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29 Apr 2022

Beware The Badly Worded Bond Clause!

Whether buying or selling a property you are no doubt dealing with a high-value asset, and a reminder to have your sale agreement professionally drawn or checked, before you sign anything, comes from a recent High Court decision.

A seller with cold feet was unable to escape from an unfavourable sale agreement even after the buyer had failed to obtain a bond four years down the line.

The problem was the particular wording of the “bond clause”. That’s a clause that has tripped up many a seller and many a buyer in the past, and we analyse why things went badly for the seller (and well for the buyer) in this matter.

“The terms of the contract are the decisive criterion by which any potential expiry of a deadline has to be determined” (extract from the judgment below)

A recent High Court decision provides yet another reminder to have your property sale agreement drawn (or at least checked) by a professional. Before you sign anything!
As is the case in many such property sale disputes, it started with one of the parties – in this case the seller – looking for a way to escape the agreement after getting cold feet.

The seller tries to escape the sale

  • The sale agreement in this case contained a bond clause, a very common “suspensive” clause giving the buyer an agreed period of time within which to obtain a bond, failing which the agreement would come to an end automatically.
  • Bond clauses commonly specify a 30-day period from the date of the sale agreement, making it clear when exactly the period expires.
  • The problem in this case was that the bond clause was worded somewhat differently, no doubt because of an issue with unlawful occupants on the property.
  • This clause gave the buyer 30 days, not from the date of the sale, but from the date on which she was given “sole beneficial occupation”.
  • For a variety of reasons the transfer was delayed for four years, and the seller – now keen to get out of the sale because she had decided that the agreed price was too low – argued that the agreement had fallen away automatically. The bond clause period, she said, expired 30 days after the buyer took possession and occupation (the date of the sale) and the buyer’s failure to get her bond within that period put an end to the sale.
  • The buyer on the other hand argued that the 30 days never started running at all, because even four years later there were still unlawful occupants on the property (the sale agreement authorised her to evict the occupants at her own cost, and she hadn’t done so).
  • The Court held that the sale agreement distinguished between “possession” and “occupation” – which had both been given to the buyer immediately on signature of the sale agreement – and “sole beneficial occupation”. In the context of this agreement, held the Court, “sole beneficial occupation” meant that the buyer, “to the exclusion of all others, was to enjoy the benefit of occupation of the property pending transfer.”
  • Although the buyer had indeed been given “possession” and “occupation” four years ago, she had never been given “sole beneficial occupation”. The 30-day period had never started running and the seller is bound by the sale agreement.

For want of a well-drawn bond clause…

Badly drawn bond clauses have been the downfall of many a seller and many a buyer in the past. In this case the seller is not only stuck with an unsatisfactory sale price, she also loses four years’ worth of income because the buyer is not liable for occupational interest until sole beneficial occupation is given. Plus of course the seller must now pay all the legal costs.

29 Apr 2022

Property Owners: Your Rates Could Quadruple for Unauthorised Land Use

One of your unavoidable ongoing expenses as a landowner is the monthly rates bill levied by your local municipality. As high as you think your rates may be now, they could get a lot worse if you use your property for something illegal or unauthorised. That will open the door to your municipality to impose a “penalty rate” on you.

We illustrate with reference to a case in which Johannesburg property owners faced a quadrupled rates bill after they let out two rooms in their house to students without municipal authority. The Supreme Court of Appeal upheld that increase, and whilst every municipality will have its own rates and land use policies, the principle is there – unlawful land use is likely to get expensive!

“The said penalty … was imposed due to the fact that the property was being used in contradiction to its zoning” (extract from judgment below)

Municipalities all have the right (and the duty) to regulate land use in their areas, and amongst other sanctions, properties that are used unlawfully or without authorisation can be subjected to rates and charges on a penalty tariff.
These penalties can be steep, and the Supreme Court of Appeal (SCA) has now held that they can be imposed without the municipality first having to change the property’s category on its valuation roll to “illegal or unauthorised” use. All it has to prove is that it acted in terms of a lawful rates policy.

The house whose rates bill quadrupled

  • A house valued (on the municipality’s valuation roll) at R1,650,000 had its monthly rates bill quadrupled from R898-01 to R3,592-05.
  • The municipality took this step after notifying the owners of their “wrongful and unlawful use of the property as a student commune, in
    contravention of the town planning scheme and zoning thereof without the necessary authorisation.” Authorisation was necessary, said the municipality, because the commune was a “commercial concern”.
  • This after the owners had let out two of their five bedrooms to “students or young professionals” and had continued to do so despite two years’ worth of notices from the municipality to terminate the unlawful use, and despite a High Court interdict against the continued contravention.
  • The legal challenge mounted by the property owners against the penalties was based on a series of legal arguments, and the Court’s analysis thereof (on appeal from the High Court) will be of great interest to property professionals.
  • For property owners however, the practical punchline is that the SCA upheld the penalty charges, and the owners must pay them.

If your neighbour breaches land use laws…

That punchline is also important for neighbours, because in practice unlawful land usage of this nature will often only come to a municipality’s notice when a concerned neighbour blows the whistle.

So, if you think your neighbour is about to open up an unauthorised office, commercial or other non-permitted operation next door, and if you can’t settle the matter peaceably over a cup of neighbourly coffee, call in professional help immediately. Just the threat of a quadrupled rates bill could be enough to make the problem go away.

Different strokes for different municipalities

Property owner or neighbour, find out what your local authority’s land use and rates policies are. This particular case related to the City of Johannesburg Metropolitan Municipality, and your local municipality will have its own land use bye-laws, which could well be less or more restrictive than Joburg’s.

Check the zoning before you buy property

Perhaps the property owners in this case planned all along to let out rooms, and perhaps that extra income is what put this particular house within their financial reach. If so, the mistake they made was in not checking the local zoning upfront.

Knowing the zoning and building restrictions in your chosen area is also vital if you want to avoid unpleasant surprises, like a new neighbour opening up a guesthouse or building a triple story which cuts off your sea views. Ask your lawyer to check for you before you offer.

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