Somerset West

Dear property enthusiastic,

It is a time of changing emotions in the property market. And for us property professionals not always emotions we can understand. Banks are informing us one way while other institutes are informing us differently. The national credit act did have its effects which we got used to surely but slowly. The last weeks interest rate increase is not too nice to experience. The effect in our budgets is enormous. But are we not always riding the waves of the economy and don’t we survive most of the time.

We have to be realistic and face a sign of the times houses are taking longer to sell. Houses sold in March had been an average of 70 days on the market compared to 67 days in February and 66 days in March last year.This is for the whole of South Africa. Houses in the affordable suburbs of Parow and Goodwood sold fairly quickly – in 50 days on average. In the more upmarket False Bay, houses were the market for an average 101 days.

The difference between advertised prices and sale prices jumped to 8.4% in March from 7.1% in February and 6.1% in March last year. In money terms, houses sold in March averaged R233 000 below asking prices compared to R195 000 in February and R132 000 a year ago. Resource of information RPPR

Absa House Price Index 4 April 2008 House price growth slowing down further

Nominal house price growth of 8,7% year-on-year was recorded in the middle segment of the market in March 2008, compared with a revised growth rate of 9,5% in February. Average nominal house price growth came to 9,5% in the first quarter of the year (12,4% in the final quarter of 2007). These trends in house price growth are according to the latest Absa House Price Index, which indicates that the average price of a middle-segment house was about R980 400 in March this year.

In real terms, year-on-year price growth was negative by 0,3% in February from positive growth of 1,0% recorded in January. This was the first time since June 1999 that real year-on-year house price growth was negative.

On a month-on-month basis, nominal house price growth remained stable at 0,5% in March from February. In real terms, house prices were virtually constant, recording positive growth of only 0,2% in February from January.

The slowdown in year-on-year house price growth has accelerated since September last year, mainly driven by further interest rate hikes in the second half of last year, a significant slowdown in growth in real household disposable income up to the end of 2007, and the full implementation of the National Credit Act in mid-2007, which saw a tightening of lending requirements applicable to consumers and financial institutions. Currently at 9,4%, CPIX inflation is way outside the inflation target range of 3%-6%, and still under strong upward pressure as a result of recent oil price, rand exchange rate and food price movements. These factors are adding to inflation expectations, which are set to have a significant impact on demands for higher wages this year. The CPIX inflation rate is forecast to increase to well above 9% in the near term, with an annual average of about 9% projected for the full year.

In view of these developments, the Reserve Bank’s Monetary Policy Committee will face a difficult task next week when deciding on the way forward for domestic interest rates. However, the forecast is for rates to remain unchanged throughout 2008.

In view of these developments, house price growth is expected to slow down even further this year from current levels. Nominal price growth of around 7% (about -2% in real terms) is projected for the full year. This will be the lowest nominal growth recorded in house prices since 1999, when it was 4,9%. It will also be the first time since 1999 that annual real house price growth will be in negative territory. Resource information ABSA bank

So how do we need to look at the market. As a seller you have to be realistic. Your house needs to be attractive “You only can make one first impression”. That means that little eyesores must be repaired and that the house needs to be clean and it needs to smell fresh. You might think don’t we know that all. True, but I can tell you we still walk in to houses that do have a severe dog smell or we find an attractive dumping place at the back of the garage.

CLEAN OUT! Before your house is coming on the market. It makes the chances of selling better and it saves you a lot of last moment work while moving out.

LISTEN to your property professional for the price setting of your property.

HIRE A PROFESSIONAL! Please inform in your surroundings if they know a property professional. Use a specialist as you will do for other important jobs. You don’t go to a doctor who never treated a patient before or who is only treating one patient every second month. We are still surprised that people are doing business with family or friends because they are related. Is that person well trained and able to do the job???? 

If there is a move in your future, call me, you’ll have my prompt,
professional attention, with of course no obligation!

Linda van Nes     Cell: 082 532 3383     O/H: 021 851 7988     Email: lindavannes

Very often the question arises as to whether the purchaser must pay transfer duty on a particular transaction or whether there is no transfer duty payable as the transaction is in fact a VAT transaction.  This question can arise where the seller is registered for VAT but the purchaser is not or the seller is not registered for VAT and the purchaser is registered for VAT or both parties are registered for VAT or neither party is registered for VAT.  The answer is usually easily determined by looking at the status of the seller.  As a general rule, if the seller is in fact registered for VAT purposes, VAT is payable on the transaction and no transfer duty is payable by the purchaser in the transaction.  If the seller is not registered for VAT purposes, then transfer duty is payable on the transaction by the purchaser.  There are a few technical exceptions to the general rule but an exception to the general rule happens so seldom that it does not serve any purpose in discussing such exemptions in an article of this nature. 

The other question which arises is whether VAT is included in the purchase price or not.  As a general rule in South Africa, any purchase price must be VAT inclusive.  Accordingly, if the transaction is a VAT transaction, then the purchase price will be inclusive of VAT unless the contract specifies that VAT is excluded from the purchase price.  One must therefore be very careful in calculating the purchase price where the seller is a VAT vendor as very often the VAT vendor does not take into account that the selling price of the property includes VAT and the seller is upset when the seller discovers that a portion of the purchase price which the seller has received from the purchaser must be paid to the Receiver of Revenue by way of a VAT payment.  From the purchaser’s point of view, the fact that the purchase price includes VAT and the purchaser does not have to pay transfer duty should mean that the purchaser should be willing to pay a higher price for the property being purchased as effectively the purchaser is getting the amount which the purchaser would have paid as transfer duty as a discount on the purchase price for the property. 

If the sale of the property is one which is a VAT transaction and the purchaser is registered for VAT purposes, the purchaser is entitled to claim the VAT which forms part of the purchase price of the property as a VAT input.  This effectively means that the purchaser will get a credit for this amount from the Receiver of Revenue on the purchaser’s VAT when the purchaser submits the purchaser’s next VAT return.  The Receiver of Revenue may conduct a VAT audit on the purchaser before allowing the input particularly if any monies are to be paid by the Receiver of Revenue to the purchaser.  Sometimes the audit does not take place if there is no actual payment of monies from the Receiver of Revenue to the purchaser.   

If the purchaser is a VAT vendor but the seller is not registered for VAT, the purchaser is entitled to claim the transfer duty which the purchaser has paid on the transfer of the property as a VAT input.  Effectively therefore the purchaser will recover the amount of the transfer duty from the Receiver of Revenue.  Again the same will be by way of a claim for a VAT input on the purchaser’s next VAT return and again the Receiver of Revenue may decide to audit the same prior to allowing the claim or paying a refund.  Normally the Receiver of Revenue will not allow the claim unless he has received proof that the transfer has actually taken place and would normally require a copy of the transfer duty receipt as proof that the actual transfer duty was paid.  One should therefore make arrangements with the conveyancing attorneys to expedite the relevant documentation after the transfer has been registered in order that the purchaser can obtain the relevant documentation as soon as possible to support a claim for the return of the transfer duty in the form of a VAT input.  

In the event that the property forms part of a business and the business is sold as a going concern, if both the purchaser and the seller are registered for VAT purposes, then VAT will still be payable but the transaction would be zero rated.  In other words effectively no VAT or transfer duty would be payable on the transaction. To qualify however the assets which are necessary to carry on the enterprise must be disposed of by the seller to the purchaser and the enterprise must be an income earning activity on the relevant effective date.  It would be wise in such instance to include a clause along the following lines in the contract for the sale of the business to ensure that the Receiver of Revenue will in fact agree that the VAT in the transaction should be zero rated:

1. Both parties hereby warrant that they are registered as vendors in terms of Section 23 of the Value Added Tax Act No. 89 of 1991 (”(the Act”).  The parties record that:

                           (a)   The business together with the assets and the stock-in-trade constitutes an enterprise as the term is defined in the Act, and the supply of the enterprise as contemplated herein is that of a going concern chargeable with value-added tax (”VAT”) at zero rate in terms of Section 11 (1)(e) of the Act. 

                           (b)   The enterprise shall be an income-earning activity on the effective date, it being recorded that all of the assets which are necessary for the carrying on of such enterprise are hereby simultaneously being disposed of by the Seller to the Purchaser. 

2. In the event of Vat being levied at a rate other than zero, the VAT so payable shall be paid by the Purchaser to the Seller on demand, provided that the Seller furnishes the Purchaser with a VAT invoice as contemplated in the Act to enable the Purchaser to claim an input credit in respect of the VAT so paid.” 

Although the question as to whether VAT or transfer duty is payable often presents problems to the lay person, in actual point of fact it is a question which can be determined relatively easily by looking at the status of the seller.  Effectively the status of the seller determines whether VAT is payable and the status of the purchaser determines whether or not the purchaser can recover the VAT or the transfer duty from the Receiver as a VAT input.  However it should be emphasized that if one is in doubt one should always first discuss the matter with either an auditor or an attorney before giving advice as to whether the transaction is a  VAT transaction or not as the consequences of giving incorrect advice could be harmful for the parties involved. 

Cape Town  Tel : 021 910-1911 Fax : 021 910-4911 E-mail: capetown Unit E4/2, Edward IV 120 – 122 Edward Street Bellville 7530, South Africa Docex 42, Tygerberg Web-site: http:/www.dykesvanheerden.co.za

The question of amendments to the bond clause as a result of the passing of the National Credit Act has been the subject of much discussion.  Most contracts contain a clause which provides that the agreement is subject to the suspensive condition that the purchaser is able to raise a loan upon the security of a mortgage bond to be passed over the relevant property by a bank or other financial institution for the sum of not less than a certain amount within a certain period of time. 

The contract therefore is subject to the purchaser being able to raise a loan.  Once the purchaser is in a position where the purchaser can in fact raise a loan then the suspensive condition is fulfilled.  Thus strictly speaking, it is not necessary to amend the bond clause. 

Many contracts in the past provided that that the bond clause was deemed to be fulfilled if the loan was granted in principal.  Such a clause would now not be applicable as loans are not granted in principal.  Instead a quotation is presented to the client who can either accept or reject the quotation.  In respect of contracts which contain such clauses, some commentators have suggested that one should replace that portion of the contract with words to the effect that the suspensive condition is deemed to be fulfilled once the quotation and pre-agreement statement have been issued by a financial institution.  Some doubt has been expressed by others on the basis that such a clause would be struck out as it has the effect of negating the contract by virtue of the fact that it effectively negates the purchaser’s right in terms of the National Credit Act to consider the quotation for a period of 5 (five) days and either accept or reject the same.  Thus, if one were to include such a clause, we believe it would be prudent to also include a clause in the contract to the effect that in the event that any paragraph, clause, line, sentence or word is found to be illegal or unenforceable that such paragraph, clause, line, sentence or word be deleted from the contract and the balance of the contract will remain in full force and effect.  This would hopefully negate the danger involved in including a clause of the nature referred to above. 

Of course one must take into account the fact that in law there is the principle of fictional fulfilment in terms of which a suspensive condition is deemed to have been fulfilled if the person who is capable of fulfilling the same frustrates such fulfilment.  Thus, in all probability, if the purchaser obtains the relevant quotation and pre-agreement statement from a financial institution and does not accept the same, the seller will probably be able to argue that the purchaser frustrated the fulfilment of the suspensive condition and that therefore the contract is valid and binding.  This of course is a further reason why one need not necessarily amend one’s bond clause if one does not have the deeming provision.   

If however those parties which have a contract which has a clause which provided that the bond clause would be deemed to be fulfilled if the loan was granted in principle, wish to amend their bond clause to retain a redeeming provision, there are various options which can be considered namely:

1. One could insert a deeming provision along the lines suggested above.  In such event the following words would be added in the appropriate part of the bond clause: “The parties specifically agree that this suspensive condition shall be deemed to be fulfilled on the date that the purchaser obtains a quotation and/or pre-agreement statement from any financial institution in terms of which such financial institution offers a loan to the purchaser in an amount of not less than the amount referred to above.” In such event we would suggest that the severability clause referred to above also be inserted in the contract; or 
2. One could insert at the appropriate place in the bond finance clause the following: “The purchaser’s attention is drawn to the fact that in terms of the doctrine of fictional fulfilment, this clause will be deemed to be fulfilled if the purchaser frustrates the fulfilment of this clause in any way whatsoever.” or; 
3. One could phrase the clause in terms of a resolutive condition instead of a suspensive condition.  In such event the first part of the clause will read: “In the event that the purchaser (or the seller or the agent on the purchaser’s behalf) is not able to obtain a quotation and/or a pre-agreement statement from any financial institution in terms of which such financial institution offers to loan to the purchaser the sum of not less than R_______ plus costs (delete if not applicable) within ____ days of acceptance of this offer (which time may be extended by the agent at the agent’s sole discretion for a further period not exceeding ____ days) then this agreement will automatically terminate and be of no further force or effect.  The parties specifically agree that if the agent exercises its discretion to extend the time period by which the quotation and/or pre-agreement statement from the financial institution is received, it will not be necessary for the agent to notify either the purchaser or the seller of such extension” It could then be argued that because the agreement is not suspensive upon the purchaser obtaining the relevant finance, the fact that the clause is linked to a quotation or pre-agreed statement is no longer forcing the purchaser to give up his rights in terms of the National Credit Act in regard to the 5 day period of acceptance or his rights to accept or reject the quotation.  It is a fine distinction and this distinction may not be upheld by a court of law. 

Please obtain legal advice before altering any contract as one must assess the wording of the contract before making any amendments.

Cape Town  Tel : 021 910-1911 Fax : 021 910-4911 E-mail: capetown Unit E4/2, Edward IV 120 – 122 Edward Street Bellville 7530, South Africa Docex 42, Tygerberg Web-site: http:/www.dykesvanheerden.co.za

INTRODUCTION The National Credit Act (hereinafter referred to as “the NCA”) was passed by Parliament on the 10^th of March 2006.  The main provisions of the Act come into effect on the 1^st of June 2007. The purpose of the Act is to:  

1. promote a fair and non-discriminatory market place for access to the consumer credit;
2. regulation of consumer credit and improved standards of consumer information;
3. prohibit certain unfair credit and credit marketing practices;
4. promote responsible credit granting and use;
5. prohibit reckless credit granting;
6. provide for debt re-organization in case of over-indebtedness;
7. to regulate credit information; and
8. establish the National Credit Regulator and the National Consumer Tribunal.

   WHO IS AFFECTED? Anyone dealing in the credit industry be it a credit grantor, a credit grantee or any intermediatery. The Act has a wide definition for the term “credit agreement” and the Act therefore applies to any party involved in the credit agreement. A credit agreement is defined in the Act as any agreement where goods or services are purchased and repayable on installments and not on delivery, as well as any extension of money i.e. home loans, personal loans, credit cards, store cards and short term loans. The Act further classifies the credit agreements into three categories:

   • Incidental credit agreements;
   • Intermediate agreements;  and
   • Large credit agreements.

   A loan over immovable property is considered a large credit agreement, which is our focus in the real estate industry.  The act is applicable to all natural persons, and for the purposes of large credit agreements, juristic persons are excluded. It must be noted that a lease of immovable property has specifically been excluded in terms of this act and this act will therefore not apply to any rental properties. 

   THE EFFECT OF THE NCA In terms of this act the onus has been shifted from the consumer, who should not borrow more than they can repay, to the Banks and other credit extenders to fully asses the ability of a person applying for credit to reasonably be able to repay such credit, as the debt falls due.  Should the financial institutions fail to do the necessary checks to ensure that credit is not being extended to persons who would be unable to repay such credit, a magistrate may declare it reckless lending.

   The magistrate may then either:

   1.  declare the agreement unenforceable, meaning the financial institution can not recover the money
   2.  suspend the debt for a determined period, during which period no finance charges nor interest may be charged; or
   3.  restructure the debt i.e. the interest rates and the repayment terms so that the consumer will be in a position to repay same. 

   The act further prohibits negative marketing which may mean that no consumer may be pre-approved for any bond subject to valuation of a property.  The banks will probably have to send out assessors and establish value in the property prior to granting the mortgage loan.  This will result in a delay in the turnaround-time for bond grants. Agents are therefore advised to extend the period available in their suspensive conditions for the bond grant. This will prevent the deal from expiring due to delays from the banks in performing all the necessary checks on an applicant. In terms of the NCA, financial institutions have to establish if the consumer, based on the preponderance of available information at the time a determination is made, is or will be able to satisfy in a timely manner all the obligations under the credit agreements to which the consumer is a party, having regard to the consumer’s financial means and prospects as indicated by the consumers history of debt repayment.  As there is no specific definition of what percentage of the consumer’s monthly income may be utilized towards debt repayment the banks may initially be hesitant to extend credit as freely as in the past.  The result will be more frequent declines on bond applications. However on the bonds that are approved, one should be assured that the consumer will have sufficient financial means to pay the necessary transfer and bond costs to ensure that the transfer will be successfully concluded. The banks may have an initial delayed turnaround-time on approval of bonds. The bond instructions may therefore enter the conveyancing/transfer process later than usual and may result in a delay of the transfer process. bureaus and debt counselors have to register with the National Credit Regulator. 

   The National Credit Regulator will enforce the NCA through:

   1.  promoting informal resolution of disputes
   2.  receiving complaints concerning alleged contraventions of the NCA;
   3.  monitoring the consumer credit market and industry to ensure that prohibited conduct is prevented or detected and prosecuted and  evaluate and reprimand alleged contraventions of the act;
   4. overseeing and ensure the correctness of the contents of the National Credit Register. 

   In terms of the NCA, all consumer information will now be contained in the National Credit Register. The information drawn on by the financial institutions and relevant financial bureaus will have to be drawn from this credit record.  The credit record will contain information on all credit agreements, suretyships and judgments, past and current, of the consumer. The consumer has a right to petition the NCR to correct any incorrect information based on his or her credit record.  The consumer further has a right of access to his/her credit record at no charge once a year in the month of his/her birth.

   THE NATIONAL CONSUMER TRIBUNAL The act has established a National Consumer Tribunal.  The tribunal will adjudicate a matter in relation to relief sought as provided for in the NCA and any allegations of prohibited conduct and if appropriate, impose a remedy provided for in the NCA.   

   CONSUMER CREDIT POLICY In terms of the NCA the consumer now has certain rights against credit grantors. 

   The consumer has a right to:

   1.  apply for credit;
   2.  not be discriminated against in granting credit; 
   3. written reasons from a credit grantor for refusing any credit that was applied for; and 
   4. receive all necessary documentation when applying for credit, in their official language. 

   ADVERTISING PRACTICES The NCA has specific provisions regulating the advertising practices of financial institutions wishing to extend credit.  The emphasis is on full disclosure of all financial charges that would be incurred by such consumer upfront before the consumer enters into such credit agreements. The consumer is therefore entitled to a statement setting out any and all finance charges that will be incurred by such a consumer on extension of the credit as well as the terms of re-payment.

   We wish to point out that this is a very brief discussion regarding the National Credit Act.  This should not be deemed to be an extensive and fully detailed discussion, and should only be utilized as a guideline.

Cape Town  Tel : 021 910-1911 Fax : 021 910-4911 E-mail: capetown Unit E4/2, Edward IV 120 – 122 Edward Street Bellville 7530, South Africa Docex 42, Tygerberg Web-site: http:/www.dykesvanheerden.co.za

There have been certain articles recently which have stated that South Africa intends to only allow foreigners to purchase property on a 99 year lease.  These reports are not all together accurate.  All that has happened is that the relevant minister has stated in parliament that one should investigate why the prices of properties in South Africa have increased dramatically and in particular look into the question of the influence of foreign ownership of properties in South Africa on such prices.  Mention was made that a possible solution could be that foreigners would only be allowed to obtain property by way of a 99 year lease.  It is however unlikely that the same will happen for the following reasons:- 

1.        The Government has in fact not made any firm commitment to proposing a restriction on foreign ownership.  It was reported in the Rapport that the cabinet agreed on the 24^th of July 2004 to investigate foreign property ownership as well as the effect thereof on land reform.  Mr. Joel Netshitenzhe (The government representative) said that the Department of Agriculture and Land Affairs will do an audit where after a panel of experts from within and outside the government will debate the possibility of enforcing restrictions to foreign property ownership.  Public discussions will also be held. 

2.        Since 1995 South Africa has had a tradition of starting debates and entering into compromises regarding matters of national interest.  This resulted in the peaceful transition from the old regime to the present government.  This tradition of debating and compromise has continued in regard to almost every important Law passed in South Africa since 1995.    Usually a government minister raises the question and proposes a rather draconian solution.  After discussions have taken place the parties compromise and the resultant legislation is one which satisfies all the parties.  One may recall the initial scare when the government spoke about the mining charter for South Africa.   After negotiations the final outcome was much different.

3.        The South African Government has done a wonderful job on the macro economic side of the country.  It has reduced inflation to its lowest levels for many years, introduced policies which strengthened the rand, reduced the budget deficit dramatically and generally strengthened the economy.  It is unlikely that the South African Government will sacrifice much of its hard earned gains by making foolish decisions regarding foreign investment. 

4.        Foreign ownership of property constitutes less than 1% of properties purchased in South Africa and it is unlikely that the panel of experts referred to above will find that foreign property ownership has actually affected the property market of South Africa that dramatically.  It is likely to find that it has only really affected the top end of the market as foreigners are inclined to purchase the expensive properties.  Very few properties which are priced for less than one million rand are owned by foreigners and this is in fact the market in which the majority of South Africans invest.
At the end of the day property investment in South Africa is such an attractive exercise that one should never be frightened by the fact that certain restrictions may be placed on the ownership. Even if such restrictions were imposed, the properties in South Africa form a wonderful investment opportunity as well as providing superior accommodation in a beautiful part of the world with a temperate climate. On a value for money basis it is difficult to imagine a better place to invest in immovable property (even if the same is subject to a 99 year lease ownership – which one assumes is unlikely)

Cape Town  Tel : 021 910-1911 Fax : 021 910-4911 E-mail: capetown Unit E4/2, Edward IV 120 – 122 Edward Street Bellville 7530, South Africa Docex 42, Tygerberg Web-site: http:/www.dykesvanheerden.co.za

A contract to buy or sell property would invariably include a voetstoots clause.  The recent Court decision of Waller and Another vs Pienaar and Another 2004(6) SA 303(C) has elucidated certain aspects of the voetstoots clause.

What is meant by the term “voetstoots”? The clause means that the property is sold “as is” or “as it stands”.  Accordingly the purchaser purchases the property with all the patent and latent defects.  Simply put patent defects refer to defects that are visible to the naked eye and don’t require expert inspection, whereas latent defects refer to defects that one would not normally discover with a normal inspection e.g. a leaking roof. The purchaser is always liable for patent defects unless the contract provides otherwise. 

Van der Merwe vs Meads 1991 (2) SA 1(A)

The case of Van der Merwe vs Meads is the leading authority in respect of the “voetstoots” clause.  The case sets out the main criteria when analyzing the Seller’s liability in respect of property sold voetstoots and states that a Seller is deprived of protection under the said clause in the following circumstances:

a. Where the Seller was aware of the defects in the property when entering

    into the contract; and 

b. The Seller (dolo malo) intentionally conceals the existence of the defect

    with the intention of defrauding the Purchaser

Clearly, the test in Van Der Merwe vs Meads placed a difficult burden of proof on the Purchaser as the Purchaser would have to prove that the Seller had knowledge of the defect together with the intention to defraud the Purchaser to succeed in depriving the Seller of his defence under the voetstoots clause.  In the past, the second leg of this intention to defraud test was often easily negated by the Seller. 

Waller and Another vs Pienaar and Another (6) SA 303C

The recent case of Waller and Another vs Pienaar and Another deals with the second leg of the test.  Whilst upholding the principals laid down in the Van der Merwe vs Meads, the Cape Town High Court in this case has now elucidated the principles and this case will assist Purchasers in the future. The case in question arose from allegations by the Purchasers that the property in question had latent defects which the Sellers failed to disclose to them at the time of the sale.  The court  analyzed whether the Sellers could rely on the voetstoots clause as a defence and what the Purchasers would have to prove in order to succeed.   The alleged defects were poorly compacted filling, a vertical crack at the north gable wall, settlement of entrances screen wall, poor quality of external face brick panels, the failure of internal walls and the dwelling had been constructed above an uncontrolled fill site which fill site was of such a nature that necessary steps had to be taken to provide adequate footings and suitable founding depths to avoid any construction on the property from cracking and this had not been done with the building in question. The Court held that in order for the Purchasers to be successful in their claim they had to prove that:

1. The defects were latent;
2. The Sellers were aware of the defects at the time of sale;
3. The Sellers had a duty to disclose the existence of the defects to the Purchasers at the time of sale;
4. The Sellers fraudulently concealed the existence of the defects, thereby inducing the contract, alternatively the Sellers fraudulently misrepresented that there were no defects.

Were the defects as pleaded latent?  The court  summed up the definition of latent defects to mean not “apparent” or a defect that is not reasonable capable of perception.  The court held that the defects were in fact latent especially  because the defects would not be visible to the untrained eye.  The Sellers had argued that the crack to the north gable wall was “visible” and therefore not “latent”.  The court took into account that the property was inspected at night time and held that the Purchasers would not have seen same and since the Sellers did not disclose this to the Purchasers they could not reasonably be expected to be aware of same, thus qualifying the defect as latent.  

Were the Sellers aware of the alleged defects at the time of the sale and if so were they under a duty to disclose these to the Plaintiff? In answering this question the Court reviewed the case of Knight vs Trollip:- “I think it resolves itself to this, viz that here the seller could be held liable only in respect of defects of which he knew at the time of the making of the contract, being defects of which the purchaser did not then know.  In respect of those defects, the seller may be held liable where he has designedly concealed their existence from the purchaser, or where he has craftily refrained from informing the purchaser of their existence.  In such circumstances, his liability is contingent on his having behaved in a way which amounts to a fraud on the purchaser, and it would thus seem to follow that, in order that the purchaser may make him liable for such defects, the purchaser must show directly or by inference, that the seller actually knew.  In general, ignorance due to mere negligence or ineptitude is not, in such a case equivalent to fraud.” The Sellers were clearly aware of the defects as they admitted to knowing that the north gable wall was cracked and also admitted that extensive work had to be done to cover up cracks on the internal walls.  The Court further quoted from the case of Forsdicks vs Young where the learned Judge stated that:- “the words “designedly” and craftily” imply that there must be some element of the transaction beyond mere knowledge and non-disclosure.  The learned Judge further states that it may be that the Seller’s awareness of the Purchaser’s ignorance would supply that element.”  The Court pointed out that the Purchaser asked no question regarding certain of the defects and had to have purchased the property ignorant of the same. 

Did the Sellers fraudulently conceal the defects and/or falsely misrepresent to the Purchasers that there was no defects with the intention of inducing them to buy the property under the circumstances where the Sellers had a duty to disclose the alleged defects.  The Court when answering this question ultimately decided that “silence in this instance” arising from the Sellers’ knowledge of the facts and the deliberate decision not to reveal them, was clearly fraudulent.   Accordingly the answer to this question was in the affirmative.   The Court concluded that the contract was to be cancelled and the Purchasers were to be placed in the same position they were prior to entering into the sale.    Clearly under certain circumstances silence on the part of the Sellers will be tantamount to fraud and this will assist a Purchaser in succeeding in a claim and deprive the Seller of his defence that the property was sold voetstoots.  In light of the above it is evident that the Court will not come to the assistance of a “dishonest” Seller.

Cape Town  Tel : 021 910-1911 Fax : 021 910-4911 E-mail: capetown Unit E4/2, Edward IV 120 – 122 Edward Street Bellville 7530, South Africa Docex 42, Tygerberg Web-site: http:/www.dykesvanheerden.co.za

There is an obligation in Law that when property is transferred, there is in existence a valid electrical compliance certificate or the obligation to obtain an electrical compliance certificate.  This onerous obligation is most often placed on the Seller and is one that extends beyond a mere contractual obligation, as it is governed by statute namely, the Occupational Health and Safety Act of 1993 (as amended) (hereinafter referred to as “the Act”) and the Electrical Installation Regulations of 1992 (hereinafter referred to as “the Regulations”).  The relevant regulations when dealing with immovable property are as follows:

1)      Subject to the provisions of sub-regulation (3), every user or lessor of an electrical installation, as the case may be, shall have a valid certificate of compliance in respect of every such installation: Provided that where any addition or alteration has been effected to an electrical installation for which a certificate of compliance was previously issued, the user or lessor of such an installation shall obtain either a certificate of compliance for such an addition or alteration or a new certificate of compliance for the whole installation: Provided further that such certificate shall be transferable.

2)      Every user or lessor of an electrical installation, as the case may be, shall on request produce the certificate of compliance for that installation to an inspector or the supplier. 3)      Sub-regulation (1) shall not apply to electrical installations existing prior to the coming into force of these regulations: Provided that, if –

a.       any addition or alteration is effected to such an installation; or

b.   there is a change of ownership of the premises on which such an installation exists after 1 January 1994, the user or lessor of the electrical installation, as the case may be, shall obtain a certificate of compliance for the whole installation, where after the provisions of sub-regulation (1) shall be applicable to such installation.

What is a valid electrical compliance certificate? A valid electrical compliance certificate is a certificate issued by an electrician who is accredited by the Electrical Board, who after having inspected the premises issues a certificate confirming that the electrical installations, alterations or additions on the said premises comply with the requirements as is set out in the Act and Regulations. 

Who needs to obtain an Electrical Compliance Certificate when transferring property?  It is the general practice that an owner before transferring property, obtains the necessary electrical compliance certificate or has one in his possession which is capable of being transferred.  However, there is no provision in the regulations to force an existing owner to hand over or to transfer the electrical compliance certificate to the new owner.  The new owner is, however required in terms of the regulations to have in his possession an electrical compliance certificate which he needs to provide if required to do so by an inspector appointed in terms of the regulations.  This is irrespective of whether one was supplied to him at registration of transfer.  It is therefore advisable that an offer to purchase contains a clause that places the onus on either one of the contracting parties to obtain the said certificate.  Should there be no clause in the contract of sale, then the Act and the Regulations will apply.  

When does an Electrical Compliance Certificate expire? The Act is silent as to what the validity period of an Electrical Compliance Certificate is and it can accordingly be concluded that the said certificate would be valid indefinitely.   However, the Act does state that if any additions or alterations have been carried out on the installation or on the electrical works on the property, the owner would have to obtain a new Electrical Compliance Certificate or a Compliance Certificate that covers the necessary changes to the property.  A new owner cannot insist, in the absence of a contractual obligation that the existing owner obtains a new electrical compliance certificate unless of course there were additions or alterations done to the installation.   

Does a new owner have any recourse if he finds himself in possession of an electrical compliance certificate even though the electrical work is defective? A new owner who finds himself in this unfortunate predicament may lodge a compliant with the electrical board who will then send out an inspector to investigate the complaint and if it is established that the electrical compliance certificate is defective, declare the said certificate invalid. The person who is contractually liable for furnishing a valid electrical compliance certificate will then have to effect the necessary repairs and obtain a new electrical compliance certificate.  

Is there a duty on conveyancers who are transferring property to a new owner to ensure that the electrical compliance certificate is available? This is a frequently asked question by many new owners, especially in circumstances where an electrical compliance certificate has not been provided for one reason or the other.   In answering this question one would have to look at the contract.  The Law Society of the Northern Provinces has stated that:- “The Regulations place no legal or professional duty on a conveyancer to ensure that a valid Certificate is issued or an existing one is transferred, during the registration of transfer procedure in the deeds office – unless it is specifically stipulated in the contract that the conveyancer must supervise the situation.  In such case it will be the professional duty of the conveyancer to ensure that the Certificate is obtained before registration.

What is the position if one were to lose, damage or destroy an Electrical Compliance Certificate?

The Regulations make provision for one to apply for a duplicate copy of the Electrical Compliance Certificate from the Chief Inspector.  An application would have to be made to the Chief Inspector whereafter he would determine whether the electrical certificate was indeed lost, damaged or destroyed and based on his findings, he will then issue a duplicate electrical compliance certificate.  

What is the position in respect of units in a Sectional Title Scheme? When transferring a unit in a Sectional Title Scheme the Act and the Regulations do not require that an electrical compliance certificate be supplied for the entire scheme, but merely for the said unit being transferred. 

What are the implications of non-compliance? Any person who contravenes the provisions of the Act or the Regulations shall be guilty of an offence and if convicted be ordered to either pay a fine or sentenced to imprisonment.  In conclusion an electrical compliance certificate is most definitely a legal requirement. It is accordingly advisable that one deals with the Electrical Compliance Certificate in the Agreement of Sale and further advisable that one has an electrical compliance certificate in his possession prior to transfer.

Cape Town  Tel : 021 910-1911 Fax : 021 910-4911 E-mail: capetown Unit E4/2, Edward IV 120 – 122 Edward Street Bellville 7530, South Africa Docex 42, Tygerberg Web-site: http:/www.dykesvanheerden.co.za

Ø       Background The Financial Intelligence Centre Act (hereinafter referred to as “FICA”) was passed by Parliament in December 2001 and is being promulgated in a phased approach.  FICA effectively establishes a partnership between the private and the public sector to assist in the identification of proceeds of unlawful activities thereby combating money laundering activities.  In terms of FICA, the Money Laundering Advisory Council and Financial Intelligence Centre (hereinafter referred to as “FIC”) were established. 

• An automatic reporting duty relating to cash transactions and electronic transfers of money to or from the Republic in excess of the prescribed amount (not yet implemented).
•  Reporting of suspicious or unusual transactions. This means the business believes it has received or is about to receive the proceeds of unlawful activities. 
•  Reporting of evasion or attempted evasion of a duty to pay a tax, duty or levy imposed by SARS. 
•  Reporting that a business has been or is about to be used in any way for money laundering purposes. 

The above should be seen as very brief comments on FICA and our interpretation thereof and should not be seen as an extensive guideline.  Should you need any additional information, please do not hesitate to contact Johan van Heerden or Peter Dykes or visit the web-site of the Financial Intelligence Centre at www.fic.org.za or the web-site of the Estate Agency Affairs Board, being, www.eaab.org.za.