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29 Jul 2022

Website of the Month: Solar Power and the Insurance Risk

With our loadshedding woes unlikely to go anywhere soon, more and more property owners are looking to solar power as an alternative to relying on Eskom.

Just be careful that you don’t fall foul of your insurers in the process. “Rules homeowners should know before installing solar power” on MyBroadband lists four technical regulations to be particularly aware of.

For some practical advice on deciding whether or not to go the solar route in the first place, and if so how, read another MyBroadband article “What you should know before installing solar panels and batteries at your home” here. Keep an eye also on the developing story around proposed new Eskom tariffs and “feed-in” tariffs.

29 Jul 2022

12 Questions to Ask Before You Sign That Deed of Sale

Buying or selling property puts a lot of your money at stake, so it’s no time to take chances.

It’s too late to ask questions after you have signed the deed of sale, so let’s have a look at 12 questions you should be asking before you commit yourself to anything.

Some of these questions you only need to ask as a seller, others only as a buyer. But most of them apply to both of you, and not asking them means blinding yourself to possible risks and problems just when you should be treading most carefully.

“Knowledge is power” and it comes from asking the right questions at the right time!

“Knowledge is power” (old proverb)

Whether you are buying or selling property, remember that it is too late to ask questions after you sign the Deed of Sale (often called a “Sale Agreement” or “Offer to Purchase”).

“Knowledge is power” rings particularly true when it comes to any form of process with significant legal consequences, so here are some of the important questions you should ask upfront, before you commit to anything –

  1. What do all the terms and conditions (particularly the legal-speak bits) in the Deed of Sale mean in practice?
  2. Are my rights adequately protected and my risks minimised by the terms and conditions?
  3. What costs will I have to pay, and when?
  4. Is there anything in the Title Deed or local municipal laws and zoning restrictions that may impact me (as a buyer)?
  5. Do I (as buyer) have a copy of the plans, and have all extensions and alterations been authorised by the local authority?
  6. What defects have been disclosed in the Mandatory Disclosure Form, is a home inspection report worthwhile (and permitted by the deed of sale), what is the legal position around voetstoots clauses and patent and latent defects, and does the Consumer Protection Act apply to this sale?
  7. As a buyer, have I checked for practical issues like local fibre availability, crime levels, security, school feeder zones, fixtures and fittings to remain, work-from-home practicality, buy-to-let possibilities etc?
  8. Are there tenants (or other occupants) in the property, and if so what is their status and what does the deed of sale say about when they will vacate?
  9. When does the buyer take possession and occupation? (Careful here, possession and occupation are two different concepts in law)
  10. What arrangements have been made for date of transfer and payment of occupational interest, rates and taxes, levies, municipal service charges and the like?
  11. In a residential complex: As a buyer, what Rules and Regulations will I be bound to, is there a danger of a special levy being levied, and do the latest financial statements for the Body Corporate or Homeowners Association show a healthy financial situation?
  12. Have I as seller appointed my choice of conveyancer (transferring attorney)?

A final but vital thought here – whether you are buying or selling property, a lot of your money will be at stake here. Get professional advice before committing yourself to anything!

29 Jul 2022

Bodies Corporate: Forcing Access to Units, and Round Robin Resolutions

What happens when a body corporate, in trying to trace a leak while carrying out its duty to properly manage the sectional title scheme, is refused access by a “recalcitrant” owner?

We address that question with reference to a High Court decision which saw the unit owner in question concede access to the body corporate only at the very last minute, and then try to dodge liability for costs by attacking the validity of the body corporate’s “round robin” resolutions.

We end off with a strong warning from the Court to approach the Community Schemes Ombud with such disputes rather than the High Court wherever possible.

Owning your own property comes with a raft of benefits, including a general right to privacy and control over who can access your property and who can’t.

But of course there are exceptions. And apart from the obvious ones, a recent High Court judgment highlights one that is particular to sectional title schemes. It involved a unit owner whose “recalcitrant actions” prevented a body corporate from entering his unit to check for a water leak.

A recalcitrant unit owner blocks access to his unit for a leak test

  • A unit in a sectional title scheme had a damp problem and the neighbouring unit owner initially allowed the body corporate access to his unit to conduct a leak test. No leaks were found.
  • However three months later the damp problem was still unresolved, and this time the neighbour flat out refused access to his unit for a second leak detection test. Requests for access through the managing agents, loss adjusters, leak detection agents and the body corporate’s attorneys all fell on deaf ears.
  • The body corporate applied to the High Court for an urgent order compelling access within 48 hours.
  • Although the neighbour had initially taken the stance that there was no reason why a second inspection should be conducted, he had a last-minute change of mind (after taking legal advice) and accepted that the body corporate is entitled to conduct reasonable inspections from time to time in order to properly manage the common property. He made a settlement offer to this effect to the body corporate, which rejected the offer as it still wanted its costs.
  • Ultimately the Court rejected the neighbour’s attacks on the body corporate’s standing to bring the court application and held the neighbour liable to the body corporate for both the leak detection costs and the legal costs (only on the Ombud’s tariff – more on that below).

Were the body corporate’s round robin resolutions valid?

At issue was the validity of two body corporate resolutions. The full details of the various legal challenges mounted against the resolutions will be of great interest to industry professionals, but for most bodies corporate and unit owners perhaps the most important practical aspect is the attack on the first resolution because it was signed only by two of the five trustees on a round robin basis.

The Court was unimpressed by the neighbour’s argument that the resolution was defective because it was not signed by a majority of trustees and did not record date, place, and time.

“It is common practise” said the Court “what with the onslaught and the lagging effects of [Covid 19] that trustees, shareholders, governing bodies and directors meet virtually and sign documents via round robin.”

“It is … not uncommon for [trustees] to manage the affairs of the body corporate as they deem fit and in the best interests of the owners. Ad hoc and informal meetings are often held in order to deal with incidents without having to call or convene a formal meeting of the trustees.”

Each case will be different

The particular facts in this case clearly played a significant role in the Court’s ultimate decision, and there is no substitute for legal advice specific to each unique set of circumstances.

For example, one of this scheme’s Management Rules specifically caters for a trustee meeting by ‘any other method’ which, said the Court “in my view would encompass and encapsulate the extension of the method of signing resolutions. It would be absurd to consider or apply anything to the contrary.”

Important also was the Court’s finding that “throughout the entire process all the trustees were aware of and informed of what was transpiring”.

Finally, a warning from the Court to always approach the Ombud first

The Court once again confirmed the principle that in a matter such as this the parties should in the first instance approach the CSOS (Community Schemes Ombud Service) rather than the High Court.

Commenting that “I am of the view that this matter should never have been brought before this court as first instance” and “There are no exceptional circumstances pertaining to this matter, but rather issues that fall squarely within the ambit of the Ombud that can and would have been expeditiously dealt with at no cost as the employ of legal representatives is not permitted” the Court awarded legal costs to the body corporate only “on the tariff applicable in respect of proceedings under the ambit of the Ombud”.

Reading between the lines, the body corporate was possibly fortunate that the High Court agreed to hear its application at all. It may well have been saved only by the Court’s expressed displeasure with the neighbour’s “recalcitrant actions” and by his conduct in opposing the application in the first place.

29 Jul 2022

Trusts on Divorce: Are You Stuck with an Ex-Spouse as Trustee?

Divorce can be a costly and traumatic process, and if you and your ex-spouse are still co-trustees of your family trusts afterwards, you may well find the situation untenable.

A recent High Court fight over a “not the Titanic” divorce saw ex-spouses both applying for the removal of the other as trustee. In deciding the case, the Court addressed questions of a trustee’s duties, whether a trustee must be impartial, and the grounds on which it will remove a trustee.

We’ll close with a piece of advice on how to avoid the situation these ex-spouses found themselves in.

“Love is grand. Divorce is a hundred grand.” (Anon)

Trusts may be formed for a variety of reasons, and the purpose and structure of each trust will inform the choice of trustees. When it comes to families aiming to preserve and protect family assets for future generations, often both spouses are appointed not only as beneficiaries, but also as trustees.
That’s a great scenario whilst the marriage prospers, but what happens on divorce? A recent High Court decision addressed one such scenario –

‘Not the Titanic’ – this marriage took six years to sink

In 2014, whilst a marriage was (as the Court put it in a judgment rich in nautical imagery) “still in calm waters”, the spouses formed four trusts. Two were called business trusts, one a property trust, and the fourth a family trust. Naming choices aside, the critical issue is that both spouses had been appointed as trustees.

Regrettably in 2015 the couple “drifted” apart and their marriage “ran aground and settled on the rocky shores of the divorce courts door” with the institution of divorce proceedings. “Unlike the Titanic” observed the Court, the relationship took six years more to be finally laid to rest – the divorce was only granted in 2021.

The ex-spouses apply for each other’s removal as trustee

The ex-husband then applied to the High Court for removal of his ex-wife as trustee of all four trusts on the grounds that she had breached her duties as trustee. Most significantly, he said, she had failed to attend trustee meetings for some five years despite being invited to them.

  • Her main defence was that, in the context of the ongoing divorce proceedings, her ex-husband’s conduct made it impossible for her to attend to her duties as trustee. The Court was unconvinced by her various allegations in this regard, and two aspects in particular bear mention –
  • She complained that being in the minority her decisions were overruled – not an excuse for failing to attend meetings held the Court.
  • Her ex-husband failed to provide a vehicle to enable her to attend meetings – again no excuse, said the Court, there being a provision in the trust deed for virtual meetings.
  • Also counting against her was the fact that she was living in a trust-owned property “but fails to maintain such and pays no rent at all despite receiving the amount of R10 000,00 per month towards property expenses incurred.”
  • Finding that she had not been involved in the trust’s affairs and did nothing to safeguard them, the Court ordered her removal as trustee.

The Court then rejected as being without merit her counterclaim for her ex-husband’s removal as trustee on the grounds of a breach of his duty of trust towards her and a conflict of duty between his private interests and his duties as trustee.

Let’s have a look at the law behind those decisions –

What are a trustee’s duties?

Per the Trust Property Control Act: “A trustee shall in the performance of his/her duties and the exercise of his/her powers, act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another”.

Must a trustee be impartial?

The Court: “It is not required of a trustee to be total[ly] impartial or [to have] no connection with the beneficiaries, but rather that he or she is capable of bringing the necessary independent mind to bear [to] the business of the trust and of deciding what is in the interests of the trust.”

When will a court remove a trustee?

The court has a discretion which it must exercise “with circumspection”.

Per the Court: “The court has to be satisfied that the requested removal will be in the best interest of the trust and the beneficiaries … a mere conflict of interest between trustees and beneficiaries or amongst the trustees [is] insufficient for the removal of a trustee … the overriding question is always whether or not the conduct of the trustee imperils the trust property or its administration”.

There is no requirement to prove bad faith or misconduct, rather “the essential test is whether such disharmony, as in the present matter, imperils the trust estate or its proper administration … It is therefore clear that the court may remove a trustee from office in the event that such removal will be in the interest of the trust and its beneficiaries.” (Emphasis supplied)

In closing…

If you are faced with a divorce scenario, avoid a situation such as the ex-spouses in this matter faced by making sure that all questions around any trusts involved – such as who is to remain as trustee, who is to remain as beneficiary and so on – are resolved as part of the divorce process, and not left for future resolution.

Even better, take professional advice upfront when setting up trusts on how to avoid any future disputes that may arise should your marriage ever sail into stormy waters.

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