Review of Directors’ Decisions

A4_bIn the previous article regarding “informal” decisions by directors, we considered what acts or decisions may be considered as informal decisions by directors. The precedents established by the courts were discussed, which precedents are considered regarding the enforce-ability of these “consents” and the validity of informal decisions by directors. Directors of homeowners’ associations have been forewarned to be diligent and carefully choose their words in conversations with other members, especially when these members paint pictures of proposed building projects. And more specifically, directors are to keep their opinion for the debate of the properly tabled application, especially concerning additions and alterations to the property of the member. The rules of the homeowners’ association regarding aesthetics and other such requirements should be paramount in the decision-making process.

But what if the member did comply with the prescribed formal requirements and the board of directors did not approve the request? Where does that leave the directors and the member?

The courts will not interfere with the decision made by a homeowners’ association save on recognised grounds of judicial review as applied to voluntary associations whose members have bound themselves to its rules, which include the conferring of decision–making functions of elected body of directors (Turner vs Jockey Club of South Africa 1974 (3) SA; SA Medical & Dental Council vs McLoughlin 1948 (2) SA 355 (AD) and Marlin vs Durban Turf Club & Others 1942 AD 112).

 The grounds of judicial review are restricted to whether the tribunal was competent to make the decision and whether it complied with the requirements of procedural and substantive fairness which effectively is limited to whether the procedure or decision taken was tainted by irregularity or illegality – unfairness per se is not enough (Bel Porto School Governing Body & Others vs Premier, Western Cape & Another 2002 (3) SA).

 The traditional common law grounds of review of a voluntary association tribunal include illegality, procedural unfairness and irrationality. Prior to the constitutional dispensation, the ambit of the voluntary associations had been settled in case law. The Promotion of Administrative Justice Act, Act 3 of 2000 (PAJA) applies to administrative action on the part of an organ of state or a juristic person exercising a public power or performing a public function.  Accordingly, directors of homeowners’ associations do not fall within the scope of the PAJA.  Section 39(2) of the Constitution on the other hand, requires a court, when developing the common law, to promote the spirit, purport and objectives of the Bill of Rights.

The judgement in the matter of Theron and Andere vs Ring van Wellington van die NG Sending Kerk in Suid-Afrika en Andere 1976 (2) SA 1 (A) has already confirmed that a reasonableness test based on rationality was a competent basis under the common law powers to review decisions of voluntary associations. The court will therefore consider a ground of review that included unreasonableness in the sense that the decision could not reasonably be supported by evidence. There appears to be no difference in principle for present purposes between common law grounds of review in relation to voluntary associations and the grounds of review provided for by PAJA.

Various case laws confirm that a court will only interfere with the decision of the directors of a homeowners’ association where that body has failed to comply with the natural justice requirements of legality, procedural fairness and reasonableness, the latter in the sense of a rational connection existing between the facts presented and the considerations that were applied in reaching the conclusion.

If the Memorandum of Incorporation or rules of the homeowners’ association prescribe a formal procedure to follow for permission or consent to be obtained regarding any alteration or other building projects, any member who did not submit a formal request for the building project, even if it is only the erection of a fence and did not include the detail of the fence to be erected for approval prior to the erection thereof, then the fence is “illegal”.

The board of directors of any homeowners’ association has an obligation to enforce the Memorandum of Association and/or the Memorandum of Incorporation and the rules of the association, and should do so in the interests of the whole of the estate and all its members.

Any building project which has been embarked on or even finished without proper procedures followed by the homeowner, and which does not comply with the aesthetical requirements of the homeowners’ association as is prescribed in the rules, are “illegal” in that the member erected the building without formally complying with the requirements of the homeowners’ association.   Directors should carefully consider each and every such building project within the jurisdiction of the association and, in the best interest of all members of the association, invite such members affected for an informal, amicable discussion regarding the removal or further alteration of the building or building project, even if it is only a fence and the time periods to do so. It is important to note that such members should still be obliged to comply with the formal requirements as prescribed by the association. These applications can be tabled in terms of the formal procedures prescribed with consideration to formally consent thereto retrospectively by the board of directors on condition that all prescriptive requirements have been fully met, even if it is merely aesthetically.

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.

So when am I Authorized to act as Trustee?

A3_bThe Trust Property Control Act 57 of 1988 defines a trustee as meaning “any person (including the founder of the trust) who acts as a trustee by virtue of an authorisation under Section 6.” In the matter of Lupacchini vs Minister of Safety and Security (16/2010) [2010], ZASCA 108   (17 September 2010), the position of a trustee acting without the authorisation of the Master was considered, where that “trustee” authorised legal proceedings.

A trust that is established by a trust deed is not a legal person – it is a legal relationship of a special kind that is described by the authors of Honoré’s South African Law of Trusts[1] as “a legal institution in which a person, the trustee, subject to public supervision, holds or administers property separately from his or her own, for the benefit of another person or persons or for the furtherance of a charitable or other purpose.”

 Although the trust property vests in each trustee individually they have to act jointly unless the deed of trust provides otherwise. Their individual interests do not waive the requirement that they have to act jointly.

The consequence of the validity of an act that has taken place in conflict with a statutory prohibition has been considered in numerous cases, and depends on a proper construction of the particular legislation and the intention of the legislature.

The whole scheme of the act is to provide a manner in which the Master can supervise trustees in the proper administration of trusts, and their knowledge of Article 6(1) is essential to such purpose, and by placing a bar on trustees from acting as such until authorised by the Master, the Act endeavours to ensure that trustees can only act as such if they comply with the Act.

In the Kropman NO vs Nysschen[2] it was held that a court has the discretion to retrospectively validate acts of a trustee that are performed without the requisite authority. This proposition was in later cases rejected persuasively.

“Locus standi in iudicio” on the other hand is something else and does not depend on the authority to act but depends on whether the litigant is regarded by the court as having a sufficiently close interest in the litigation.

Although section 6(1) suspends a trustee’s power to act in that capacity he or she could have a sufficiently well-defined and close interest in the administration of the trust to have locus standi.

The essence of the prohibitory phrase in section 6(1), “… shall act in that capacity only if authorised thereto …”, must be interpreted to mean that a trustee may not, prior to the Masters authorisation, acquire rights for, or contractually incur liabilities on behalf of, the trust and is not intended to regulate questions of locus standi in iudicio.’

Legal proceedings commenced by unauthorised trustees and commercial transactions binding the trust are invalid and void.

[1] 5th ed (2002) by Edwin Cameron with Marius de Waal, Basil Wunsh and Peter Solomon para 1.

[2] 1999 (2) SA 567 (T) at 576F.

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.

Are there limitations on Ownership Rights?

A2_bIt is a recognized principle of property law that ownership does not confer absolute and unlimited entitlement on the owner, but that various limitations exist in the interest of the community and for the benefit of other people.

The most important limitation on the owner in the interest of the community as a whole is the payment of taxes to the state in respect of certain movable and immovable property. In the case of immovable property several measures make land available to a larger section of the community, which implies that the restitution of land rights and the provision of land will require measures for expropriation. Furthermore, a number of provisions deal with environmental conservation and physical planning which limit the owner’s entitlement in the interest of the community. Limiting measures in the case of moveable property prohibit the use of such property to the detriment of the community, for instance motor vehicles, fire-arms and dependence-producing substances.

There are also measures which limit the owner’s entitlement, not in the interest of the community, but in the interest of other individuals. The best known example in this case is neighbour law, which implies that the owner may not use his land in such a way that it constitutes an unreasonable burden on his neighbours. The criterion of reasonableness determines that, in these circumstances, the owner of immovable property may exercise his entitlements within reasonable bounds, and that the neighbouring owner or occupier must tolerate the owner’s exercise of his entitlements within reasonable bounds.

Other examples of the application of the criterion of reasonableness in the case of neighbor law are the obligation to lateral and surface support, measures dealing with encroachments, the mutual obligation regarding the natural flow of water and the elimination of danger.

Other people besides the owner may acquire entitlements (for instance use rights) in respect of the moveable or immovable property of the owner. Holders of limited real rights acquire entitlements in respect of the asset, which limits the owner’s ownership (dominium) as they burden the property. It is therefore enforceable against the owner and his successors in title. Certain creditors’ rights may also result in people acquiring entitlements in respect of the owner’s property. These rights are, however, only enforceable against the owner personally and do not burden the property as such, therefore it is not enforceable against successors in title.

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.

Tenant and Landlord – What are your Rights and Obligations?

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Sandra would like to move into her own place but like many people she is unsure what a lease is and what responsibilities it will place on her. A lease agreement is defined as the agreement entered into between the tenant and the landlord for the leasing of a property. The lease agreement regulates the rights and obligations of both parties and protects the parties mutually.

The Rental Housing Act No 50/1999, as amended by the Rental Housing Amendment Act No 43/2007, regulates the relationship between a tenant and a landlord, even before commencement of the lease agreement.

The Act determines that the landlord may not discriminate against the prospective tenant, his family or friends, including on grounds of race, sex, pregnancy or marital status. This applies as early as placing an ad for the leasing of a property or even during negotiations between prospective tenants and the landlord.

The lease itself does not have to be in writing to be binding on both parties and should a tenant request that an oral agreement be reduced to writing, the landlord may not refuse the request.

A written lease agreement must contain the following information:

  1. The names of the parties, as well as their South African addresses;
  2. A description of the property being leased;
  3. The monthly rental payable and reasonable increases;
  4. The deposit payable, if applicable;
  5. The period for which the property will be leased. Should the agreement not mention a specific period of lease, the agreement must indicate the notice period required should one of the parties wish to terminate the contract;
  6. Any other consideration, besides the monthly rent, which may be payable;
  7. A complete list of defects that are present at the time that the parties entered into the lease agreement.

If the property is situated in a complex that has its own rules, a copy of those rules should be attached to the lease agreement. The landlord must ensure that he/she gives effect to the provisions contained in the lease agreement.

As mentioned, mutual rights and obligations are created for both parties in the lease agreement. These rights and obligations include the following:

Tenant’s rights:

  1. To jointly inspect the property before the tenant moves in and record any defects or damage to the property. This provision protects the tenant at the end of the lease period to ensure that the tenant will not be held liable for damages that already existed at the time the lease was entered into.
  2. During the lease period, the tenant has the right to privacy and the tenant’s property, home or person may not be searched.
  3. If the landlord fails to inspect the property upon expiry of the lease, the tenant can assume that the landlord acknowledges that no damage has been done to the property, and that the full deposit, together with interest thereon, must be refunded to the tenant.

Landlord’s rights:

  1. To request a deposit, in the amount agreed upon between the parties, before the tenant takes occupation of the property.
  2. To receive timeous payment of the monthly rent and also to collect overdue payments, after a court order or order from a Tribunal has been obtained.
  3. To receive the property in a good condition upon termination of the lease.
  4. To jointly inspect the property within three days before the lease expires and determine if any damage has been done to the property for which the tenant should be held liable.
  5. To recover the cost of repairs, should the property be damaged, from the tenant.
  6. Should the tenant not give access to the property for a joint inspection before expiry of the lease, the landlord should inspect the property within seven days after expiry of the lease and utilise the deposit for necessary repairs. The balance of the deposit, if any, should be refunded to the tenant within twenty-one days.

Landlord’s obligations:

  1. To invest the tenant’s deposit in an interest-bearing account at a financial institution, with an interest rate equal to or higher than the interest rate at that time earned on a savings account at such financial institution. The tenant may request proof that the deposit is invested and the landlord may not withhold such evidence.
  2. To furnish the tenant with a receipt for each payment made by the tenant, which receipt should clearly describe the property, be dated, and indicate in full what the payment is made for (e.g. Rent for the month of February 2013, or deposit).
  3. To utilise the deposit to repair any damage to the property or to recover arrears rent after expiry of the lease, and to pay the balance together with interest earned thereon to the tenant within fourteen days after the expiry of the lease.
  4. To keep all receipts in respect of repairs done to the property which were deducted from the tenant’s deposit, and make such receipts available to the tenant.
  5. To refund the tenant’s deposit together with interest thereon, within seven days of the expiry of the lease, in the event that no repairs are to be made to the property.

Should a dispute arise between the parties, the Rental Housing Tribunal in the area where the dispute arises, can be contacted.

It is very important for both the tenant and the landlord to make sure that their intentions are clearly defined in the lease and that they understand the terms of the lease before the lease agreement is signed. All provisions, responsibilities and obligations should also be clearly set out in the agreement. It is advisable to seek legal advice if any uncertainties arise, before the lease agreement is signed.

References:

Rental Housing Act No 50/1999, as amended by Rental Housing Amendment Act No 43/2007

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.