How binding are body corporate fines?

In an estate or sectional title scheme, it is challenging to ensure that everyone will stick to the conduct rules and to aid this, body corporates often fine the chancers. How far can the body corporates stretch their fining, and are these fines binding?

Each body corporate may choose what to impose formally in their code of conduct unless a rule is already part of the conduct rules in terms of the Sectional Titles Act. This is the only way the fines can be binding as enforceable, and they have to be reasonable and fair.

When fines are imposed, they cannot favour or benefit certain residents while leaving others out of mind. Substantially, they must serve the same purpose. The notification of a fine must be received by the owner or resident through writing. There is a correct way in which fines may be imposed:

  1. Complainants to lodge complaint

This must be lodged in writing or through an incident report to the trustees or the estate’s managing agent.

  1. Notice of particulars of the complaint

The owner and the tenant, or the resident, must be given a notice of the particulars contained in the complained as well as reasonable time to respond to the complaint. The resident/tenant must also be given enough information regarding the incident, including the rules that they may have broken.

  1. Second notice

Should the owner or resident not heed the first notice, a second notice may be issued mentioning the contravention is continuous or has been repeated. The transgressor must then be invited to a trustee meeting where they will be given a platform to present their case or defend themselves.

  1. The hearing before the fine

Before a fine is imposed, a hearing must have taken place. In the meeting, witnesses may be called to testify in favour of the transgressor and the transgressor may state their side of the story. Those who laid the complaint may also be cross-examined.

  1. Discussing evidence

Once the hearing is over, the trustees may then review the evidence presented to them and make a decision on whether or not to impose the fine.

If a fine is imposed, the amount should be reasonable, substantial and be proportionate to the purpose of the penalty.

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).

Rental rights during the water crisis

As a constitutional right, everyone should have access to clean water. Even during a water crisis. In cases where there is a signed agreement between a tenant and landlord pertaining to the supply of water, the obligations stated in the rental agreement should be met by the respective party. Should one of the parties fail to oblige, the agreement may be terminated. Parties to this contract should, however, understand the changes that come with crises.

Common law recognises any crises that could not have been halted or anticipated as “An Act of God”. These are the rights pertaining to rental agreements during a water crisis:

  • Ongoing water supply:

If the municipality reduces water supply, tenant may not cancel lease agreement or claim reduced rental.

  • Services supplied to tenant (swimming pool, sprinklers etc.):

Should day zero come and water supply is cut off, landlords may not continue charging tenants for these services if they are no longer available.

  • Reduced utility charges:

Tenants are within their rights to negotiate that their utilities amount be reduced to account for what the landlord would be paying on their behalf.

  • Municipal bills and fines:

The landlord must pay these to avoid water supply being cut off for the tenant. The landlord may claim that money back from the tenant.

  • Maintenance responsibilities (refilling the pool, watering gardens etc.):

Tenants are exempt from complying with these responsibilities if they contravene with water restrictions.

The water crisis, which has affected mostly the Western Cape, has seen the municipality put restrictions on water usage, cut water supply at certain times of the day, and increase the water rates. Most lease agreements make provision for the responsibility of water usage – the tenant could either be billed monthly, or the rental amount could be water inclusive. If the water bill is the tenant’s responsibility, then they will be liable for the increased water prices. If the rental amount is fixed, any fluctuation in the water bill will be absorbed by the landlord.

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).

When can the municipality disconnect my water and electricity?

The municipality is the place where most, if not all, services are monitored for their availability to a property, and it is the very place that may cut off the supply of said services. Their authority does, however, come with the responsibility of remaining within the legal boundaries of managing the supply of services to properties. This article will explore the legalities of disconnecting water or electricity.

Accounts in arrears

If one of your municipal services is in arrears, the municipality is well within their rights to disconnect whatever service when there are undisputed arrears owed to any other service in connection with the related property. Before any disconnection takes place, there is a procedure for the municipality to follow.

Notices

The municipality is legally obligated to give a notice to the person responsible for the account. A minimum of 14 days written notice of termination is required for water and electricity accounts in arrears and if the notice period is shorter than 14 days, or not supplied, the disconnection is illegal. The 14-day notice gives the responsible party an opportunity to present any disputes or queries they may have regarding the account or allow them to repay the arrears.

The query period

Once a query relating to the account has been put in, the municipality may not disconnect services provided that the amount being queried is equal to the amount in arrears. In the case where the amount is less that the amount in arrears, the service may be disconnected for the undisputed amount owing.

Payment of arrears

When a query has been logged, it can only be valid for so long provided that the monthly bill or any other related payments are being made to the respective account. If the responsible person does not make any form of payment, the service may be disconnected even if a logged query exists with the municipality.

State where the payment should go

If there is an account dispute and the responsible person makes a payment to the municipality, the municipality may choose to allocate that money to any account they wish to do so. This means the account in need of the payment may not have the payment made into it. To curb this, the responsible person must notify the municipality, in writing, of the payments being made as well as which account they should be allocated to. This must be done before payment is made.

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).

Can trustees ban your pet in a sectional title scheme?

Problems around the ownership of pets are common amongst owners of sectional title properties, but while laws may be imposed by the trustees of the homeowners’ associations, the requirement for a reasonable approach is entrenched in the very laws which govern how a sectional title scheme should be managed.

Where the trustees have reasonably, after following due process and considering all relevant factors, withdrawn their consent to keep a pet, the owner concerned is then not entitled to continue keeping that pet in the scheme.

This is according to the Prescribed conduct rule 1 in Annexure 9 of the Sectional Titles Regulations which deals with the keeping of pets, including reptiles or birds.

It states:

“1. (1) An owner or occupier of a section shall not, without the consent in writing of the trustees, which approval may not unreasonably be withheld, keep any animal, reptile or bird in a section or on the common property.

(2) When granting such approval, the trustees may prescribe any reasonable condition.”

The phrases, “may not unreasonably” and “may prescribe any reasonable”, clearly seek to assist in the creation of harmony amongst a community living side by side in a sectional title development.

These regulations exist to protect the pet owner from unreasonably strict rules, and equally, they must confer on the other owners the right to a nuisance-free and peaceful environment. This means that both parties need to consider each other’s needs.

This consideration, in granting or refusing consent, will be central to inquiry: will it unreasonably interfere with other’s rights to use and enjoy their units; and which conditions would be appropriate in these circumstances to ensure that the risk of nuisance is reduced to a reasonable level?

For this reason, owners or occupiers can only keep pets in a section or on any part of the common property with the written consent of the trustees. However, the trustees cannot unreasonably withhold that permission. An absolute prohibition to keep a pet could be considered unreasonable and if consent to keep a pet is unreasonably withheld, the owner can take the matter to court.

The trustees must furthermore, base their decision on the facts and circumstances of the particular case. The decision to either grant or refuse consent should be recorded in the minutes of the trustee’s meeting, giving reasons that illustrate they have applied their minds to the particular set of facts.

An example of a court case which arose from a dispute regarding permission to keep a pet in a sectional title development was Body Corporate of The Laguna Ridge Scheme No 152/1987 v Dorse 1999 (2) SA 512 (D), in which it was held that the trustees are obliged to individually consider each request for permission to keep a pet, and to base their decision on the facts and circumstances of each particular case.

A further extract from this case pointed out that trustees are not entitled to refuse an application on the basis that they are afraid of creating a precedent. The trustees were, in this case, found to have been grossly unreasonable and have failed to apply their minds when they refused the Applicant permission to keep a small dog.

The question of the reasonableness of the actions of the trustees, in granting or withholding permission and setting conditions, will turn on the nature of the pet concerned and the circumstances of the scheme. In dealing with any application for permission to keep a pet, the trustees should consider what type of pet it is, and whether there are already other similar pets at the scheme.

It is unlikely that any action by the trustees to remove a ‘companion animal’ or ‘service animal’, such as a guide dog owned by a blind or partially sighted owner, would be held to be reasonable in the absence of a clear nuisance caused by the animal. The fact that a person sometimes forms an extremely strong emotional tie with their pet could also be an important consideration when the trustees decide whether or not to grant permission.

The trustees are not, however, powerless in situations where the conditions of permission to keep a pet are not being met. The trustees can withdraw permission if it is reasonable to do so. Examples include if the pet is causing a nuisance to other owners or occupiers (e.g. barking persistently), or the pet is considered dangerous to other owners or occupiers.

Where the trustees have reasonably, after following due process, withdrawn their consent to keep a pet, the owner concerned is then not entitled to continue keeping that pet in the scheme. However, the enforcement of this could be tricky for the trustees. The body corporate is not entitled to forcibly remove a pet from an owner’s possession. This can only be achieved by a court order, if – for example – there are too many dogs being kept in an inadequate space, the trustees can get the assistance from the local SPCA who can be contacted to come to the scheme to do an inspection in loco. If it is justified, they will implement the necessary legal steps to have the dogs removed.

Careful consideration and the application of the principles as set out in the rules of the scheme and the above-mentioned regulations will lead not only to peaceful co-existence, but also healthy growth in property values for the developments implementing such approach. A harmonious board of trustees results in a happy community, which in turn will ensure a good name for any development.

Reference List:

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).

Safeguarding children’s rights during divorce


Divorce and the resulting challenges regarding child custody and the responsibilities of parents can be an ugly and difficult process. This is especially true of the children whose emotional and physical wellbeing would have to be taken into account during the entire process. However, the office of the Family Advocate offers an efficient and free service with the wellbeing of the child in mind.

The Family Advocate (FA) manages disputes regarding the responsibilities and custody of children during and after a divorce. The point of the FA is to protect the rights of children and ensure that their best interests are taken into account when it comes to their custody and the parent’s responsibilities. The office of the FA is not just one person but consists of lawyers and social workers who all assist in getting the best outcome for the child/children.

What can the Family Advocate do?

Section 28(2) of the Constitution says, “A child’s best interests are of paramount importance in every matter concerning the child”. This forms the basis of the FA’s role in disputes.

The Family Advocate has the ability to:

  1. Institute an enquiry so as to be able to furnish the court with a report and recommendation on any matter concerning the welfare of the minor child;
  2. Appear at the trial or hearing of any relevant application;
  3. Adduce any available evidence; and
  4. Cross-examine witnesses giving evidence at such trial or hearing of an application.

*According to Mediation in Certain Divorce Matters Act (Act 24 of 1987)

The Children’s Act 2005 (Act 38 of 2005) has also made mediation by the FA compulsory for all parties involved in parental rights and responsibility disputes over children born out of wedlock.

What’s the point of the Family Advocate?

The FA has many advantages when there is a dispute over children. The FA can change the parental rights and responsibilities agreements of the parents without the need to go to court. A court will also take into consideration a report by the FA before making any decision on the child, they are even required by law to do this. Furthermore, a registered parental rights and responsibilities agreement would be considered the same as a court order. The office of the FA also allows for the children involved to express their point of view and desires. In order to ensure the best for the child/children, the FA will work together with social workers, psychologists and other professionals when dealing with disputes.

Reasons to see the Family Advocate

  1. The parties disagree about how to contact or care for a child.
  2. They want to draft, register or change their parental rights and responsibilities agreement.
  3. Disputes about whether an unmarried father of a child born out of wedlock fulfils the requirements making him eligible for the full parental rights and responsibilities of the child.

A court may also order the FA to provide a report on what is best for the children involved in a dispute. Altogether, the FA’s goal is to ensure the child gets the best out of a divorce process and that their rights are protected. They can not only help in disputes, but also provide a comfortable environment and process for what can be a stressful time for the children involved.

Reference:

  • “The Office of the Family Advocate”. The Department of Justice and Constitutional Development. Accessed from: http://www.justice.gov.za/FMAdv/ on 13/05/2016.

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).

Arbitration: What you should know


If two parties have a dispute and conciliation fails, you may request to resolve the dispute by arbitration. At an arbitration hearing, a commissioner gives both parties an opportunity to fully state their cases. The commissioner then decides on the issue in dispute. The decision, called the arbitration award, is legally binding on both parties. Attempts must generally be made to resolve the dispute through conciliation. If it cannot be resolved by conciliation, the parties can go to arbitration or the Labour Court.

Pre-arbitration conference

By agreement between the parties or when so directed by the Director or a Senior Commissioner, the parties to the proceedings must hold a pre-arbitration conference to-

  • determine facts in dispute, common cause facts, issues to be decided, and relief claimed;
  • exchange documents that will be used in the arbitration;
  • draw up and sign a minute of the pre-arbitration conference.

Do I need to be represented by a lawyer in an arbitration?

Although this is a matter for you to choose for yourself, we must strongly emphasise the importance of making use of a legal representative. A lawyer will have the knowledge to draft papers correctly, understand the legal technicalities of the issues in dispute and grasp the requirements of the process.

The Secretariat often finds itself spending enormous amounts of time attending to endless communications and queries from unrepresented parties. Such parties may also have unrealistic expectations or have a misunderstanding of their legal position in these circumstances, which can lead to frustration for all sides, and wasted time and costs.

References:

  • “Arbitration | CCMA”. Ccma.org.za. N.p., 2017. Web. 21 June 2017.
  • “AFSA – Arbitration Foundation Of Southern Africa – FAQ”. Arbitration.co.za. N.p., 2017. Web. 21 June 2017.

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 basics: Creating your will


Who your property is passed on to depends on whether you have a valid will or not. If you do have a valid will, then your property will be divided according to your wishes stated therein. If you die without a will (called “intestate”), then your property will be divided amongst your immediate family according to the laws of intestate succession.

How can I create a Will?

If you are older than 16, you have the right to create a will, to state who you would want your property to go to when you die. In order for your will to be valid, it needs to be compiled in the proper way.

  1. According to the law, you have to be mentally competent when you compile your will; this means that you must understand the consequences of creating a will and that you must also be in a reasonable state of mind when you do so.
  2. You must make sure that your will is in writing in order for it to be valid.
  3. Two people older than 14 years must witness the creating of your will (these witnesses cannot be beneficiaries).
  4. You have to initialise every page of the will and then sign the last page. The witnesses must also initialise and sign the will.
  5. You can, and should, approach a lawyer to help you draw up your will to avoid creating an invalid will.

You can appoint an executor in your will to divide your property amongst your loved ones. An executor is the person who will make sure that your property is divided according to your wishes, as set out in your will, and he/she will also settle your outstanding debts. If you don’t choose an executor yourself, then the court will appoint someone, which is usually a family member.

What are the risks of not having a Will?

If you don’t have a valid will when you die, your property will be divided according to the rules set out by the law. These rules state that a married person’s property will be divided equally amongst their spouse and children. If you don’t have a spouse or any children, then your property will be divided between other family members. If you also don’t have any blood relatives, then the property will be given to the government. You might think that you do not need a will, as your family will divide your possessions amongst each other, but you must keep in mind that delays in dealing with your estate could affect your family negatively; they might be relying on their inheritance for an income.

  • The beneficiaries of your estate will be determined according to the laws of intestate succession, if you die without a will.
  • This law determines the distribution of your assets to your closest blood relatives, meaning that your assets may be sold or split up against your wishes.
  • Some of your assets could be given to someone in your family that you did not intent to benefit from your estate.
  • Without a will, you cannot leave a specific item to a specific family member or friend.
  • If you live with someone but are not married to them, the law will not necessarily recognise him/her as a beneficiary of your estate, unless you have left a will naming them as a beneficiary.

References:

  • Western Cape Government. (2017). Making a Will. [online] Available at: https://www.westerncape.gov.za/service/making-will [Accessed 22 Jun. 2017].
  • Momentum.co.za. (2017). Drafting a will and setting up a trust. [online] Available at: https://www.momentum.co.za/wps/wcm/connect/momV1/f150ba2e-3724-4b42-9265-332106cb6b83/drafting a will_E vs 2 (07032013)[1].pdf?MOD=AJPERES [Accessed 22 Jun. 2017].

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)

Terminating a surrogate agreement


Partial surrogacy agreements allow for the surrogate mother to terminate the agreement within 60 days after giving birth to the child. This article looks at the different outcomes surrogacy agreements may have.I entered into a gestational surrogacy agreement with a married couple. I am currently 8 months pregnant and have formed a bond with the baby. Will I be able to terminate the surrogacy agreement after the birth of the baby?

The Children’s Act 38 of 2005 (“the Act”) makes provision for a valid surrogacy agreement. In terms of the Act, a surrogate agreement is concluded when ‘the commissioning parent(s) are not able to give birth to a child and the condition is permanent or irreversible’.

Prior to the introduction of modern technology, specifically that of reproductive techniques, ‘traditional or partial surrogacy’ was the only method available to women who had no uterus or abnormalities of the uterus to have children. Recently, artificial insemination is used to inseminate surrogate hosts in order for the surrogate mother to carry the child. The Act governs the artificial fertilisation of a surrogate mother.

There are two types of surrogacy agreements, namely partial surrogacy and full (gestational) surrogacy. Partial surrogacy is the method used in the case where the husband’s gamete together with the gamete of the surrogate mother, is inseminated into the internal reproductive organs of the surrogate mother. As a result, the child is genetically linked to the father and surrogate mother. Full surrogacy refers to the instance where the gametes of both the commissioning parents are inseminated into the internal reproductive organs of the surrogate mother. In essence, the surrogate mother has no genetic link to the child.

A surrogate to a partial surrogacy agreement has 60 days during which she can terminate the agreement after the birth of the child. However, in terms of gestational surrogacy agreement, the parties to the agreement are not given the option to terminate the agreement. Additionally, in this case, the surrogate mother cannot refuse to relinquish the child to the commissioning parents.

The law of contract in South Africa revolves around two main principles, namely pacta sunt servanda (Latin for “agreements must be kept”) and the freedom to contract. These principles imply that the obligations arising out of the agreement must be enforced. The reality of these two principles is that they do not exist in isolation, as they are subject to legislative and judicial decisions. Despite meeting the ordinary requirements of a contract, a surrogacy agreement is a unique contract as there are conflicting human rights and interests involved when a dispute arises out of such an agreement.

Forcing a surrogate mother who is not genetically linked to the child to hand the child over to the commissioning parents when she refuses to do so has been described as a sacrifice of a woman’s reproductive autonomy to the principle of pacta sunt servanda.

The fundamental rights and values of the Constitution cannot be ignored in surrogacy agreements as Section 12(2)(a) – (b) of the Constitution clearly provides “everyone the right to bodily and psychological integrity, which includes the right to make decisions [regarding] reproduction [and] to security in and the control over the body”.

For a surrogacy agreement to be valid it must meet the requirements set in chapter 19 of the Act. When such a surrogacy agreement is invalid, the common law position will apply insofar as the woman who gave birth to the child would be regarded as the legal mother of the child whether or not such a child has a genetic relation with her.

Reference list:

  • Brisley v Drotsky 2002 (4) SA 1 (SCA).
  • Lewis SV ‘The Constitutional and Contractual Implications of the Application of Chapter 19 of the Children’s Act 38 of 2005’ available at etd.uwc.ac.za/xmlui/bitstream/handle/11394/1828/Lewis_LLM_2011.pdf?sequence=1 (accessed 20 April 2017)
  • http://www.casebriefs.com/blog/law/health-law/health-law-keyed-to furrow/reproduction-and-birth/johnson-v-calvert/2/
  • Children’s Act 38 of 2005
  • Constitution of the Republic of South Africa, 1996.
  • Brinsden PR ‘Gestational Surrogacy’ 2003 (9) 5 European Society of Human Reproduction and Embryology 483 – 491

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 impact of the CPA on Franchise Agreements

With franchises becoming a common phenomenon worldwide and franchisors, traditionally, benefitting from a strong bargaining position when negotiating franchise agreements, regulation of the industry has become inevitable and has South Africa’s legislature initiated this regulation through the Consumer Protection Act No.68 of 2008 (“CPA”), which was signed into law on 24 April 2011.

The CPA has forcibly changed the way franchises operate, in that franchisees are deemed to be consumers in terms of the CPA and now have a whole variety of consumer rights. The CPA and its detailed regulations, regulate the whole franchising process, which includes the “franchisor-franchisee relationship” and more importantly, the franchise agreement itself, which must contain prescribed clauses and information in order to be CPA compliant.

A fundamental change affecting the franchise industry is that every franchise agreement must now contain a cancellation clause, failure of which the agreement may be declared void. In terms of section 7(2) of the CPA, a franschisee may cancel a franchise agreement, without costs or penalty, within 10 business days after signing such agreement. Under this provision, if the franchisee excercises his right to cancel the agreement, the franchisor has no remedy to recover from the franchisee any loss suffered as a result of the cancellation.

In addition to the aforesaid, a franchisor must provide a potential franchisee with a disclosure document, in terms of Regulation 3 of the CPA, at least 14 days before the franchisee signs the franchise agreement. This document is aimed at giving the franchisee all the information required in order to make an informed decision. The document must, as a minimum, contain the following:

  • the number of individual outlets franchised by the franchisor;
  • the growth of the franchisor’s turover, net profit and the number of individual outlets, if any, franchised by the franchisor for the financial year prior to the date on which the prospective franchisee receives a copy of the disclosure document;
  • a statement confirming that there has been no significant or material changes in the company’s or franchisor’s financial position since the date of the last accounting officer, auditor’s certficate or certificate by a similar reviewer of the company or franchisor, that the company or franchisor has reasonable grounds to believe that it will be able to pay its debts as and when they fall due; and
  • written projections of potential sales, income, gross or net profits or other financial projections for the franchised business.

Furthermore, the CPA governs the right of a franchisee to select suppliers in terms of section 13 of the CPA. The only platform in which the franchisor can now dictate supply are those goods which are branded or related to the branded products or franchise service.

The CPA also prohibits false or misleading representations concerning the performance, characteristics and benefits of the business, which is regarded as unfair, unreasonable and unjust contract terms. Franchise agreements must also contain provisions that prevent unreasonable fees, prices or other consideration and conduct that is not reasonably necessary for the protection of the legitimate business interests to the franchisor, franchisee or franschise system.

Sections 7 and 51 read together with Regulation 2 of the CPA, very specifically mark the parameters of clauses that must be included, as well as some that may not be included, in a franchise agreement.

Current and future franchise agreements will be largely impacted by the CPA and therefore business owners must acquaint themselves well with the ambit and workings of the CPA before entering into a franchise agreement. If you are a franchisee, it will benefit you greatly to make sure that you understand your rights and that you are not coerced into entering into a franchise agreement.

The practical effects of non-compliance with the CPA when negotiating and concluding franchise agreements have become apparent in rulings and findings by the National Consumer Tribunal, Consumer Court and National Consumer Commission, which do not tolerate any non-compliance with the strict provisions of the CPA. Readers are thus advised to obtain legal counsel before entering into a franchise agreement.

Reference List:

  • Consumer Protection Act. No 68 of 2008
  • Naudé T & Eiselen S, Commentary on the Consumer Protection Act, Juta, 2014

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).

Can I obtain financing if I don’t own immovable property as security?

The article gives a brief overview of what a notarial bond is, the requirements that need to be complied with to register a notarial bond and give tips regarding clauses that will prove to be useful in a notarial bond. It also deals with the situation where a debtor disposes of an asset listed in a notarial bond, contrary to the provisions thereof.

A very useful way of obtaining financing to start a new business, is to register a notarial bond over the movable property belonging to the business. For instance, notarial bonds are regularly utilised in transport companies – a notarial bond is registered over the vehicles forming the core of the business, but the vehicles do not need to be in the physical possession of the creditor, thus the business can fully operate.

What is a notarial bond?

A notarial bond is a general or special bond where the movable assets of a debtor are used as security for a debt. In terms of the notarial bond, the debtor undertakes to pay his debt towards the creditor, failing which the creditor will be entitled to sell these movable assets and to utilise the proceeds thereof to satisfy his claim against the debtor. There are 2 types of notarial bonds:

  • General notarial bond: all the movable assets on the debtor’s property serves as security for the debtor’s debt.
  • Special notarial bond: specific movable assets identified in the bond will serve as security for the debt.

How does a notarial bond differ from a pledge?

A pledge requires the delivery of the movable asset pledged. A notarial bond does not require the delivery of the movable assets identified in the bond, but in terms of section 1(1) of the Security by Means of Movable Property Act 57 of 1993, the movable property listed in the notarial bond will be deemed to have been pledged to the creditor as effectually as if it had been delivered to the creditor. The fact that the creditor is deemed to be in possession of the property thus places him on equal footing with that of a pledgee. The creditor, upon registration of the notarial bond in the deeds registry, acquires a real right of security in the movable property specified in the bond.

Requirements:

  1. Existence of a principal debt;
  2. Assets which serve as security must be movable, including corporeal and incorporeal assets.

Corporeal assets include furniture, vehicles, the goods of a business, animals and the future offspring of animals and stock in trade.

Incorporeal assets include an unregistered long-term lease of immovable property, a short-term lease of immovable property, a liquor license, a water use license, site permit, shares in a company, goodwill of a business, book debts etc.

What if more than one creditor uses the same asset as security for their debt?

A bond which was registered first enjoys priority over a bond registered thereafter.

Important clause to insert in the bond:

To prevent the debtor from disposing of assets which serve as security in terms of the notarial bond, a clause should be inserted disallowing the debtor to sell, alienate, dispose of, transfer or permit the removal of the asset from the debtor’s place of residence or place where he carries on business, without the prior written consent of the creditor.

What happens if a debtor disposes of the asset identified in the notarial bond, contrary to the stipulations in the notarial bond?

The creditor will be able to apply for provisional sentence summons against the debtor, provided that the notarial deed meets the requirement of being a liquid document. A liquid document is a document which indicates, without having to consult extrinsic evidence, an acknowledgement of debt, of which the amount is easily determinable. A notarial bond will in general qualify as being a liquid document.

A creditor will also be able to claim back an asset which has been sold, contrary to the provisions of the notarial bond, to a bona fide third party, from such third party. The reason for that is the fact that a notarial bond, which has been registered in the Deeds Registry, creates a real right, which is a right that attaches to property, rather than a person.

It is not easy to obtain credit in the economic environment in which our country currently finds itself. However, there are ways to get your business off the ground and registering a notarial bond over the property of your business is a recognised method of securing your business’ debt. If notarial bonds can be utilised more frequently, it can help a lot of new businesses get the financing they need to buy equipment, vehicles and machinery necessary for the operation of the business.

Reference List:

  • Explanatory Notes Part 1: Course in Notarial Practice, compiled by Gawie Le Roux, Erinda Frantzen and Ilse Pretorius
  • The South African Notary, sixth edition, M J Lowe, M O Dale, A De Kock, S L Froneman, A J G Lang

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).