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29 Aug 2024

PCC & FICA – Public Compliance Communication relating to beneficial ownership and the application of FICA

On 8 August 2024 the FIC published a guideline on how to determine beneficial ownership of a legal entity. It is CRITICAL that all property professionals take note of these guidelines. The document consists of 54 pages and is guaranteed to aid those with insomnia! Being The Conveyancers, we have gone to the trouble of preparing an executive summary for you. Here is a link to the guideline itself, for those with insomnia – or an insatiable lust for knowledge.

We have also updated our agent RMCP template and PTY/CC questionnaire template. These are available on our website click here

ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNER – SUMMARY OF THE FIC’S Public Compliance Guideline 59 dated 8 August 2024.

The bottom line is this: an accountable institution must have evidence that it took REASONABLE steps to address this.

How does one do this?

ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNER (BO’s) OF LEGAL PERSONS (PTY LTD and CCs).

STEP 1: Identify the natural person(s) who has/have a controlling ownership interest in the Legal Person – this mainly comes down to:

  • The natural person/s who has/have influence over the decisions and operations, be it directly or indirectly, as a result of the person’s OWNERSHIP INTEREST (Shareholding).
  • According to the FIC, this could mean anyone holding as little 5% shareholding.
  • There are however cases where persons who hold less than 5% ownership interest can be regarded as a BO, for example, where voting rights are given to such persons giving them substantial control over the decisions of a legal person.OR

Where a person holding less than 5% ownership interest is one of the high-risk persons identified in the FIC ACT, such as a foreign politically exposed person, high risk prominent influential person etc.

STEP 2: Identify the natural person(s) who exercises control THROUGH OTHER MEANS

(This step only needs to be taken where doubt exists, or where no natural person could be established as having controlling ownership interest.)

OTHER MEANS of exercising effective control could entail the following, namely: Power of Attorney, nominee shareholders, nominee Directors, delegations of authority, court orders, the ability or powers to exercise effective control and make influential decisions through formal or informal contracts or arrangements; formal or informal nominee arrangements, usufructs, etc. This will have to be investigated based on the structure and circumstances of each of the legal persons in question when or if this step is necessary in establishing who the BO’s are.
STEP 3: Identify the natural person(s) who exercise direct CONTROL over the MANAGEMENT of the Legal Person

Step 3 is only necessary in exceptional circumstances where the 1st and 2nd Steps were inconclusive, exhausted and where evidence is on file that the BO’s cannot be identified.

Examples of natural person(s) who exercise control over management are:

  • Executive officer;
  • Non-executive director;
  • Independent non-exécutive director, etc.It is not meant to include management at all levels, but rather persons who have effective control to influence key decisions made by a legal person.SCOPE: Each accountable institution must use its own discretion in deciding what info and documentation to request in verifying the information in accordance with their RMCP and risk-based approach. With regards to the responsibility of each accountable institution, the bottom line is that there must be “reasonable steps” taken to verify the BO’s identity.Examples:
  • Insist on a letter from the entity’s accountant/auditor confirming who the shareholders AND beneficial owners are.
  • Insist on a CIPC printout showing who the beneficial owners are and use this as comparison, as it will set out the shareholding. All existing legal entities had until 31 May 2024 to file this with the CIPC so no existing entity has an excuse.ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNERS (BO’s) OF TRUSTS
  • The accountable institution must identify ALL THE NATURAL PERSONS associated with a Trust.
  • This includes the Founder/Donor, Settlors, Trustees and determinable Beneficiaries as all the aforementioned persons can exercise control over the decisions or operations of a trust.
  • Circumstances do exist where external persons have the ability to exercise undue influence or obtain a benefit from a trust without being legally associated with the trust – accountable institutions are to monitor such transactions to determine such influence.
  • Where ANY of the person’s linked to a trust is a LEGAL PERSON, the accountable institution must IDENTIFY the authorized person acting on behalf of the Legal Person as well as the BO’s of the Legal Person through the PROCESS OF ELIMINATION.ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNERS (BO’s) OF PARTNERSHIPS
  • The accountable institution must identify ALL THE NATURAL PERSONS associated with a Partnership, this includes every partner regardless of each partner’s separate ownership interest or percentage of ownership it may have.
  • The same applies here where a partner is a Legal Person, an authorized representative or the legal person itself. The BO’s must be identified through the PROCESS OF ELIMINATION.Accountable Institutions must ALWAYS VERIFY the self-declared beneficial ownership information obtained by the client against a THIRD-PARTY SOURCE such as the auditor.Conclusion:
  • Where the Accountable Institution is not able to identify and verify a BO, they MAY NOT CONDUCT A TRANSACTION and must consider filing a suspicious transaction report.
  • TFS Searches must be done on ALL BO’s and depending on the outcome, a report may have to be filed.
  • If any BO happens to be a sanctioned individual, we recommend that you first seek permission from the FIC before you proceed with the transaction.The Conveyancing Process simplified for you by Miltons Matsemela – The Conveyancers
02 Jul 2024

Zoom – Can You Sign an Affidavit Over Zoom?

We’ve all grumbled at having to go and find a commissioner of oaths in a police station or bank just to attest an affidavit, and in these days of online meetings and electronic signature and storage of documents, it seems positively archaic that we can’t do everything remotely.

But, as the relevant Regulations are currently worded, face-to-face physical commissioning seems to remain the only guaranteed way of ensuring that your affidavit will be accepted in court. We’ll discuss why that is with reference to three recent High Court decisions with different facts and differing outcomes.

“These technological developments would have seemed far-fetched and science fiction a brief few years ago.” (Extract from judgment below)

It’s an important question – the invalidity of an affidavit could sink even the strongest case, so it’s vital to get this right. Of course, it’s always tempting to cut corners where you can on the commissioning side, and perhaps you urgently need to sign an affidavit but are far from a commissioner of oaths or perhaps for some reason you just can’t visit a commissioner physically.

That of course became a commonplace scenario during the Covid-19 restrictions on personal contact and the pandemic accelerated the need for our laws to evolve in step with all the new “science fiction made real” technologies enabling meetings to be held virtually, documents to be signed electronically, and secure online handling and storage of information generally.

Whilst legislation and our courts have made important strides in this regard, some areas of uncertainty remain. One of them is the question of whether or not affidavits can be commissioned remotely.

The problem – what does “in the presence of” mean?

For an affidavit to be valid, the relevant Regulations require that it be signed “in the presence of” a commissioner of oaths. And as much as we might think that we are for all practical purposes “in the presence of” everyone else in a virtual meeting or family chat session, it’s not clear yet to what extent virtual presence will be considered sufficient compliance with the Regulations.

Let’s look at three recent High Court decisions with differing outcomes –

  1. Case 1: An affidavit validly commissioned by Zoom from Italy: A commissioner of oaths in South Africa commissioned affidavits in a Zoom video call with deponents in Italy. The Court allowed the affidavits to stand, agreeing with previous judicial comments that “…Courts must adapt to the requirements of the modernities within which we operate and upon which we adjudicate…” and concluding that there had been “substantial compliance” with the requirements of the Regulations. However, the Court also cautioned against the idea that courts can “willy nilly accept non-compliance with acts and regulations.”
  2. Case 2: An application for a general declaration refused: A global publishing company asked the High Court for an order declaring that “in the presence of” is to be broadly interpreted to include the administration of an oath or affirmation “by means of live electronic communication, consisting of simultaneous audio and visual components”. The Court dismissed the application, distinguishing this case from the one above and commenting that, although the argument that “the object of the Act and the Regulations can be achieved by virtual means is tempting”, it could not ignore “the clear meaning of the words in the Regulations” and “It is not for a Court to impose its view of what would be sensible or businesslike where the wording of the document is clear”.
  3. Case 3: Courts have a discretion only if normal commissioning is impossible: A bank’s property valuation affidavits had been signed electronically in the absence of the commissioner of oaths. The Court agreed that a court has a discretion to accept such affidavits “if it finds that that there has been substantial compliance with the regulations” – but only where physical commissioning is not possible. Thus, in a previous matter, a court had exercised its discretion to allow an affidavit’s remote commissioning as a result of “the impossibility of the oath being administered normally because of the Covid restrictions against personal contact”. That, said the Court, “does not mean that a party may deliberately set out to achieve substantial compliance with such regulation rather than comply with its requirements.” In other words, you can’t elect to commission remotely just because it suits you. The valuator’s affidavits were rejected.

Err on the side of caution

There are some important grey areas there, and clearly remote commissioning will not be allowed as a matter of course. You’ll have to justify it.

So, regardless of how inconvenient it may be, unless and until new legislation (or perhaps a definitive ruling from the Supreme Court of Appeal) brings the Regulation’s wording up to speed with technology, the only way to be sure that a court will accept your affidavit as valid is to err on the side of caution and visit a commissioner of oaths physically whenever possible.

02 Jul 2024

Scams – Home Buyer loses R5.5m in Phishing Scam – Don’t Make the Same Mistake!

It’s an exciting time, buying a property. But don’t let your guard down – cybercriminals love the lucrative pickings on offer from property transactions, and they never sleep!

We’ll discuss the recent Supreme Court of Appeal case of a widow who, in trying to pay over the purchase price of a house, lost her R5.5m when her email system was hacked and she fell victim to a textbook email scam. Why did the SCA rule against her? How should she have protected herself? We’ll address those questions and share 5 steps you should take immediately to avoid falling into the same trap.

“[The buyer] must in the circumstances take responsibility for her failure to protect herself against a known risk” (extract from judgment below)

Cybercriminals absolutely love targeting property transactions because they provide the perfect mix of large money deposits, heavy reliance on email communication from trusted parties like attorneys, banks and estate agencies, and deadlines creating a sense of urgency and lack of attention to detail.

Let’s consider just one recent example of a high-value BEC (Business Email Compromise) attack on the purchase of a house.

A textbook case costs a pensioner R5.5m

  • A woman describing herself as “an elderly divorced pensioner without the knowledge, experience or resources to protect herself against sophisticated cybercrime of which she had no knowledge or experience” purchased a house for R6m.
  • She paid a R500k deposit to the estate agents, and then after an exchange of emails with her appointed conveyancers, she paid the balance of R5.5m into what she believed to be the conveyancing firm’s account.
  • In fact, her email system had been hacked and the criminals were intercepting and altering both her incoming and outgoing emails. In a typically sophisticated operation, they ensured that the mails and attachments looked genuine, deceived the buyer into paying the R5.5m into their fraudulent account, and then, via a further chain of back-and-forth emails, delayed detection of the fraud for long enough to give them time to withdraw the funds and disappear.
  • The buyer sued the conveyancers for her R5.5m loss, arguing that they had a legal duty to protect her from the BEC. The High Court agreed and ordered the firm to pay her back, but that was reversed on appeal to the SCA (Supreme Court of Appeal).
  • Critically, the SCA held that in cases of “pure economic loss”, creditors have no general legal duty to protect their debtors from the interception of payments, and there is no inference of “wrongfulness”. So, it is up to the client in such a claim to prove not only negligence by the business, but also wrongfulness.
  • In this particular case the Court found that the buyer had “ample means to protect herself”. It was not the conveyancers but the compromise of her email account that enabled the criminals to intercept her emails. She could have paid by bank guarantee but chose to pay in cash. Moreover, she had been warned by the estate agency about this very risk and had heeded the warning and verified the agency’s banking details before paying in the deposit. She could, and should, have taken the same precaution before paying the conveyancers.
  • Bottom line – the buyer “must in the circumstances take responsibility for her failure to protect herself against a known risk” and must bear her R5.5m loss herself.

How to protect yourself – 5 steps to take immediately

  1. Whether you are business or client, protect your systems from being hacked. Constantly update all your software and anti-virus/anti-malware programs. Use 2FA (two factor authentication) on your accounts. If it is your email system that is hacked and causes the loss, you have a problem! As a business you could also be in trouble for breaching POPIA (the Protection of Personal Information Act).
  2. Constantly warn everyone about the risks of email interception and fraud and remind them never to accept any change of banking details notifications without checking.
  3. Protect all attachments from alteration (including PDFs!).
  4. Before making deposits, phone to confirm all banking details you are given via email. Make sure to phone a number you have confirmed to be genuine – criminals regularly provide fake contact numbers in intercepted emails and documents.
  5. Carefully check all email addresses as scammers often make subtle changes – in this case for example the buyer failed to notice that the word “africa” in an email had been changed to “afirca”. Other common dodges are changing numerals or adding/removing hyphens.

Above all, treat all email communications as inherently unsafe and don’t let your guard down for a second!

31 May 2024

Trusts – Contracting with Trusts – Is a Majority Resolution Valid?

Many of us will either be involved in trusts as trustees or will contract with them as outsiders at one time or another – often in the context of a property transaction.

Beware! As a recent Supreme Court of Appeal decision starkly reminds us, trusts are strange creatures, and you need to tread carefully in dealing with them. We’ll look at questions of whether trustees must always act jointly and unanimously or whether it is enough for a majority of them to sign resolutions and documents. Our punchline is a strong warning note on what to look for when contracting with any trust.

“Externally, trustees cannot disagree. In the external sphere the Trust functions by virtue of its resolutions, which have to be supported by the full complement of the Trust body.” (Extract from judgment below)

A recent Supreme Court of Appeal (SCA) judgment provides yet another reminder to tread carefully when contracting with trusts. Your agreements with a trust will be invalid and unenforceable if the trustees acting for the trust weren’t properly authorised to bind the trust.

But must trustee resolutions always be taken unanimously by all of the appointed trustees to be valid, or will a majority decision ever suffice? The SCA addressed that question in the context of a trust seeking to escape from a suretyship which had not been unanimously agreed to and signed by all three trustees acting jointly –

When a majority trustee decision isn’t enough

  • A creditor sued a property trust for payment under a suretyship given to it by the trust. The trust countered that the suretyship was invalid because the resolution authorising trustees to sign the suretyship was not authorised and signed by all three trustees, but only by two of them.
  • Indeed, only two of the trustees had attended the trustee meeting at which the suretyship was discussed. The third trustee had not been at the meeting and did not sign either the resolution authorising the suretyship to be signed or the actual suretyship.
  • The meeting itself was in order, in that the trust deed provided for two trustees to constitute a quorum for meetings. But the deed also provided that a unanimous decision was required for the trust “to conduct business on behalf of and for the benefit of the Trust, and to employ trust property in such business”.
  • In any event, as the Court put it: “…trustees must act jointly in taking decisions and resolutions for the benefit of the Trust and beneficiaries thereof, unless a specific majority clause provides otherwise” and “Even when the trust deed provides for a majority decision, the resolutions must be signed by all the trustees. (Emphasis added)
  • As it was neatly put in an earlier High Court decision: “A majority of trustees in office may form a quorum internally at a trust meeting, but can still not externally bind a trust by acting together … It is not the majority vote, but rather the resolution by the entire complement which binds a trust estate. A trust operates on resolutions and not votes.” (Emphasis added)
  • As only two of the three trustees had acted for the trust in this case, the Court held both the resolution and the suretyship to be invalid and unenforceable.

So, what does that mean for you in practice when contracting with a trust?

Internal trust matters: Internal matters (such as using trust income for the benefit of beneficiaries or administering trust assets) “may be debated and put to a vote, thereafter the voice of the majority will prevail.”

External trust matters: As an outsider however your dealings with the trust will relate to external trust matters (transactions relating to trust property with the outside world such as buying and selling property, signing suretyships and the like) and here unanimity is essential for the trust to be bound. Even when the trust deed allows majority decisions, all the trustees must still participate in the decision-making and all of them must sign a resolution to make it valid externally. Make sure therefore that all trustees signing for the trust have the power to do so per the trust deed and by a valid, unanimous resolution.

31 May 2024

Mandates – Why an Oral Estate Agency Mandate Isn’t Worth the Paper It’s Written On

As Samuel Goldwyn humorously put it: “A verbal contract isn’t worth the paper it’s written on.”
To illustrate, we analyse a recent High Court fight over an agent’s claim to have been given a verbal mandate to find a development property for a buyer. The agent was found to have fulfilled her mandate, and the Court awarded her commission even though the sale agreement had been cancelled before transfer. The developer is left with a R450k (plus costs) bill, and no property to show for it. How and why did the agent win her case?
“A verbal contract isn’t worth the paper it’s written on” (Samuel Goldwyn)
Perhaps you are a seller marketing your property through an estate agency, or a buyer asking an agent to find you one, or a landlord employing an agent to let out your property. Whatever the transaction involved, make sure that the agency mandate is in writing.
The problem is that, because we have a human tendency to hear only what we want to hear, the parties to any verbal agreement can, quite genuinely, each remember the terms of their agreement quite differently. Even worse, if one party is determined to cheat the other, it’s a lot easier to challenge a verbal agreement than a written one.
Bottom line – oral contracts invite misunderstanding, conflict and protracted litigation, and for that very reason few agents will accept a mandate without requiring your signature on a written agreement.
But not always – let’s consider a recent High Court fight over a R450,000 commission claim.

Buyer must pay R450k for a cancelled sale

 

  • A property developer had previously employed an estate agent to source development property for it. No written mandate was ever signed.
  • The agent, relying on what she said was a verbal mandate to find a further development property, introduced the developer to a property which it decided to buy. An agreement of sale, including a clause confirming that the agent was entitled to R450,000 in commission, was signed by both buyer and seller. The agent had thus fulfilled her mandate and was the effective cause of the sale, the developer being willing and able to buy the property. In the ordinary course the agent would then have been entitled to her commission on fulfillment of all suspensive conditions (“conditions precedent”).
  • However, when the developer cancelled the sale, it refused to pay the agent her commission, denying firstly that any mandate had been given, and secondly arguing that in any event commission was only payable against actual transfer of the property from the seller to the buyer.
  • Long story short, the Court dismissed the developer’s attempts to convince it that there was no mandate at all, or that the suspensive conditions had not been fulfilled, or that the mandate included either an implied or a “tacit” term to the effect that commission would only be payable against transfer.
  • The developer was ordered to pay the agent’s commission and is left R450k (and legal costs) down, with absolutely nothing to show for it.
The lessons…
That is of course not only an expensive lesson for the developer, it’s also a clear wake-up call to anyone and everyone entering into a property deal of any sort with the involvement of an estate agent to ensure that you –
  1. Sign a written, clear mandateBoth parties could have saved themselves all the aggravation, delay and cost of litigation had they only entered into a written mandate agreement with clear, simple terms accurately recording the terms and conditions they had agreed upon.

    As we said above, most agencies insist on written mandates anyway, but make sure you aren’t the exception!

  2. Specify that commission is payable against transferMost sale agreements will provide that commission is earned on performance of the agent’s mandate and fulfilment of any suspensive or resolutive conditions (bond clauses and the like).

    But when is the commission actually payable to the agency? As it is normally deducted from the buyer’s deposit held in trust, both seller and buyer should check that it will not be paid out before transfer (or, in the event of a breach or cancellation of the sale, on that date). And whilst most standard mandates and sale agreements will provide exactly that, you must check because every agreement will be different. If there is a clause allowing payment of commission before transfer, don’t accept it without specific legal advice.

    From an agent’s perspective, further clauses are of course essential to protect your commission payment in the event that the sale is frustrated or doesn’t proceed – normally the agreement is that a defaulting party (buyer or seller) is liable to pay the full commission on default.

Most importantly of all, sign nothing property-related without asking us to check it over for you first!
07 May 2024

Rising Damp and Failed Waterproofing: How to Sue the Sellers

All sellers and buyers should understand both what constitutes a “defect” in a house for sale, and the extent and limits of a seller’s duty to disclose defects to prospective buyers.

A recent High Court award of damages, to a buyer who only became aware of substantial damp problems in the house after taking transfer, discusses the effect of a standard “voetstoots” clause on a buyer’s claim for redress. What did the buyer have to prove? How did the mandatory “property condition report” impact on the seller’s liability? We’ll look at how the Court addressed those questions …

“[w]here a seller recklessly tells a half-truth or knows the facts but does not reveal them because he or she has not bothered to consider their significance, this may also amount to fraud” … “a willful abstention from establishing the true facts does not constitute a lack of knowledge” (Extracts from the judgment below)

Consider this all-too-common scenario: You buy your dream house and happily move in. Only then do you discover that the house has major defects, which were never disclosed to you by the seller. You demand the seller pays the repair costs but the seller refuses. So off to court you go, claiming either damages or a reduction in the purchase price.

What must you prove to win your case? Let’s consider a recent High Court decision addressing just that question.

Concealing the damp with paint and Polyfilla

  • The buyer of a house only became aware of substantial damp problems in the ceilings and walls after taking transfer and when planning renovations. The damp was caused both by rising damp, and by water flowing down into the walls due to failed waterproofing.
  • The sellers (a divorced couple) refused to pay for the repairs (costing just under R245k) and the buyer sued them for either damages or a reduction in the purchase price.
  • Highly relevant – as we shall see below – was the fact that twice in the year of sale the ex-wife (living alone in the house and tasked with selling it after the divorce) had called in contractors to repaint and carry out “cosmetic repairs” – extensive repairs judging by the drum of paint and 24kg of Polyfilla involved.

What the buyer must prove

The matter ended up in the High Court, which considered what the buyer must prove to succeed in a claim of this nature. –

  • Defects: That there were defects in the property at the time of the sale which “affected the use and value of the property”. The buyer had no difficulty in proving that the damp problems qualified as defects for this purpose.
  • Latent, not patent: That the damp was a latent defect, not “obvious or patent” to the buyer. That’s important because latent defects are defects that “would not have been visible or discoverable upon inspection by the ordinary purchaser” – so if the damp was a “patent” defect, the buyer should have picked it up. The buyer in this case was able to convince the Court that the damp was not discoverable by her at the time of sale because all traces of it had been concealed by the remedial work referred to above.
  • Fraud: That the damp as a latent defect was not covered by the voetstoots clause, a standard clause in deeds of sale which specifies that the property is sold “as is” and without any warranty. The effect of such a clause is that the buyer agrees to carry the risk of latent defects, but only if there was no fraud on the part of the seller. So the buyer had to establish fraud, by proving two things — That the sellers were aware of the damp and its consequences.

    – That they deliberately concealed it with the intention to defraud.

Proving fraud – how relevant is the “property condition report”?

Fraud, said the Court, “is not lightly imputed [but] it may nevertheless be inferred when such inference is supported by the objective facts revealed by the evidence.” The following factors were central to the Court’s conclusion that both sellers had acted with fraudulent intent –

  • The sellers’ protestations that either they were unaware of the damp problems or had not intended to fraudulently conceal them found no favour with the Court on the facts – which included the extent and nature of the re-painting carried out.
  • The ex-wife’s claim to have been ignorant of the damp issues, despite the extent and nature of the “cosmetic repairs” she carried out, was rejected. As the Court put it: “At best for her, she remained willfully ignorant of the underlying cause of the issues in the paintwork; she could not honestly have believed that the core issue had been remediated.”
  • The ex-husband for his part admitted that he had known of damp issues in two rooms because of bubbling paint and a smell of damp, with the Court concluding that: “He appears to have taken no steps to ascertain how extensive or serious those problems were – but a willful abstention from establishing the true facts does not constitute a lack of knowledge.”
  • Perhaps most damningly of all, both the ex-husband and the ex-wife had signed the mandatory Property Condition Report (“defects disclosure form”), in which they specifically stated that there were no latent defects in the property, including “dampness in walls/ floors”.

The Court held that the buyer had proved fraud by both sellers and confirmed her award of R244,855 in damages for the repairs.

28 Mar 2024

Occupancy Certificates – Why Do You Need an Occupancy Certificate Before You Buy?

Imagine what a disaster it would be if, after you have bought your new dream house and moved the family in, you are told you must vacate immediately because no “occupancy certificate” was ever issued.

How can that be? What is an occupancy certificate? Is it vital to have one? Is there a general duty on a seller to provide you with one? We address those questions in the context of a recent High Court decision which confirms that it’s up to you to protect yourself in that regard! We’ll show you how.

“…there is no obligation on the [seller] to obtain an occupancy certificate and to furnish it to the [buyers]” (Extract from judgment below)

Imagine this – you buy your dream home, pay for it, take transfer into your name, and move in. But then disaster strikes. The Municipality tells you no occupancy certificate was ever issued for the property and that you must vacate. Now.

Both buyers and sellers should take note of a recent High Court decision highlighting the importance to buyers of getting an occupation certificate from the seller before putting in any offer or insisting on a clause in the sale agreement requiring the seller to produce one before transfer.

What is an occupancy certificate and why is it vital to have one?

It’s confirmation by your local authority that the building complies with the approved building plans and that all other requirements have been met.

Without it, it is unlawful for anyone to occupy the building. You can be ordered to vacate, but that’s not all – other risks include your insurers declining any claims you make, municipal penalties for non-compliance, perhaps threats of a demolition order. You and your family could even be in physical danger if the non-compliance results in electrical hazards, fire risks, structural failure, or the like.

Although the municipality can “grant permission in writing to use the building before the issue of the certificate of occupancy”, that will be a temporary permission only, probably only for a short period and with stringent conditions.

The demolition threat and the court application

  • Having bought a property from the owner/builder’s deceased estate, the buyers took transfer and happily moved in.
  • To their horror, when a municipal building inspector was called in to inspect the building for defects, it came to light that although building plans had been approved 30 years ago, no occupancy certificate had ever been issued.
  • The municipality “suggested” that the buyers vacate immediately and threatened to demolish the building, citing a number of outstanding certificates – completion certificates for the structural and storm water, an electrical compliance certificate, a plumbers’ compliance certificate, a glazing certificate, a gas installation certificate, and a soil poisoning certificate.
  • The buyers demanded that the executor of the deceased estate obtain an occupancy certificate for them, and when she refused, they asked the High Court to order her to do so.
  • The buyers pointed out that, per a standard clause in their sale agreement, the seller was obliged to give them “vacant possession”. That, they argued, meant “lawful possession” requiring the seller to provide them with an occupancy certificate before transfer.
  • The seller (executor) replied that she was not bound by the sale or any other agreement to provide a certificate, that there is no general obligation on a seller to furnish a purchaser of an immovable property with an occupation certificate, that the buyers had been given vacant (“free and undisturbed”) possession, and that anyway the buyers as the new owners should now be the ones to apply for the certificate.

The seller wins, and a warning for buyers

The Court refused to order the seller to provide an occupancy certificate, finding that despite the fact that occupancy of the house was unlawful without the certificate, the buyers had “…clearly received vacant possession. [They] received what they purchased. They had no concerns about what they were purchasing and there is no indication in the papers that they enquired about the occupancy certificate at the time of the sale or prior to taking transfer. They have alternatives available to them … and failed to explain why, as the owner of the property, they have not taken any of the steps available to them.”

In regard to the voetstoots (“sold as is” clause) the Court quoted from a Supreme Court of Appeal decision: “…the absence of the statutory approvals for building alterations, or the other authorisations that render the property compliant with prescribed building standards … does not render the property unfit for the purpose for which it was purchased.”

Perhaps the outcome would be different if a buyer is able to prove that the seller knew of the lack of an occupancy certificate and concealed that, or if a buyer sues for cancellation of the sale agreement or for damages. But that is speculation.

What is clear is this: The occupancy certificate is a vital document and as a buyer you should insist that the seller gives it to you before you make an offer, or that at least a term in the sale agreement obliges the seller to give it to you before transfer.

19 Feb 2024

ASBESTOS ROOFS

Asbestos is a topic that keeps coming up in conversation lately and there still appears to be a huge misperception about the Asbestos Abatement Regulations that were promulgated in 2020.

Here is a LINK to a set of explanatory notes from the Department of Labour, which clearly spells out that these regulations only apply to places of employment. These do not refer to ordinary residential properties unless they are used as places of work (domestic workers, could be included).

These regulations provide that where a property that also serves as a workplace, does have asbestos, then an inventory must be prepared, and the asbestos must be checked by a certified inspector and dealt with according to his/her recommendations. A compliance certificate must then also be obtained. These compliance certificates are not needed for a transfer and must please not be confused with the compliance certificates we are generally accustomed to (electrical; fencing; water; beetle and gas). These are merely to record that the required inventory has been registered etc.

Some asbestos treatment companies have created rumours saying that all houses must now have a COC for asbestos and/or that asbestos roofing is now illegal. This is false and misleading.

The bottom line is that asbestos is allowed, and it need not be pointed out as being a defect. Having an asbestos roof is not a defect. All that matters now is that if a property has asbestos and it is used as a workplace of any kind, then the property owner must comply with the regulations. The certificate that is obtained is not needed by the conveyancer either to attend to the transfer.

Here are some links to articles we have previously circulated on the topic of asbestos, should you wish to gain a better understanding of the topic.

ASBESTOS ROOFING – “TO BE, OR NOT TO BE?”
SELLING A HOUSE WITH AN ASBESTOS ROOF IS THIS STILL ALLOWED?
DEADLINE ALERT – ASBESTOS REGULATIONS – WHAT DOES THIS REALLY MEAN FOR PROPERTY PRACTITIONERS AND SELLERS/LANDLORDS?

15 Feb 2024

Landlords’ vs Tenants – “Pay Extra for My Generator or I’ll Cut You Off During Loadshedding”. Can a Landlord Do That?

Many landlords have installed “alternative power sources”, like generators, inverters, solar panels and so on, to help their tenants survive the ongoing loadshedding.

A recent High Court fight between a mall owner and an upmarket gym over the gym’s access to the landlord’s generator arose when “out of the blue” the landlord demanded that the tenant start paying an additional “diesel recovery levy”. The gym refused to pay, the landlord cut off its access to the generator, and the tenant rushed to court asking for an urgent reconnection order. We discuss the outcome, and the Court’s reasons for its decision.

Loadshedding continues to plague us and our businesses, and when tenants are connected during power cuts to their landlord’s alternative power source – such as a generator – it is essential for both parties to understand their respective rights.

Lights out for a shopping mall gym

  • An upmarket gym had relied for years on its shopping mall landlord’s generator to get through loadshedding, without having to pay extra for it.
  • “Out of the blue” the landlord demanded a monthly “diesel recovery levy”, and a dispute arose over whether it was entitled to do so or whether the cost was already covered by an existing “all-inclusive monthly fee for all expenses related to the lease of the premises”.
  • The parties agreed to refer that dispute to arbitration but then the landlord decided to flex its muscles by cutting off the gym’s connection to the generator.
  • The gym obtained an urgent reconnection order from the High Court. Although that is only a temporary solution for the tenant (it must still win the arbitration or pay the extra levy), the Court’s decision is a significant one in that it has confirmed the principle that access to an alternative source of power does fall under the protection of the “spoliation” principle.

“Spoliation” – no one can take the law into their own hands

No one can go the self-help route and take the law into their own hands by removing property from someone else without a court order. Anyone deprived of possession like that can urgently obtain a “spoliation” order forcing an immediate return to it of the property.

At this stage, the court won’t be interested in who has the legal right to the property – all it will look at is whether –

  1. The possessor was in “peaceful and undisturbed possession” and
  2. It was unlawfully deprived of that possession.

That’s straightforward with possession of a “corporeal” thing like a car, or a house, or a parrot. But when it comes to an “incorporeal” like access to an alternative energy source, things become more complicated. Now you must prove that you had “quasi-possession” of the power supply.

As complicated as that may sound, what’s important on a practical level for both landlords and tenants is that this judgment has confirmed in principle that access to an alternative power supply such as a generator falls under the law’s protection as much as possession of a corporeal “thing”.

The bottom line

Whether or not a tenant has an enforceable right to its landlord’s alternative power supply – and if so whether it must pay extra for it – will depend on the wording of the lease.

But the landlord cannot just cut off an existing power supply without following legal process.

15 Feb 2024

Partnerships – What is a “Universal Partnership”?

Valentine’s Day is upon us, and it’s a great opportunity for couples in a life partnership to review their legal and financial relationships. Not having in place proper legal documentation to define those relationships puts both partners, and their families, at risk of dispute, heartache and financial distress.

We discuss both the risks and the remedies with reference to a bitter family fight in the High Court over whether or not a couple, one of whom had died without making a will, had formed a “universal partnership” during their 26 years of life together.

“Marriage is the chief cause of divorce” (Groucho Marx)

This Valentine’s Day, think about the legal aspects of your romantic relationship. They’re a lot less exciting than the traditional declarations of love backed up by chocolates and flowers, but they’re just as important in ensuring a strong, committed life partnership in which both of you is clear as to how your respective financial and legal responsibilities are defined.

A recent High Court decision once again puts a spotlight on the fact that “life partner” couples are at ongoing legal and financial risk unless they sign both cohabitation agreements and updated wills.

The problem – there’s no such thing as a “common law marriage”

Our law does not recognise the concept of a “common law marriage”. Either you are formally married, or you miss out on many of the legal protections available to married couples. The result – if you split, or when (not if) one of you dies, the less financially strong life partner could well be prejudiced, perhaps even left destitute after many decades of life together.

The solution – a cohabitation agreement with updated wills

Luckily these two documents give both of you quick and effective protection –

  1. A cohabitation agreement tailored to meet your particular circumstances and needs. It should at the minimum cover questions such as whose name assets and liabilities will be in, who will cover what expenses, how you will split your financial affairs if you part ways, your undertakings to each other regarding financial support and maintenance, parental rights and duties regarding children and so on.
  2. A will (“Last Will and Testament”). You could make two separate wills or one joint one but either way make sure to comply with all formalities to ensure validity and set out your respective wishes clearly and unambiguously. A vital (and all-too-often overlooked) aspect here is to diarise regular reviews of your will/s in case they need updating to take account of ongoing life and financial changes.Let’s turn now to a “second prize” alternative – proving a “universal partnership”.

What is a “universal partnership” and how do you prove it?

If for whatever reason you don’t have both a cohabitation agreement and wills in place, you may still have a “get out of jail free” card in the form of a universal partnership.
These extracts from the High Court judgment (formatting supplied) set out what you’ll need to prove –

  • “A universal partnership is an agreement between individuals to share their property and their gains and losses. The partnership need not be formed for a commercial purpose.
  • It regularly comes into existence, whether expressly or tacitly, between unmarried cohabitees, although cohabitation is not essential.
  • The requirements for the existence of a universal partnership are the same as those for partnership in general.
  • Where a tacit universal partnership is alleged, a court will confirm its existence if the conduct of the parties is such that it is more probable than not that such a partnership agreement had been reached between them.
  • A partnership exists if “each of the parties brings something into the partnership or binds themselves to bring something into it, whether it be money, or labour, or skill”; if the agreement is struck for “the joint benefit of both parties”; and if the object of the partnership is material gain.
  • The question is … whether, on evaluating those facts as a whole, the probable inference is that there was a universal partnership.”

A bitter family fight shows why it’s second prize

  • In the case in question, life partners had for 26 years shared all their assets “akin to a marriage in community of property”. Importantly, they had shared the “benefits and burdens” of a number of property development ventures. They had, said the Court, each brought something into the partnership, her contribution being mostly financial, his (as an architect) mostly in “sweat equity”. Their partnership was not just a life partnership, it “was also plainly at least partly about material gain.”
  • Their relationship was terminated by the death of the one partner, who died “intestate” (leaving no will in place) after developing dementia. The other partner had suggested they each execute wills leaving everything to each other and he had done so, but she had declined as she was unwilling to contemplate her mortality.
  • Her daughter as executor of her mother’s deceased estate refused to recognise any claim by the surviving life partner. Quarrels and evictions followed, with ultimately a hard-fought High Court battle.
  • The Court found that the survivor had on the facts succeeded in proving the existence of a universal partnership. Critically, it held that the parties’ partnership “was also plainly at least partly about material gain” and that the surviving partner should anyway inherit half of the deceased’s estate in terms of a principle previously accepted by our courts that “partners in a permanent life partnership in which the partners have undertaken reciprocal duties of support are entitled to inherit as spouses would.”
  • Accordingly, the survivor gets a full half of the deceased partner’s entire estate, whilst the daughter is removed as executor and ordered her to pay the legal costs.

The winner is…

The bottom line however is that the element of “material gain” which so clearly applied to the joint acquisition of assets in this particular life partnership will be absent (or at least extremely difficult to prove) in many other cohabitation agreements.

First prize must therefore always be to avoid the risks, delay, stress and cost of trying to prove the existence of a universal partnership and/or reciprocal duties of support by having in place both a comprehensive cohabitation agreement and a joint will or reciprocal wills.

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