was transferred to Blue Canyon on 1 March 2010. On 27 January 2012 the lessee notified the previous owner in writing that she was exercising her right of pre-emption and tendered payment in the sum of R55,886.60 which she understood to have been the price for which Blue Canyon had purchased the property. The owner refused to offer the property to her. It argued that the right of pre-emption had not been part of the extended lease and was therefore unenforceable.

With all facts considered, the Constitutional Court made the following ruling:

  1. The granting of a pre-emptive right is not an ‘alienation’ and therefore needs not comply with the “in writing and signed” requirements of the Alienation of Land Act, rendering the provision in the ‘old’ lease still valid. The fact that the handwritten entry, extending the lease and thereby enforcing the right of pre-emption, was invalid for lack of signature by the lessee was thus misconceived as it is not a requirement.
  2. The pre-emptive right was therefore valid and binding. This is a dramatic change to the previous position. In this regard, the majority overruled the judgment of Hirschowitz v Moolman.

The Constitutional Court therefore developed the common law dealing with pre-emptive rights. The common law position was that a right of pre-emption pertaining to the sale of land must comply with the formalities required for the sale of land for it to be enforceable. The Constitutional Court did so by overruling the current common law position and instead held that, since a right of pre-emption is not in itself an agreement for the sale of land, it need not comply with the formalities of the Alienation of Land Act 68 of 1981, which requires the sale agreement for land to be signed by both parties.

Sellers and Landlords: Using an unregistered Estate Agent

logo-bigThis article is compliments of DTS

With media reports suggesting that up to 50,000 agents may be operating without the required Fidelity Fund Certificate (FFC).  The real figure is likely to be a lot less in that many former agents have probably just closed up shop in the last 10 years, but even so there is a chance that the agent who sold or rented out your house for you is (whether inadvertently or by design) unregistered.

Using an unregistered agent …

  1. Only registered estate agents (and those practicing attorneys not required to register as agents) have the legal right to claim remuneration/commission. So an unregistered agent won’t be able to enforce any commission claim against you.
  2. Of course you would then stand to save a great deal of money in commission. The question is, should you take the risk of not checking upfront?  It boils down to this – can you afford to trust your most important asset to someone who may not be registered with a professional body and backed by a Fidelity Fund?

For most of us the best advice is to rather err on the side of caution.  Check for registration, and in any doubt ask your lawyer for help before agreeing to anything.

End notes for agents

Remember that failing to renew your FFC, apart from disentitling you to any form of commission, exposes you also to criminal prosecution if you continue to practice.

You can help the public distinguish you from the scamsters and the bozos by using your EAAB PrivySeal and make sure it is installed correctly on your emails etc – read “Ensure your PrivySeal reflects the current date and time” on the Estate Agency Affairs Board website.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

UNAUTHORISED USE OF SINGLE RESIDENTIAL PROPERTY AS GUESTHOUSE

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Du Toit N.O. and Others v Coenoe 90 CC and Others (1584/2017) [2017] ZAFSHC 126 (2 August 2017)

Can neighbours take the owner of a property – on which a guest house is operated in contravention of municipal zoning regulations – to court for illegal use of the property, or must these zoning provisions be enforced by the local municipality? This is what happened here after the neighbours complained of alleged noise and disturbance caused by the guesthouse operations and guests.

The Judgment can be viewed here.

FACTS:

This dispute relates to the running of a guesthouse in a suburb in Bethlehem, Free State Province. The action was brought by neighbours in the street, after some incidents of noise and disruption were recorded, arising from conduct of guests of the Pandora’s Guest House.

The zoning in the area is “single residential”, which means that it may be used as a dwelling house. With the consent of the municipality’s council, it may otherwise be used for purposes of “place of public worship, place of instruction, instructional building or a place of assembly”, but such consent had not been obtained as at the time of the application. In addition, and as argued by the neighbours, in terms of the Bethlehem Town Planning Scheme, a dwelling house and dwelling unit are defined as “a selfcontained interleading set of rooms used only for the living accommodation and housing of a single family together with such outbuildings as are ordinary used therewith.” The use of such property for purposes as a guesthouse would thus fall outside this definition and would therefore be illegal. Also, according to the title deed, the property may only be used in accordance with the stipulations of the Bethlehem Town Planning Scheme. The use of the property as a guesthouse or place of accommodation was therefore in contravention of the title conditions as well as the Bethlehem Town Planning Scheme, argued the neighbours. They therefore sought an order in terms of which the property owner was interdicted from continuing with the illegal use of the property.

The property owner as well as the guesthouse business manager defended the application and alleged, amongst other things, that: (i) they had been in the process of applying for permission from the municipality; (ii) they were at some point advised that the municipality had no trace of the application and that they had to resubmit the application; (iii) they were in any event given verbal permission by the relevant official at the municipality that they could in the meanwhile proceed with running the guesthouse; and (iv) the nuisance complained of by the neighbours did not occur, or was so infrequent that it did not constitute “special damages” suffered by the neighbours. They also alleged that the neighbours did not have the locus standi to bring the application and that it was for the municipality to enforce its zoning regulations.

The owner and manager of the guesthouse argued that even where a statute prohibits the doing of a particular act affecting the public, no person has the right to action against another merely because he/she has committed the prohibited act. It is incumbent on the party complaining, to allege and prove that the doing of the act prohibited has caused him/her some special damage. This follows from earlier case law that dictated that where there “is ample machinery for enforcing the provisions of an ordinance, it is unnecessary for a member of the public to take the initiative unless he can bring himself within the terms of the general rule, namely that the prohibited act has caused him or her some special damage. In the Patz matter referred to, the so-called “special damage” was described as “some peculiar injury beyond that which he may be supposed to sustain in common with the rest of the Queen’s subjects by an infringement of the law.”

To this the neighbours responded that there was authority in our law that an immediate neighbour to the property where statutorily prohibited conduct occurred, did indeed have the necessary locus standi to enforce compliance with the particular Town Planning Scheme, because the purposes to be pursued in the preparation of the Town Planning Scheme suggest that the scheme was intended to operate, not in the general public interest, but in the interest of the inhabitants of the area covered by the scheme, or at any rate, those inhabitants who would be affected by a particular provision; proof of special damages was not a requirement.

HELD:

  • As the neighbours were owners and/or residents in the same street where the Pandora’s Guest House was situated and where the contravention of the municipal zoning provisions occurred, the owners indeed had the necessary locus standi to ask for the intervention of the Court.
  • The incidents complained of, being disputed, were not in themselves enough for a court to grant an interim interdict, without further evidence being led. It was also relevant, in this context, that the guesthouse had been in operation for quite some time already and the neighbours did not haste with bringing an application to prohibit the continuance of the business.
  • However, the allegation that was dismissive of this matter relates to the apparent permission granted by the municipality, of which no proof was offered to the Court. Whichever way, such informal authority could not substitute the formal authority envisaged by the relevant ordinances and regulations for a departure from the use rights that applied to the property. What is envisaged is that, after the proper procedure had been followed – and in particular after proper notices have been given to the property owners in the vicinity of the guesthouse and publication notices in the local newspaper and after proper consideration thereof – may consent be granted for the special use as a guesthouse. Up until that stage the guesthouse on the property is being run illegally.

The requirements for an interdict were thus met and the Court granted an order in favour of the neighbours.

HISTORICAL DEBT DEBATE PUT TO BED

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Jordaan and Others v City of Tshwane Metropolitan Municipality and Others; City of Tshwane Metropolitan Municipality v New Ventures Consulting and Services (Pty) Limited and Others; Ekurhuleni Metropolitan Municipality v Livanos and Others (CCT283/16, CCT293/16, CCT294/16, CCT283/16) [2017] ZACC 31 (29 August 2017)

Last week the Constitutional Court ruled that new property owners cannot be held liable for historic municipal debts incurred by previous owners. Once ownership is transferred in a Deeds Registry, the local authority cannot demand a new property owner to settle historical debt or suspend municipal services due to outstanding municipal debt.

The Judgment can be viewed here.

FACTS:

This matter argued before the Constitutional Court (CC) earlier this week relates to the meaning of section 118(2) of the Local Government: Municipal Systems Act, 2000 (the Systems Act).

The Gauteng Division: Pretoria (High Court) had declared section 118(3) constitutionally invalid and the constitutional court was asked to confirm this declaration.

Section 118(3) provides that an amount due for municipal services rendered on any property is a charge upon that property and enjoys preference over any mortgage bond registered against the property.

The matter came before the High Court after the City of Tshwane and Ekurhuleni municipalities suspended, or refused to contract for, the supply of municipal services to the properties of the applicants in the matter. This was on the basis that the new owners (the applicants), who all became owners relatively recently, owe the municipalities for municipal services rendered to these properties before transfer. In other words, the municipalities required these new owners to pay historical municipal debts incurred in respect of services rendered to the property before the applicants became owners.

The High Court found section 118(3) constitutionally invalid to the extent only that it has the effect of transferring to new or subsequent owners municipal debts incurred before transfer. The High Court found this to be an arbitrary deprivation of property in terms of section 25 of the Constitution. It said that new owners of property are not liable for municipal debts incurred by previous owners.

HELD:

  • In considering whether to confirm the High Court’s declaration of constitutional invalidity, the CC had to determine whether section 118(3), properly interpreted, in fact meant that when a new owner takes transfer of a property, the property remains burdened with the debts a previous owner incurred. The reason was that if the provision was capable of an interpretation that did not impose constitutionally invalid consequences, the High Court’s declaration of constitutional invalidity would be unnecessary.
  • In the CC, the Tshwane, Ekurhuleni and eThekwini municipalities contended that a proper construction of section 118(3) was that the charge survived transfer. They argued that for municipalities to properly fulfil their constitutional duties of service delivery, in the greater good, they needed extra-ordinary debt collecting measures. This meant burdening new owners with the responsibility for historical debts.
  • The municipalities however conceded that nothing prevented them from enforcing their claims for historical debts against those who incurred them, being the previous owners.
  • The municipalities conceded further that their powers included interdicting any impending transfer to a new owner by obtaining an interdict against the old, indebted owner, until the debts were paid.
  • The CC noted that section 118(3) had to be considered against historical, linguistic and common law factors indicating what the legislature’s intention with the provision was, plus the need to interpret it compatibly with the Bill of Rights.
  • The CC held that on a proper interpretation of section 118(3), the ‘charge against the property’ does not survive transfer, because a mere statutory provision, without more, that a claim for a specified debt is a “charge” upon immovable property does not make that charge transmissible to successors in title of the property. Public formalisation of the charge is required (e.g. registration in the Deeds Registry) so as to give notice of its creation to the world.
  • Section 118 does not require this public formalisation process. In any event, the Bill of Rights prohibits arbitrary deprivation of property, which would happen if debts without historical limit are imposed on a new owner of municipal property.

Therefore, to avoid unjustified arbitrariness in violation of 25(1) of the Bill of Rights, the Court held that section 118(3) must be interpreted so that the charge it imposes does not survive transfer to a new owner. (It was thus not necessary to pronounce on the High Court’s declaration of invalidity.)

Is a landlord is entitled to include the procurement commission paid to a Rental Agent?

A2

Is a landlord entitled to include the procurement commission paid to a Rental Agent as part of the reasonable cancellation penalty claimable under sub-section 14(3)(b) of the Consumer Protection Act No.68 of 2008 (“the CPA”);

OUR ANSWER:

A landlord is not entitled to claim the commission paid to a Rental Agent, for procuring a tenant for its property, in the reasonable cancellation penalty claimable under sub-section 14(3)(b) of the CPA;1

APPLICATION OF THE LAW:
Procurement Commission part of the reasonable cancellation penalty;

Subsection 14(2) (b) (ii) of the CPA provides that a consumer (in this case “the tenant” 2) may cancel a fixed term contract by giving notice in writing to the supplier (in this case “the landlord”3 ), or other recorded manner or form, within 20 business days.

The provisions of subsection 14(2)(b)(ii) of the CPA is subject to the provisions of subsections (3) (a) and (b), which provided that:

  • (3) Upon cancellation of a consumer agreement as contemplated in subsection (1) (b)-
    (a) the consumer remains liable to the supplier for any amounts owed to the supplier in terms of that agreement up to the date of cancellation; and
    (b) the supplier-
  • (i) may impose a reasonable cancellation penalty with respect to any goods supplied, services provided, or discounts granted, to the consumer in contemplation of the agreement enduring for its intended fixed term, if any; and
    (ii) must credit the consumer with any amount that remains the property of the consumer as of the date of cancellation, as prescribed in terms of subsection (4).

The use of the word “may” in subsection 14(3) (b) (i) makes clear that the imposition of the reasonable cancellation penalty is discretionary by the landlord, but the subsection continues to list a closed list of items which form the basis of the penalty.

From the above, it is clear that the landlord may only include any goods supplied, services provided, or discounts granted, to the consumer in consideration of the reasonable cancellation penalty.

The effect of the above is that the landlord would not be able to include damages which do not form part of the above list and, in turn, the landlord would not be able to include the procurement commission paid to the Rental Agent.

In further support of the above conclusion, the Minister, in accordance with subsection 14(4) of the CPA4, promulgated the relevant Regulations5 setting out the factors which must be considered when determining the reasonable penalty. These factors are the following:

  • the amount which the consumer is still liable for to the supplier up to the date of cancellation;
  • the value of the transaction up to cancellation;
  • the value of the goods which will remain in the possession of the consumer after cancellation;
  • the value of the goods that are returned to the supplier;
  • the duration of the consumer agreement as initially agreed;
  • losses suffered or benefits accrued by the consumer as a result of the consumer entering into the consumer agreement;
  • the nature of the goods or services that were reserved or booked;
  • the length of notice of cancellation provided by the consumer;
  • the reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and
  • the general practice of the relevant industry.” (my emphasis added)

The use of the word “and” in sub-regulation 5(2) (i) again indicates that the listed factors are a closed list of factors.

As far as I am able to establish, a procurement commission payable to a Rental Agent by the landlord does not fall within any of the listed factors contained above.

Of interest, the net effect of section 14 of the CPA, by allowing the tenant to lawfully cancel a lease agreement prior to the fixed termination date, seems to be to deprive the landlord of any additional damages claim that it may ordinarily have had against the tenant as result of premature termination6.

9.1 Examples of damages seemingly negated by subsection 14(3)(b)(i) are the following:

9.1.1. Procurement commission paid to a Rental Agent7 by the landlord, and

9.1.2. Any actual damages incurred as a result of a new tenant not being secured in respect of the property, despite the amount of time initially thought to be reasonable for the procurement of a new tenant. I.e. if it were thought that it would take two months to procure a new tenant over the property and the reasonable penalty was premised upon the loss of rental for the two months, and subsequent to the imposition of the reasonable cancellation penalty, a new tenant is only procured six months after cancellation, despite all diligent efforts to procure the tenant within the two-month period. Therefore, there would be an additional four months’ worth of rental not received by the landlord (damages) which the landlord is seemingly precluded from claiming as a result of subsection 14(3)(b)(i) of the CPA.

9.1.2.1. A further example of the above can be found in circumstances where the landlord might not be able to procure a new tenant for the property for the entire duration of fixed-term lease agreement and, in turn, his actual damages ordinarily claimable under breach of contract or delict would have been that of the remainder of the period of the fixed term lease. Despite the above, sub-regulation 5(3), provides that a landlord may not charge a penalty which would have the effect of negating the tenant’s right to cancel the fixed term lease agreement 8 .

9.2 Whilst the provisions of subsection 14(3) do not seem to expressly preclude the landlord claiming any additional damages actually incurred subsequent to the cancellation (in addition to the reasonable cancellation penalty), the introduction of a right of lawful cancellation, prior to the fixed termination date, has the effect of negating any claim which would ordinarily be premised upon a breach of contract or a delict. Put differently, a valid cancellation in terms of subsection 14(3) (b) (i) negates any breach or wrongful action that the premature termination would ordinarily have resulted in, and in turn, negates the cause upon which the damages would be claimable under.9

10 In light of the above, I am of the opinion that a landlord is not entitled to claim the commission paid to a Rental Agent, for procuring a tenant for its property, in the reasonable cancellation penalty claimable under subsection 14(3)(b) of the CPA.

It is arguable that the provisions of sub-section 14(3) (b) of the CPA are susceptible to Constitutional challenge in that the provisions may have the effect of arbitrarily depriving the landlord of its right to property. This has yet to be tested in a court of law. The basis upon which I have formed the above opinion is beyond the scope of this opinion.

Please note that I use the terms ‘consumer’ and ‘tenant’ interchangeably as well as that of ‘supplier’ and ‘landlord’ as they would equate to the same thing in terms of the CPA definitions when applied to the application of a residential lease agreement.

Ibid.

(4) The Minister may, by notice in the Gazette, prescribe-

  • the maximum duration for fixed-term consumer agreements, generally, or for specified categories of such agreements;
    .
  • the manner and form of providing notices to the consumer in terms of subsection (2) (c);
    .
  • the manner, form and basis for determining the reasonableness of credits and charges contemplated in subsection (3); and
  • other incidental matters as required to provide for the proper administration of this section.” (my underlining added)
    .
  • Regulation 293 of 1 April 2011
    .
  • This conclusion is premised upon the assumption that the landlord enjoys a claim that is good in law and is capable of being proven.
    .
  • Bearing in mind that the full commission is normally payable upfront upon the Rental Agent securing a suitable tenant for the property (i.e. concluding a lease agreement).
    .
  • “5(3) Notwithstanding sub-regulation (2) above, the supplier may not charge a charge which would have the effect of negating the consumer’s right to cancel a fixed term consumer agreement as afforded to the consumer by the Act”
    .
  •  It is interesting to note that the provisions of subsection 14(3) (b) (i), are seemingly at odds with that of section 76(2) which states that the provisions of the CPA do not diminish any right of the consumer or the supplier to recover interest or special damages in any case where by law, interest or special damages may be recoverable.