Property agreements: An alteration could sink your sale!

A1B“Agreement makes law” (Old legal maxim)

Although in our law most verbal contracts are binding, property sale agreements are an exception.   They must be in writing and signed by the parties to be valid, the reason being that it greatly reduces the risk of confusion or dispute as to what the buyer and seller have actually agreed.

In practice of course, the buyer’s initial offer is usually in the form of a written document which only becomes an agreement if and when signed in acceptance by the seller.  And often that initial offer sparks negotiation, usually over price or other important terms, with the result that sale agreements are frequently amended both before and after signature.

A recent High Court case shows once again how vital it is to ensure that any such amendments have actually been agreed to by both seller and buyer.

An offer “accepted” – or was it?  

  1. A buyer offered R6.3m for a property
  2. The seller signed the Offer to Purchase in “acceptance”, but conditionally, with changes to clauses relating to inspection of the property by a Building Inspector
  3. The buyer, seeing these alterations only after paying a 10% deposit, rejected them and demanded her deposit back
  4. When the seller refunded only part of the deposit (arguing that her acceptance of the offer had resulted in a valid and enforceable sale agreement) the buyer went to court.

The law on conditional acceptance

Ordering the seller to refund the balance of the deposit to the buyer, the Court held that –

  • The seller had to prove that the buyer had agreed to the written contract “in its final form”
  • Conditional acceptance of an offer amounts to either –
    • A rejection of the offer, or
    • A counter–offer
  • When there are outstanding issues requiring further negotiation, either there is no contract at all, or a contract is formed with an understanding that the outstanding issues would be negotiated at a later stage

On the facts of this case, the seller’s alterations were material and amounted to a counter-offer which was never accepted by the buyer.  There was therefore no sale.

Avoiding the trap

Make sure that any changes to sale documents correctly reflect your agreement, and that both parties sign or initial them in confirmation.  And as always with property transactions, don’t take any chances – sign nothing without your lawyer’s advice!

For more advice and practical solutions you are welcome to contact our Conveyancing, Property & Real Estate department.

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)

Rates up after a property revaluation? Object, but do it properly!

A3BYour local municipality is entitled to revalue your property (with reference to recent sales of similar properties in your area) at regular intervals.

Of course any upward valuation means more money out of your pocket every month because the rates you pay are arrived at by multiplying your property’s municipal valuation with the municipality’s current “rates factor” as set by it in its budgeting process.

Municipal valuers must, at least every four years, prepare a general valuation roll with particulars of each property as at the date of valuation, and you must be given notice that you can lodge an objection.

This is of course your chance to convince the municipality that its valuation is wrong; just be sure to lodge your objection within the specified time limit, in the specified format, and with sufficient detail.

A terse exchange; and a botched objection

A recent High Court case shows clearly the danger of neglecting the part about giving enough detail –

  • A property owner Trust’s objection to a revaluation gave as the reason for objection: “Subject property has been vacant for 18 months. Market has declined therefore the market value of my property should also be reduced.”
  • The municipality dismissed the objection and, when asked for reasons, replied in equally terse fashion: “The information submitted by the objector is insufficient to justify a change in valuation.”
  • The trust asked the Court to order the municipality to give “adequate reasons” for dismissing the objection.

Give full reasons or fail 

The Court held against the property owner, commenting that: “This was an objection in the tersest of terms in which no particular challenge was raised to the conduct of the valuation by the municipal valuer as is provided for in terms of the Rates Act……… No substantive information was submitted to challenge or dispute the valuation that had been undertaken”.

The message is clear – just lodging your objection isn’t enough to force the municipality to give detailed reasons for its valuation.  You need to word your objection properly and fully to achieve that.

For more advice and practical solutions you are welcome to contact our Conveyancing, Property and Real Estate (link) department.

© DotNews, 2005-2016. This newsletter 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 omission. (E&OE)

Property buyers: Must you pay the previous owner’s old debts?

A1BImagine this.  You buy your dream house.  You take transfer.  You book a date for your move with Fred’s Furniture Removals.  But when you apply for electricity and water accounts so you can actually move in, your local municipality refuses until you settle an old (and substantial) municipal debt which the original owner still owes.  “Pay up” says the municipality, “or we’ll sue.  You could lose the house”.

Can that possibly be correct?  A recent Supreme Court of Appeal (SCA) judgement says that indeed it can.

The case of the innocent buyer down R100k

  • A property was sold in execution, and the buyer paid all municipal debts for the preceding 2 years (in order to obtain a municipal clearance certificate, which you need to take transfer), thinking that that was the end of the matter.
  • The new owner on-sold the property to another buyer, who was refused municipal services until she paid a “historical debt” (over 2 years old and therefore not part of the clearance certificate) of R106,219-75.
  • The no-doubt horrified new buyer understandably declined to either pay a cent to the municipality or to take transfer until a court ruled on whether she could really be held liable for someone else’s old debts like that.
  • Initially the High Court found in her favour that old municipal debt cannot survive a sale in execution.  The SCA disagreed, holding that – per existing legislation and regardless of whether the sale was an execution sale or a normal private sale – the municipality’s claims for rates, taxes and services remained “a charge on the property”.  These old debts survived the change in ownership. Provided that it followed its own bye-laws (in this case requiring it to first try recovery from the original debtor, and disallowing action against an occupied property), the municipality could obtain court authority to “perfect its security” and sell the property.

Buyers:  Protect yourself!

There is talk of a constitutional challenge to this legislation, but in the meantime take legal advice immediately if you are ever on the receiving end of such a demand.  “Prescribed” (expired) debt cannot be claimed from you (prescription is 3 years for service accounts but 30 years for “rates and taxes”, which our courts have held includes sewer and refuse charges), and your lawyer will check whether all local bye-laws have been complied with.

Even more importantly, before signing the sale agreement ask your lawyer to check that it protects you as fully as possible.  For example the seller should prove payment of all municipal debts, old as well as new, and you should be indemnified against any other hidden claims crawling out of the woodwork after transfer.

Sellers: This is for you

Ensure a quick, clean transfer – ask your attorney (remember you choose the transferring attorney) to double-check that the municipality isn’t going to hassle you down the line for some old “forgotten” claim.

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)

Could your property debts be cancelled?

 A1B“How, on these figures, an employee of the bank could conclude that the farming may prove to be successful, is beyond me. It seems that money was just being poured into a bottomless pit.” (Extract from judgment below)

If you are a bank (or other lender), or if you have borrowed money against your property and are facing financial difficulty, you need to know about a recent High Court decision declaring that a bank’s loans to a farming couple had been granted “recklessly”, setting aside the loans, and cancelling the mortgage bonds.

The pensioners who went farming; and the bank that funded them

  • A couple used their pension moneys to buy a smallholding and develop it into a small scale farming venture.  They then started borrowing from a bank to meet shortfalls in their cash flow.  The bank secured its loans with two mortgage bonds over the property for a total of R1,151m, and took a suretyship from the couple’s daughter.
  • From day one it seems the farming venture was in trouble and eventually the bank approached the courts for an order to allow it to sell the property in execution.  The couple (and presumably their daughter also) risked losing everything.
  • However it emerged that –
    • The couple had no fixed income other than an annuity of R647 per month,
    • They were relying on loans from family to make ends meet,
    • They were already retired when the loans were granted, and would have been 85 and 80 years old respectively by the end of the 20 year loan period,
    • The bank had incorrectly taken the daughter’s income into account in assessing the loan applications,
    • The farming venture’s prospects of success were never good.
  • The Court, commenting that the National Credit Act (NCA) obliges a credit grantor to assess the consumer’s means, prospects and obligations “reasonably” before granting credit, held that the bank had failed to do so but instead had acted “irrationally”.
  • In the circumstances the couple had, with the help of an expert witness, proved (it being up to a debtor to prove any allegations of reckless lending) that the loans fell to be set aside or suspended in terms of the NCA.  The extent of the bank’s recklessness, the fact that the couple were elderly, and the fact that the smallholding was their only home led the Court to set aside the loans altogether rather than just suspending them.

Reckless lending → Consumers off the hook, bank down R1,74m

The couple must pay the bond cancellation costs, but other than that they – and their daughter who stood surety for the loans – are off the hook altogether.  The bank on the other hand is down R1,74m plus interest and legal costs.

Banks (and other credit providers):  Revisit your credit granting procedures urgently!

© DotNews, 2005-2016. This newsletter 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 omission. (E&OE)

Implications of Estate Duty

Click here for Afrikaans Article

A2_bEstate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  1. Which property is to be included.
  2. Which property constitutes “deemed property”.
  3. Allowable deductions: the possible deductions that are allowed when calculating estate duty.

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.

Deemed property

A. Insurance policies

  1. Includes proceeds of domestic insurance policies (payable in South Africa in South African currency [ZAR]), taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.
  2. The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy. Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.
  3. If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered with the Deeds Office) the policy will be totally exempt from estate duty.
  4. Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.

B. Benefits payable by pension and other funds by or as a result of the death of the deceased

Payments by such funds (pension, retirement annuity, provident funds) usually consist of two components – a lump sum payment on death and an annuity afterwards. The lump sum component used to be subject to estate duty. However as from 1 January 2009, no amount received from such a fund is included in the estate of the deceased for estate duty purposes.

C. Donations at date of death

Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.

D.Claims in terms of the Matrimonial Property Act (accrual claim)

An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.

E. Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act), like donating an asset to a trust, may be included as deemed property.

Deductions

Some of the most important allowable deductions are:

1. The cost of funeral, tombstone and deathbed expenses.

2. Debts due at date of death to persons who have their ordinary residence in South Africa.

3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.

4. Foreign assets and rights:

a. The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.

b. However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.

5. Debts and liabilities due to non-residents:

a. Debts and liabilities due to non-residents are deductible but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate.

6. Bequests to certain public benefit organisations:

a. Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes.

7. Property accruing to a surviving spouse [Section 4(q)]:

a. This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.

b. Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).

c. Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.

d. Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust). Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

Portable R3.5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death. The portability of the deduction will only apply when the entire value of the estate of the first dying spouse is left to the surviving spouse.

Life assurance for estate duty

Estate duty will also normally be leviable on these assurance proceeds.

Source: Moore Stephens’ Estate Planning Guide.

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.