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30 Aug 2023

Landlords: You Cannot Cut a Defaulting Tenant’s Water and Electricity

Your tenants stop paying rental, but stubbornly refuse to vacate whilst you must keep on shelling out for bond instalments, rates, repairs and municipal services. The temptation grows – cut off their electricity and water, stop them freeloading off you, get them out so you can re-let to better tenants.

A recent High Court decision demonstrates once again why taking the law into your own hands like that is playing with fire. We’ll end with a note on why your lease should always be in writing, clear and comprehensive.

“A fundamental principle in issue here is that nobody may take the law into their own hands. In order to preserve order and peace in society the court will summarily grant an order for restoration of the status quo where such deprivation has occurred, and it will do so without going into the merits of the dispute.” (Excerpt from judgment below)

Many a landlord is tempted to go the “self-help” route when non-paying tenants refuse to pay up and also refuse to leave. Holding costs mount with not a cent in rental income to show for it, the landlord gets desperate and locks are changed, access codes blocked, electricity and water cut off.

But what if, instead of meekly packing up and vacating, the tenant rushes off to court? As we shall see from our discussion of a recent High Court decision below, now the landlord has a real problem, regardless of whether or not the tenant has lost its legal right of occupation.

You cannot take the law into your own hands

  • A tenant under a verbal lease dating back some 27 years, and in terms of which the rental included payment for water and electricity, stopped paying rental in January 2021.
  • The landlord, citing both failure to pay rental and allegations of unlawful sub-letting and overcrowding, gave the tenant notice of eviction. The tenant refused to vacate, and had her attorney warn the landlord against evicting or cutting services without a court order.
  • When the landlord nevertheless went ahead and cut the electricity and water supplies, claiming this to be a lawful attempt to reduce its losses since the (unpaid) rental included the supply of electricity and water, the tenant asked the High Court to (among other things) grant it a “spoliation order” (an order giving possession back to someone deprived of it without due legal process) restoring services immediately to the premises.
  • The case didn’t go well for the landlord, and it is now back to square one after eighteen months of no rental income, with the added costs of two sets of legal bills to pay. Landlords, said the Court, must pursue the remedies at their disposal to enforce payment of rental in accordance with the law. “Landlords are not entitled to take the law into their own hands.”
  • A vitally important factor to bear in mind here is that at this stage of proceedings a court will not enquire into whether or not the tenant has a legal right to be in possession: “Irrespective of the lawfulness or otherwise of the occupation, a landlord may not disconnect water and electricity without the intervention of a court.” (Emphasis supplied).
  • Relevant to the Court’s decision was the fact that on the facts of this case, supply of services was not a “personal right” between the parties but part of the tenant’s possession of the property: “To my mind, the supply of electricity and water is not merely contractual, but an incident of the possession of the property.” That can be a fine distinction, so specific legal advice is essential if you are a landlord (or a tenant) embroiled in a dispute of this nature.
  • The end result – the landlord was ordered to restore electricity and water immediately to the tenant and must pay the tenant’s legal costs.

Lessons for landlords

  1. You are playing with fire if you take matters into your own hands when dealing with problematic tenants. No matter how intransigent they may be and no matter how unlawful their occupation, the only safe route is to follow the appropriate legal channels with specific legal advice and assistance –

    a. All a tenant needs to prove to get a spoliation order against you (with costs) is that they were in “peaceful and undisturbed” possession, and that you unlawfully deprived them of that possession. Nothing more.

    b. And that’s by no means your only risk – you could also be charged criminally in terms of the Rental Housing Act, which provides that anyone who “unlawfully locks out a tenant or shuts off the utilities to the rental housing property” faces a fine and/or two years’ imprisonment.

  2. Secondly, it is clear that one of the landlord’s practical problems in this matter was the fact that (amazingly after 27 years) it had no written lease in place. That made it difficult to prove the terms of the lease, the parties’ rights and duties, duration, grounds for termination, and notice periods. Although a verbal lease is valid in law (for now anyway; change is in the wind on that one), a properly drawn written lease is vital to protect your rights!
30 Aug 2023

How to Protect Your Children’s Inheritances from Ending Up in the Guardian’s Fund

A critical element in ensuring our children’s welfare after we are gone is of course providing for them financially.

But that involves more than just drawing a will. Your will must be structured correctly, and an important aspect of that is to protect minor children’s inheritances until they turn eighteen. Otherwise, those inheritances might well end up in the government-run Guardian’s Fund. We’ll explain why that’s not a great idea at all, and we’ll suggest a way to avoid that risk.

“Live each day as if it were your last… because one day, you’ll be right.” (Benny Hill)

It’s always tempting to procrastinate about decisions that force us to address the inevitability of our own mortality. But we have no choice when it comes to protecting our loved ones after we are gone, because to protect them a will (“Last Will and Testament”) is not a nice-to-have, it’s a necessity. And it’s urgent. No one – young or old, healthy or ill, wealthy or of limited means – can guarantee that they’ll be alive tomorrow.

How to structure your will? One potential risk area when it comes to your children’s inheritances is the Guardian’s Fund. The Fund serves a vital purpose, but it has featured regularly in the media over the past few years for all the wrong reasons – ongoing losses to cybercriminals and fraudsters (the last reported loss was R17m), SIU (Special Investigating Unit) probes into allegations of misconduct and corruption, and the like.

How is that relevant to you? Well, if you have minor children, it confirms once again that your will should be professionally drawn to avoid any chance of your children’s money ending up in the Guardian’s Fund.

Dying “intestate” means trusting a State-run entity with your children’s money

Without a will, you die “intestate”, which means that the law makes your decisions for you. You have lost the right to choose a trusted executor, you have lost the right to specify how your estate is distributed to your loved ones, you have lost the right to nominate a guardian for your children. Perhaps most importantly of all, you have lost the right to protect your minor children’s inheritances as you see fit.

That’s a problem because, unless you leave a will structured to provide a mechanism for looking after your children’s inheritances until they reach majority (i.e. turn 18), those moneys might well end up in the Guardian’s Fund.

What is the Guardian’s Fund?

  • The thought behind the Guardian’s Fund is a laudable one – it was created to hold and protect money (including inheritances) for minors and other people who are legally incapable of managing their own affairs. For those vulnerable people whose money it safeguards, it performs a most valuable service.
  • All money is invested with the PIC (Public Investment Commission) and earns interest at a rate set from time to time by the Minister of Finance.
  • The Fund is audited annually and is managed by the Master of the High Court (actually by one of several Masters around the country, each of whom runs a separate Fund), without charge.
  • A child’s guardian can approach the local Master to pay over accrued interest (and in need up to R250,000 of the capital) for maintenance needs.

So, what’s the problem?

Knowing that your children’s money is to be held in an audited, managed-for-free fund administered by independent and senior government officials is certainly a lot less alarming than many of the possible alternatives, but it is by no means ideal –

  • The media reports of hacking, theft, fraud, police probes into allegations of misconduct and corruption etc that we mentioned above hardly inspire confidence in the Fund’s ability to manage and protect your children’s inheritances, even if only one or two “bad egg” employees are involved.
  • Your children’s guardian must jump through all sorts of administrative hoops to draw money for maintenance, education, clothing, medical costs and so on. The delays and dysfunction which reportedly still plague many Master’s Offices won’t help.
  • As mentioned above, Fund monies are paid a government-fixed rate of interest, currently 4.25% p.a. That’s both below inflation and an unattractive alternative to the earnings potentially available to discretionary funds.
  • When your children turn eighteen, they are again faced with red tape and bureaucracy before they can access whatever is left of their money.

The best protection?

The good news is that you can easily protect your vulnerable minor children from all those risks and negatives. These are the two essentials –

  1. Leave a valid will, professionally drawn to protect all your loved ones and in particular those most vulnerable such as your minor children, and
  2. Make sure that your will nominates a guardian for your children and includes a mechanism to protect their inheritances so as to avoid any risk of their money having to be paid into the Guardian’s Fund.

The most commonly advised protection mechanism to avoid that unhappy scenario is a trust – either an existing trust (if fit for purpose), or a new “testamentary trust” which will come into existence when you die. The alternative is to provide for the children’s guardians to administer their inheritances for them, but a trust is almost always the better, safer, and more practical option. Either way, make sure that your will’s provisions correctly and clearly set out your wishes in that regard.

Bear in mind that anything to do with trusts of any kind calls for specific professional advice – there are complex legal, financial and tax considerations involved.

Bottom line – have your attorney draw your will (or update your existing will) to ensure that your children’s inheritances are properly protected and don’t end up in the Guardian’s Fund!

14 Aug 2023

Role-players in a basic property transfer

You are a first-time property buyer and after months of research, property viewings, rejected offers and saving up a substantial deposit, you have finally found the perfect little townhouse. You put in an offer under the asking price and the owners accepted. Happy Days!

The property is exactly what you were looking, situated in a secure gated community, easy access to shops and your office and plenty of excellent schools in the area for your growing family. You look forward to putting down roots and to building up a property portfolio.
However, you have never gone through the property transfer process, and find yourself very nervous at the prospect. From articles read on internet, you have gathered that it is a long and technical process, attended to by very specialised attorneys. And by the word specialised, you can already see your bank balance sinking.

You have heard horror stories from friends and colleagues about lengthy delays and property transfers taking years to be finalised. Just the thought of the process makes you break out in a terrible sweat, and you feel like you are in for some sleepless nights.
So, here’s to you, the first time (and hopefully a second time, third time, fourth time … you know where I am going with this…) property buyer, a summary of the key role players involved in a basic property transaction.

1. Bond cancellation attorney: If a Seller has a mortgage bond registered against the property; the bond must be cancelled before the property can be registered in a buyer’s name. It is advisable for a Seller to give their bank notice of their intention to cancel the bond. Once the property is sold, the transfer attorneys will request bond cancellation figures from a Seller’s Bank. As the transfer progress, the transfer attorneys will arrange for bank guarantees to be issued by the bond attorneys. The Guarantee will ensure that a Seller’s bond is settled as per the bank’s cancellation requirements. The bond is cancelled simultaneously with the registration of the property transfer.

If a Seller does not have a bond against the property, the transfer attorneys will simply arrange for the full bond proceeds to be paid into their Trust Account. The nett sales proceeds will be paid to the Seller on date of registration.

2. Bond Attorney: Upon the buyer’s acceptance of a Bank’s written quotation, the latter shall send the bond instruction to a bond attorney. Bond attorneys serves on the bank’s panel for the registration of mortgage bonds. They act on behalf of the bank and must ensure that the bank’s interests are protected and that bond conditions are met. The bond attorneys will notify the buyer of their receipt of the bond instruction and will request FICA and other supporting documents from the buyer. Upon receipt of same, bond documents will be drafted and checked. The bond attorneys will contact the buyers to arrange an appointment for signing of the bond documents. After signing the bond documents, the Guarantees will be issued to the transfer attorney, securing payment of either the full- or balance of the purchase price.

If a buyer pays the purchase price in cash, the funds will be paid into the transfer attorneys’ Trust Account. The funds can be invested upon the buyer’s written request to do so. Interest earned minus administrative costs will stand to the credit of the buyer and shall be paid to
the buyer on date of registration of transfer. For a cash property transaction, no bond attorneys are involved.

3. Rates clearance Certificate / Municipality: When a property is sold, a rates clearance certificate must be obtained from the Municipality in whose area the property is situated. A rates clearance certificate is required by law every time a property is transferred. The clearance certificate confirms that the seller’s financial obligations in respect of the Municipality has been met or that provision has been made therefor. By obtaining rates clearance figures and the resulting clearance certificate, the seller ensures that enough are available for the validity of the clearance certificate and to make provision for any unforeseen delays. The rates clearance process ensures that arrear municipal accounts (if applicable) are dealt with and that the property is transferred to the buyer free from a Seller’s possible municipal debt.

The rates clearance process notifies the Municipality that the property was sold and provides them with the contact particulars of the buyer. This simplifies the process when the buyer opens the municipal account after the property transfer has been registered.

4. Transfer Duty Receipt / South African Revenue Service: Transfer duty is a type of tax payable to the South African Revenue Service when immoveable property is purchased. The amount of transfer duty payable, is determined by the purchase price or the value of the property. As of 1 March 2023, and as announced by the Minister of Finance on 22 February 2023, the first R 1 100 000 (One Million One Hundred Thousand Rand) is charged at R NIL. Should transfer duty be payable, the buyer must ensure that payment is made upon request therefor from the transfer attorneys to ensure that the transfer duty receipt is obtained without delay.

Certain transactions do not attract transfer duty but does attract VAT. VAT is paid when a Seller is registered for VAT. VAT can be charged at the Standard Rate or it can be zero-rated. Where property is acquired as a result of a Divorce Settlement or inheritance, the transaction can be exempt from Transfer duty. These types of transactions are slightly more complicated and not dealt with in this article.

There are additional role players involved depending on the type of transaction or type of property. For example, where a property forms part of a deceased estate, the Master of the High Court will be involved in some way or the other. Sometimes restrictive conditions are imposed on a property and stipulated in the Title Deed. An example of this where a property cannot be transferred without a Homeowner’s Association Consent. The transfer attorneys will obtain the required consent which will be lodged at the Deeds Office as proof that the restrictive condition has been complied with. If the property sold is a sectional title property, a Levy Clearance certificate must be obtained in addition to a rates clearance certificate.

The property transfer process is a unique one, and no two transfers are the same. The best way to prepare yourself is to do some basic research, to query any uncertainties which may occur during the transfer process with the transfer attorneys and to ask them for regular reports to keep you updated with the process.

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