SUSPENSIVE CONDITIONS IN A DEED OF SALE: KNOW YOUR OBLIGATIONS

A3_BImagine signing a deed of sale for your dream house and later discovering that the contract lapsed because you obtained bond approval one day too late. The situation could be worsened if the Seller receives a better offer for the house and accepts that better offer.

If a deed of sale is made subject to a suspensive condition it will lapse if such condition is not fulfilled in time. This was confirmed in the case of Marais v Kovacs Investments 724 (Pty) Ltd [2009] 1 All SA 174 (C) (hereinafter referred to as “the Marais case”). There is then no contract for the sale of the property between the two parties and the Seller can sell the property to another purchaser.

Examples of suspensive conditions are obtaining bond approval before a certain date, or the sale of the Purchaser’s current property before a certain date. It is very important for both the Seller and Purchaser to take note of the wording of these conditions and ensure that they understand them.

The following is an example of the wording of a suspensive condition relating to a bond, also sometimes referred to as a “bond condition”:

This Deed of Sale is subject to the Purchaser obtaining bond approval from a financial institution for the amount of R1 500 000 before 2 December 2013, failing which this agreement will lapse.

In the above example, if only R1 400 000 is approved before 2 December 2013, in other words R100 000 less than the required amount, then the condition is not met and the contract will lapse. Similarly, if a bond is approved for R1 500 000 but only on 5 December 2013, then the condition is not met in time and the contract will lapse, as was decided in the case of Meyer v Barnardo and another 1984 (2) SA 580 (N).

The parties can however agree to extend the time during which the suspensive condition must be fulfilled. Such extension must be in writing and signed by both the Seller and Purchaser as per the requirements of the Alienation of Land Act 68 of 1981. It must also be done before the time limit of the suspensive condition expires. In the above “bond condition” clause example, this would mean that the parties would have to sign the extension before 2 December 2013 to prevent the Deed of Sale from lapsing. In the Marais case the court held that even if the suspensive condition had been inserted in the contract for the exclusive benefit of the Purchaser, the Purchaser would have had to communicate his intention to waive the requirement before it lapsed.

In the Marais case the parties entered into a written agreement of sale with a suspensive condition that a bond in the amount of R10 149 072 needed to be obtained by 15 August 2005.  The Purchaser, however, only obtained a mortgage bond in the amount of R9 650 000, which was granted on 2 August 2005. The respondent’s attorneys argued that the suspensive condition had been substantially fulfilled because the shortfall was, in their opinion, only a “minor shortfall” and therefore an insignificant amount compared to the purchase price. The court did not agree with this and found that it could not be said that the parties intended the suspensive condition to be fulfilled in any way other than what was expressly stipulated in the Deed of Sale. The court found that the contract had therefore lapsed.

If a suspensive condition will not be fulfilled in time, rather take the necessary precautions beforehand to avoid a lapsed Deed of Sale. We advise that you contact a professional for advice in this regard.

References:  

Kontraktereg, UNISA 2004

Self Study Conveyancing Course for Attorneys, Gawie le Roux, 2013

Alienation of Land Act 68 of 1981

Marais v Kovacs Investments 724 (Pty) Ltd [2009] 1 All SA 174 (C)

Meyer v Barnardo and another 1984 (2) SA 580 (N)

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.Errors and omissions excepted. (E&OE).

CANCELLATION OF THAT GYMNASIUM CONTRACT

We havA2_Be all made New Year’s Resolutions. This year I will start exercising, eating healthy and spend less time at the office and more with the family. In order to fulfil this resolution, you join the local gymnasium as soon as you return from your December holiday. It does not bother you whether the agreement is for two, three or four years. This year you are going to keep that resolution!

Then winter arrives and you spend more time at the office and at the fireside and less time in the gymnasium. By August you recognise the debit order of the gymnasium on your bank statement, knowing full well that you have not been there for at least two months.

The Consumer Protection Act (“the act”) has limited the effect of fixed-term agreements containing automatic renewal clauses for a further fixed term. As the legislator has given a wide definition to the words “goods” and “services”, most fixed-term agreements will fall within the scope of the act. Section 16 of the act provides that any consumer may cancel a long-term agreement with twenty business days’ notice, which notice must be in writing, unless both parties to the agreement are juristic persons.

The act then provides that the supplier may be entitled to a “reasonable cancellation penalty” payable by the consumer for cancelling the fixed-term agreement. What constitutes a reasonable cancellation penalty will depend on the type and nature of the contract.

Lester Timothy of Deneys Reitz Attorneys uses the example of a mobile phone contract, an analogy most of us will understand. A consumer enters into a two-year contract with a mobile phone service provider and simultaneously purchases a handset to be paid by monthly instalments in the course of the two-year contract. The service provider will thus have incurred expenses regarding the handset. Therefore, in the event of the consumer cancelling the contract, it will be acceptable for the mobile service provider to charge the consumer for the outstanding balance of the handset to recover the expenses incurred.

Where a supplier incurs no significant additional cost as a result of the cancellation of the contract, the supplier will have more difficulty to establish the reasonableness of any cancellation penalty unless a discount is given.

You may therefore approach that gymnasium and notify them in writing of your intention to cancel the agreement after twenty business days. Depending on the remaining period of your contract and the wording of the agreement, you will have to pay a reasonable cancellation penalty. However, as the gymnasium did not incur significant additional costs as a result of your cancellation, you will be entitled to a discount on the remaining balance of the agreement.

Negotiate the cancellation penalty fee with the gymnasium. You may be surprised what the offer of an immediate payment as cancellation penalty can do.

And next year, rather buy running shoes, even expensive ones. They will wait patiently in your wardrobe till the following New Year’s Day …

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.Errors and omissions excepted. (E&OE).

THE INTERPLAY BETWEEN THE CONSUMER PROTECTION ACT AND THE NATIONAL CREDIT ACT, AND THE POSSIBILITY OF PENALTIES WITH EARLY SETTLEMENT OF CREDIT AGREEMENTS

A1_BMr Black buys a BMW car in terms of a hire purchase agreement and the financing is done through BMW Finance. After a few months Mr Black inherits a huge sum of money and decides that he wants to settle the outstanding amount. Mr Black’s concern is whether the credit provider is entitled to charge a penalty fee for early settlement of the outstanding finance amount.

The first step in answering the above mentioned question will be to determine which laws regulate the situation. The legislation that applies here will be the National Credit Act 34 of 2005 and the Consumer Protection Act 68 of 2008.

In the above scenario a distinction should be drawn between the scope of each of these Acts, as the one pertains to the credit agreement itself and the other to the goods, being the BMW car. Section 5 of the Consumer Protection Act lists the situations in which this Act will apply. Section 5(2)(d) is of particular interest to Mr Black as it excludes credit agreements which are regulated by the National Credit Act. However, the goods or services provided in terms of the credit agreement are included and will be regulated by the Consumer Protection Act, whereas credit agreements as contemplated in the National Credit Act, specifically section 8(4)(c), includes hire purchase agreements (instalment agreements) in the ambit of the National Credit Act.

Mr Black’s situation illustrates the position as stated in Article 5(2)(d) of the Consumer Protection Act. The implication of this section is that all credit agreements that are subject to the National Credit Act will be governed by the National Credit Act, but the goods and services in terms of the agreement will fall within the scope of the Consumer Protection Act. It is here that the above acts overlap with each other. The overlap actually lies in that both acts can apply to one agreement. The credit agreement must comply with the National Credit Act, but the goods and services must comply with the Consumer Protection Act. If there is a defect in the quality of the goods or the service the Consumer Protection Act will provide the appropriate remedy, but if it is about the credit agreement itself, then the National Credit Act will apply.

Section 2(9) of the Consumer Protection Act deals with the interpretation of the Act and more specifically on how the law has to be interpreted in cases where there are discrepancies between the Consumer Protection Act and any other law. The Consumer Protection Act should be read in harmony with other legislation as far as possible, but if it is not possible, then the law that offers the most protection to the consumer shall apply.

The two sections in the National Credit Act which deals with the early settlement of credit agreements are sections 122 and 125 of the Act. According to section 122 of the National Credit Act, a consumer may terminate the credit agreement at any time. The consumer can do this by paying the settlement amount as calculated in accordance with section 125 of the National Credit Act.

Section 125 states that a consumer is entitled to cancel a credit agreement at any time with or without prior notice to the credit provider. The settlement amount will be the sum of the following amounts:

  • The outstanding balance of the principal debt / capital amount.
  • All rates and charges up to and including the settlement date. For example, if the outstanding amount can be settled after 3 months, then 3 months’ interest would be charged. The interest will be calculated on the principal amount borrowed.

In the case of a large credit agreement (R250 000.00 or more) the outstanding amount will be calculated as above, but with additional interest, known as an early settlement fee. The fee may not exceed an amount equal to three months’ interest on the capital amount.

Conclusion:

Therefore, if the BMW that Mr Black bought was worth more than R250 000.00 the credit provider will be entitled to charge a penalty fee of not more than 3 months’ interest on the capital amount. In the event that the purchased item’s worth is less than R250 000.00 the credit provider will not be entitled to charge a penalty fee.

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.Errors and omissions excepted. (E&OE)

THE INTERPLAY BETWEEN THE CONSUMER PROTECTION ACT AND THE NATIONAL CREDIT ACT, AND THE POSSIBILITY OF PENALTIES WITH EARLY SETTLEMENT OF CREDIT AGREEMENTS

Mr Black buys a BMW car in terms of a hire purchase agreement and the financing is done through BMW Finance. After a few months Mr Black inherits a huge sum of money and decides that he wants to settle the outstanding amount. Mr Black’s concern is whether the credit provider is entitled to charge a penalty fee for early settlement of the outstanding finance amount.

The first step in answering the abovementioned question will be to determine which laws regulate the situation. The legislation that applies here will be the National Credit Act 34 of 2005 and the Consumer Protection Act 68 of 2008.

In the above scenario a distinction should be drawn between the scope of each of these Acts, as the one pertains to the credit agreement itself and the other to the goods, being the BMW car. Section 5 of the Consumer Protection Act lists the situations in which this Act will apply. Section 5(2)(d) is of particular interest to Mr Black as it excludes credit agreements which are regulated by the National Credit Act. However, the goods or services provided in terms of the credit agreement are included and will be regulated by the Consumer Protection Act, whereas credit agreements as contemplated in the National Credit Act, specifically section 8(4)(c), includes hire purchase agreements (instalment agreements) in the ambit of the National Credit Act.

Mr Black’s situation illustrates the position as stated in Article 5(2)(d) of the Consumer Protection Act. The implication of this section is that all credit agreements that are subject to the National Credit Act will be governed by the National Credit Act, but the goods and services in terms of the agreement will fall within the scope of the Consumer Protection Act. It is here that the above acts overlap with each other. The overlap actually lies in that both acts can apply to one agreement. The credit agreement must comply with the National Credit Act, but the goods and services must comply with the Consumer Protection Act. If there is a defect in the quality of the goods or the service the Consumer Protection Act will provide the appropriate remedy, but if it is about the credit agreement itself, then the National Credit Act will apply.

Section 2(9) of the Consumer Protection Act deals with the interpretation of the Act and more specifically on how the law has to be interpreted in cases where there are discrepancies between the Consumer Protection Act and any other law. The Consumer Protection Act should be read in harmony with other legislation as far as possible, but if it is not possible, then the law that offers the most protection to the consumer shall apply.

The two sections in the National Credit Act which deals with the early settlement of credit agreements are sections 122 and 125 of the Act. According to section 122 of the National Credit Act, a consumer may terminate the credit agreement at any time. The consumer can do this by paying the settlement amount as calculated in accordance with section 125 of the National Credit Act.

Section 125 states that a consumer is entitled to cancel a credit agreement at any time with or without prior notice to the credit provider. The settlement amount will be the sum of the following amounts:

  • The outstanding balance of the principal debt / capital amount.
  • All rates and charges up to and including the settlement date. For example, if the outstanding amount can be settled after 3 months, then 3 months’ interest would be charged. The interest will be calculated on the principal amount borrowed.

In the case of a large credit agreement (R250 000.00 or more) the outstanding amount will be calculated as above, but with additional interest, known as an early settlement fee. The fee may not exceed an amount equal to three months’ interest on the capital amount.

Conclusion:

Therefore, if the BMW that Mr Black bought was worth more than R250 000.00 the credit provider will be entitled to charge a penalty fee of not more than 3 months’ interest on the capital amount. In the event that the purchased item’s worth is less than R250 000.00 the credit provider will not be entitled to charge a penalty fee.

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. Errors and omissions excepted. (E&OE).

WHAT IS THE ROLE OF THE FAMILY ADVOCATE?

The Family Advocate has many duties but in the context of Divorce Law, they are mostly consulted for making sure that all Parenting Plans and divorce Consent Papers are in the best interest of any minor children involved. The public can, however, also have access to the Family Advocate and it is important to note that they offer a free service.

The roles of the Family Advocate include the following: to provide education to family members and to others involved in the systems serving the family and youth; to help identify the strengths and needs of families; to be a mediator between the system and the family by helping to educate professionals on the strengths and needs of the family; to help family members understand the different roles of the agencies involved in the system and how they may affect the family and assist families in identifying and utilizing necessary services.

A Family Advocate helps state and local agencies and systems adopt more strengths-based and family-driven programs, policies, and services. The focus is to better meet the needs of families and their youth who have mental illness, co-occurring disorders or substance use disorders and improve outcomes for all, including families, youth, and the agencies they utilize.

A Family Advocate also has the authority to draft Parenting Plans at no cost which will help provide the minor child with a stable and suitable schedule between the two parents. A Family Advocate cannot however provide for a maintenance amount as this falls under the jurisdiction of the maintenance court. Should a parent feel like they are not sure of their rights or responsibilities towards their minor child, the Family Advocate can be approached in order to arrange a meeting between the two parties to mediate the rights and responsibilities between the two parties. This process is also at no cost, however should one of the parties deny the meeting, the Family Advocate has no authority to subpoena them to attend the meeting.

The Family Advocate is a perfect remedy for parents who have their child’s best interest at heart and who aim to provide a stable environment for the child when both parents are no longer together.

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. Errors and omissions excepted. (E&OE).

STANDARD ACKNOWLEDGEMENTS OF DEBT AND THE NATIONAL CREDIT ACT (NCA)

A2_bThe new NCA does not only regulate instalment sale agreements and lease agreements in respect of movables as was done by its predecessor, the repealed Credit Agreements Act 75 of 1980. The NCA also applies to a much wider variety of credit agreements and has no monetary cap. Instead of instituting legal action a creditor often gets a debtor to sign an acknowledgement of debt to facilitate repayment. This document could contain a provision for instalments and interest and fees. The question arises whether this agreement in confirmation of an existing obligation constitutes a credit agreement for purposes of the NCA.

The purpose of this Act is to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers.

“Credit”, when used as a noun, is defined in the Act as a deferral of payment of money owed to a person or a promise to defer such payment; or a promise to advance or pay money to or at the direction of another person.

“Agreement” includes an arrangement or understanding between or among two or more parties which purports to establish a relationship in law between those parties.

The parties to a credit agreement governed by the NCA are referred to as the “consumer” and the “credit provider” and these definitions should be considered. An acknowledgement of debt normally refers to a historical event of cause and does not constitute a credit guarantee or any of the named credit transactions such as a pawn agreement, discount agreement, incidental credit agreement, instalment agreement, lease, secured loan or mortgage agreement or credit facility. However, the fact that it contains a deferral of payment and requires the payment of interest, fees and other charges, will cause it to fall within the ambit of the catch-all term “credit transaction” provided for in Section 8(4)(f) of the Act.

Section 2(1) provides that the Act must be interpreted in a manner that gives effect to the purposes set out in Section 3. The question really is whether the legislature intended the rearrangement or the repayment terms of an existing debt, for instance where money has already been advanced to a consumer a considerable period of time ago or where damages were suffered as a result of a delict or breach of contract, to constitute a credit agreement or transaction for purposes of the NCA. Due to the elements of deferral and the charging of interest, fees and other charges in a standard acknowledgement of debt, and in the absence of any express or implicit indication to the contrary, it seems an inescapable conclusion that the agreement could be defined as a credit agreement within the meaning of the NCA. The relevance of this is that it might be that the credit provider would be required to register as such with the National Credit Regulator, affordability assessment would have to be done prior to conclusion, the consumer could become overindebted and apply for debt review, and so many onerous requirements will be applicable.

It is submitted that where the cause of action in relation to which the acknowledgement of debt was entered into is based on a contract or agreement which constitutes a credit agreement, the insertion of a no-novation clause into an acknowledgement of debt will not serve to exclude the agreement subsequently concluded, from the ambit of the NCA. However, where the debt initially arose as a result of a delict, the insertion of a no-novation clause might have the effect of preserving the original cause of action, namely the delict, and thus cause the matter to fall outside the scope of the NCA.

One thing to be kept in mind is that a “consumer”, in respect of a credit agreement to which the NCA applies, means

(a) the party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement;

(b) the party to whom money is paid, or credit granted, under a pawn transaction;

(c) the party to whom credit is granted under a credit facility;

(d) the mortgagor under a mortgage agreement;

(e) the borrower under a secured loan;

(f) the lessee under a lease;

(g) the guarantor under a credit guarantee; or

(h) the party to whom or at whose direction money is advanced or credit granted under any other credit agreement.

This definition might provide the answer as the acknowledgement of debt might, as a different cause of action, not qualify the consumer under the above definition. So, too, is the underlying cause of action to the acknowledgement of debt, and it deserves no debate that signing an acknowledgement of debt is not something to go about without due consideration.

Should a court be convinced that the written acknowledgement of debt is subject to the NCA the court could be required to make a ruling in terms of Section 130(4)(b) of the NCA, which states:

In any proceedings contemplated in this section, if the court determines that – … the credit provider has not complied with the relevant provisions of this Act, as contemplated in subsection (3)(a), or has approached the court in circumstances contemplated in subsection (3)(c) the court must – adjourn the matter before it; and make an appropriate order setting out the steps the credit provider must complete before the matter may be resumed.

In Adams v SA Motor Industry Employers Association 1981 (3) SA 1189 (A) at 1198 – 1199, the court held that there is a presumption against novation and that, where novation was not intended, it was possible for two obligations to co-exist. These obligations would be interdependent, and the creditor does not have a free election to enforce the original obligation. An acknowledgment of debt, sometimes referred to as an IOU, is evidence of a debt which is due, but differs from a promissory note as it does not contain an express promise to pay. However, where the acknowledgment of debt is coupled with an undertaking to pay, it will give rise to an obligation in terms of that undertaking.

The case of Rodel Financial Service (Pty) Ltd v Naidoo and Another 2013 (3) Sa 151 (Kzp), and its annotations is recommended for reading and getting a better understanding of the applicable principles.

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. Errors and omissions excepted. (E&OE).

CO-OWNERSHIP OF LAND

A1_bThe word “co-ownership” in relation to land means that two or more persons own land simultaneously in undivided shares. A share in land does not represent, and may not be held to represent a defined portion of land. A co-owner who holds a share in land does not hold title to a defined piece of land even if by arrangement with his co-owners they might have agreed to give him occupation of a specific portion of land. The title he has is to an undivided share only, in the whole of the land, held in joint ownership. The portion he occupies is owned jointly by him and his co-owners in the whole thereof. If he should build a house on the portion he occupies, the house will be owned jointly.

When X, Y and Z are co-owners of a farm, they are not each entitled to a physical part of the farm but each of them has an undivided share in the whole of the farm. The shares will not always be equal. One person can have half a share while the other two can each have a twenty five percent share. However, co-ownership unfortunately often leads to disputes among the owners.

 Co-operation between the co-owners

It is advisable that co-owners enter into an agreement which regulates the relationship between them. Unfortunately this agreement will have no bearing against third parties. The consent of all the co-owners is required when administrative decisions have to be made. No owner is entitled to change or improve the property without the consent of the other owners. All the owners have to agree to the use of the property, e.g. they have to agree to the chopping down of trees, the erection of a storage facility/building, or to let cattle graze in the field. If co-owners are not consulted they may request an interdict from the court. The court may even order that buildings that have been erected, be removed. However, in instances where the aim is to preserve the property, it is not always necessary to obtain the consent of the co-owners.

The profits and losses

All the co-owners must contribute proportionally to necessary and also useful expenses for the preservation of the property. Such expenses include taxes and expenses to maintain the property in good condition, but do not include luxury expenses. Losses and charges must be shared by the co-owners, except those attributable to negligence of one of the owners. As with expenses, fruits and profits must be divided amongst the co-owners according to each owner’s shareholding.

Alienation of a share

A co-owner may alienate his share or even bequeath it to his heirs, without the consent of the other owners, even against their will. A co-owner’s share may also be attached by the sheriff.

Use of the property

Each co-owner may use the property in accordance with his undivided share. He must, however, use it with due regard to the rights of the other co-owners. Each co-owner, his employees and guests are entitled to free entry to any part of the property, except if the co-owners have agreed that a portion of the property is reserved for the exclusive use of one co-owner.

Partition

Co-owners may decide to partition the property, usually if they cannot agree on the utilisation of the property. The property will then be divided physically in accordance with the value of the property and each owner’s share in it. When this is uneconomic, which is usually the case with a farm, the property can be awarded to one co-owner, but he must then compensate the other co-owners. The court may also order that the property be sold by public auction and the proceeds divided amongst the co-owners. There is strict statutory control over the subdivision of land and also the actual physical division and use of land, so that partition may not always be possible.

Co-ownership is an excellent vehicle to becoming an owner of a property that one otherwise might not be able to afford. However, be aware of the pitfalls, choose your co-owners wisely, and draw up an agreement to regulate payment of the bond and rates, the day-to-day expenses and house rules.

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. Errors and omissions excepted. (E&OE).

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.