A Complex Issue: Beware Late Building Penalties

A Complex Issue: Beware Late Building Penalties

“Home wasn’t built in a day.” (Jane Ace, radio comedian)

You find the perfect plot on which to build your dream home in a security estate. Your offer is accepted and transfer proceeds – happy days!

So, imagine your distress when, having proudly taken ownership, you are suddenly told by the HOA (Homeowners’ Association) that you are liable for penalty levies because the previous owner didn’t build on the plot within the deadline period set out in the HOA’s constitution.

You ask the HOA for an extension – after all, it was the seller who was in default, not you. And besides, no one said anything to you about the problem until now. Most importantly, even with the best will in the world (and the best architect and builder!) it will take you many months to get plans approved and start laying foundations. The last thing you need now is the crippling financial burden of unforeseen penalty levies.  

The HOA is unsympathetic. “You should have checked before buying,” they say. “The seller and the agent should have told you all about it – take it up with them.”

Can that really be correct?

A recent High Court decision addresses exactly that situation. All HOAs, owners and buyers need to understand the ramifications of the Court’s findings.

“You owe R190k in penalty levies and interest. Pay up!”

The scene is an upmarket security estate in Midrand, managed by a HOA. 

In terms of the HOA’s constitution, construction of a house has to start within 18 months of the land first being sold, and be completed within 30 months. Fail to meet this deadline and the landowner is liable for penalty levies of twice the normal levy plus the normal levy. That’s triple levies – payable until completion. Critically, the constitution also specifies that “successors in title” (i.e. buyers of vacant plots from existing owners) fall squarely into this net.

Our buyer, as soon as she became aware of these hefty penalty rates, challenged them with the HOA on the basis that – as she had just bought the property and was awaiting approval of building plans – it was physically impossible to expect her to start building immediately after taking transfer. Therefore, she said, it would have been reasonable to give her the same time periods as the previous owners before charging penalties. In any case she could not be held liable for the previous owner’s failure to build. 

The HOA declined to offer her any relief, and the dispute went before the CSOS (Community Schemes Ombud Service), with the buyer asking for an order that “the unreasonable and therefore incorrect imposed fines/penalties be rescinded”. The CSOS ruled the penalties to be invalid because the HOA had not followed fair procedure in imposing them, and the High Court confirmed this decision on appeal.

The details of the dispute are highly technical and will be of little practical import to anyone but lawyers. But what are highly relevant to all HOAs, owners and buyers are the Court’s findings that:

  • When you buy into a complex, you agree to its rules: When you buy property and automatically become a member of an HOA, you agree to its rules and are contractually bound to comply with them.
  • Late building penalties are justified: As our courts have previously pointed out, penalty clauses like this one are often found in residential complexes as an incentive to owners to “start and complete building works as soon as possible.” This is because “building works inherently cause prejudice to the homeowners’ association and the owners of the Estate … as a result of the nuisance (such as noise and dust) caused by such works, the security risk it presents and the potential for damage to common property…. It also affects the attractiveness and hence the market value of properties in the estate.”
  • Subsequent owners can also be bound: HOAs can bind not only original buyers, but also subsequent buyers, to building deadlines. And they can attribute the previous owner’s non-compliance to the new buyer. 
  • Wording is critical: HOAs must ensure that the wording of their building penalty provisions is wide-ranging enough to include subsequent buyers. Otherwise, as shown in previous High Court decisions, they will struggle to enforce the penalties against anyone other than the original owner. 
  • Fair procedures are essential: In this particular case, the Court set aside the imposition of penalty levies as “unreasonably and unfairly imposed” and therefore invalid. This after finding that the HOA’s outright refusal to allow the buyer a chance to remedy the default, and its refusal to consider her application for an extension of the building deadline, “was unreasonable and contrary to the spirit of the constitutional provision in question.” 

While the HOA’s constitution did unequivocally bind subsequent buyers to the penalties, this was not enough to satisfy the Court to rule in its favour. This is because the HOA did not act fairly in its treatment of the buyer. HOAs take note!

Buyers: Do your homework! 

Although the buyer in this case is off the hook (for now, at least), things could have gone completely pear-shaped for her if the HOA had acted more reasonably in imposing the penalty levies. 

The lesson for buyers therefore is this: Before you put an offer in for any property in a complex, make sure you understand exactly what you are letting yourself in for, and what you are agreeing to. Ask us for help if you’re unsure about anything.

Disclaimer: The information provided herein should not be used or relied on as 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 us for specific and detailed advice.

© LawDotNews

Do You Need a Second Will for Your Overseas Assets?

Do You Need a Second Will for Your Overseas Assets?

“Only put off until tomorrow what you are willing to die having left undone.” (Pablo Picasso)

If you own assets outside South Africa, you may have wondered: Is my local will enough? This is a question many South Africans are asking, and the answer will depend on your own unique situation. Let’s break it down.

Why your South African will may not be enough

A South African will can cover all your local and global assets and typically will do so unless otherwise specified. But practical and legal challenges can arise when dealing with foreign laws, tax regimes and regulations:

  • Delays and costs: If your executor has to deal with assets in another country this can take considerable time and incur additional legal fees for authentication/translation of documents, applications to recognise appointments and so on.
  • Legal conflicts: Many countries have “forced heirship” rules that will override the provisions of your will and require that specified portions of your estate must go to “protected” heirs. In France, for example, your children will inherit up to 75% of your estate. Worse, some legal systems may not recognise your local will as being valid at all. 
The case for a foreign will

You might anyway benefit from a foreign will if:

  1. You own immovable property abroad: Immovable property is generally subject to the laws of the country in which it is situated, making a foreign will advisable. 
  2. You have significant movable assets overseas: Movables such as investments, shares, bank accounts etc, although likely subject to South African legal principles, could still be easier to manage with a separate will.
  3. You spend a lot of time in another country: Regular visits or dual residency could complicate estate administration and make a foreign will an advantage – even if it’s not strictly necessary.
  4. You want to minimise your estate’s tax bill: A foreign will might be recommended to you as part of tax planning, which is essential to minimise the risks of double taxation, estate duties and other financial penalties on your foreign assets. This is because we have a residence-based taxation system so SARS will – with few exceptions – be looking at all your assets worldwide. 
How a foreign will works

A foreign will is drafted according to the laws of the country where your assets are located, and should:

  • Ensure compliance with that country’s laws and regulations.
  • Work alongside your South African will to avoid duplication or conflict.
  • Simplify the process for your loved ones when the time comes to administer your estate.
Key considerations

Legal advice is crucial as your South African and foreign wills must align. Contradictions might render one or both wills invalid or open to challenge. When drafting your will(s) be careful to:

  • Ensure that your various wills clearly specify which of your assets each applies to.
  • Avoid inadvertently revoking your other will/s – specify in each will that it does not replace your other wills, which are to remain valid concurrently. 
  • Not allow duplication or conflict to creep in over time – diarise regular reviews of all your wills on an integrated basis.

Remember that drafting and maintaining multiple wills may incur additional expenses – but it can also save your heirs lots of money and time. Separate wills should be structured to streamline and simplify the administration process in different jurisdictions.

Protecting your legacy at home and abroad

Ensuring that your wishes are honoured and that your loved ones are protected starts with the right legal advice. If you’re unsure whether you need a foreign will, let’s talk. A consultation can give you peace of mind – and save your loved ones time, money, and stress in the future.

Disclaimer: The information provided herein should not be used or relied on as 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 us for specific and detailed advice.

© LawDotNews

Braai Chain Hauled Over the Coals for Hidden Service Charges and Fined R1m

Braai Chain Hauled Over the Coals for Hidden Service Charges and Fined R1m

“The secret of life is honesty and fair dealing… If you can fake that, you’ve got it made.” (Groucho Marx)

We’ve all had this experience – meal over, relaxed and happy, you call for the bill and decide to reward your friendly and helpful waitron with a good tip. Only to find, on checking the bill when you get home, that the restaurant had already added a “compulsory service charge” (perhaps 10% or 15% – sometimes even more). When you challenge it, the manager points to the small print on the menu which says something like “service charge applies to tables of six or more”, or “discretionary service charge may be levied”. 

And it’s not only restaurants that engage in such shenanigans. Perhaps it’s a builder or any other service provider adding on bits and pieces to an invoice that you hadn’t noticed when you signed up with them.

Is this kind of behaviour allowed?

The devil, as always, is in the details. If the add-on was properly disclosed to you upfront, you have no legal leg to stand on. It’s up to you to check the menu, or the supplier’s website and Ts and Cs, before ordering. 

But it’s a very different story if the add-on was not properly disclosed upfront by the supplier. As a recent judgment of the National Consumer Tribunal (“the Tribunal”) shows, heavy penalties await any “supplier” (widely defined to include not only restaurants and retailers, but anyone who markets or supplies any goods or services to consumers) who breaches any of their many obligations under the CPA (Consumer Protection Act). And that includes “no hidden charges allowed”.

Being found guilty of “prohibited conduct” will be an expensive exercise. Witness the R1m administrative fine imposed recently on a fast-food chain specialising in that beloved South African tradition – braaivleis.

The braai fast-food chain and the disgruntled customer

Acting on a tip-off from a customer, the NCC (National Consumer Commission) found that a fast-food chain, specialising in “organic braai fast food” (chew on that description for a moment) with 16 outlets across Gauteng was adding a service fee over and above its advertised prices. No mention of this was advertised in its branches, on its menus, or on its website. 

Unabashed, the chain argued before the Tribunal that it was fully compliant with the CPA, that the charge was a fee “to ensure the best service to the consumer” and that there is “a transparent general practice to disclose cost structures rather than hide behind an exorbitant price model.”

The Tribunal, deeply unimpressed with this (frankly baffling) line of reasoning, found the chain guilty of prohibited conduct and gave it 90 days to pay a R1m administrative fine. 

Two breaches of the CPA 

The chain was found guilty of two contraventions of the CPA:

1. That as a supplier it “must not require a consumer to pay a price for any goods or services higher than the displayed price for those goods or services.” 

2. It must also “provide a written record of each transaction to the consumer to whom any goods or services are supplied.” This record “must include at least the following information: the address of the premises at which, or from which, the goods or services were supplied.” Without that, as the Tribunal put it, “vulnerable consumers could find it difficult to institute legal proceedings and enforce their rights.”

A R1m fine for “preying on unwitting customers for selfish financial gains”

The chain, said the Tribunal, had “acted deceitfully towards its customers and contravened the CPA’s significant provisions. It acted contemptuously towards the very consumers who supported it. 

Accordingly: “the Tribunal considers it appropriate to impose an administrative fine that will deter it and other suppliers from preying on unwitting consumers for selfish financial gains.”

Disclaimer: The information provided herein should not be used or relied on as 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 us for specific and detailed advice.

© LawDotNews

Employers: How to Avoid Paying Severance Pay on Retrenchment

Employers: How to Avoid Paying Severance Pay on Retrenchment

“Only in our dreams are we free; the rest of the time we need wages.” (Terry Pratchett)

Retrenching employees can be an expensive business. You’ll have to pay each employee a minimum of one week’s pay for each completed year of ongoing service, and that total liability can add up alarmingly.

A recent Labour Court ruling has however set out clear guidelines for avoiding that cost by arranging alternative employment for your retrenched employees.

A lost cleaning contract and a raft of retrenchments

A contract cleaning services company, fearing it would lose a particular contract in an upcoming tender process, warned all staff employed at the factory in question that they could face retrenchment.

Sure enough, the tender went to a competitor. The company was able to absorb 130 employees into other positions and locations, but 41 had to be retrenched. Eleven of them were given severance pay, but the employer declined to pay anything to the 30 who accepted alternative employment. 

The employees were having none of that, and approached the CCMA (Commission for Conciliation, Mediation and Arbitration). The CCMA awarded them both retrenchment pay and notice pay.

The employer then took the matter to the Labour Court, which set aside those awards. So, the employer is off the hook on both counts – and employers and employees should understand the Court’s reasoning for that decision.

Having your cake, and eating it
  • The BCEA (Basic Conditions of Employment Act) provides that employees cannot demand severance pay if they are offered alternative employment and unreasonably reject it. As the Labour Court here put it, “the raison d’être of [severance pay] is to compensate an employee who has been dismissed for operational requirements, through no fault of her own, to be paid compensation for her loss of employment. However, the legislature considered that an employee who unreasonably refuses an offer of alternative employment is not without blame. She should therefore shoulder the loss of employment without any compensation.” (Emphasis added)
  • Equally, “where an employee accepts alternative employment, arranged by the employer, she forfeits her right to receive severance pay.” Being paid both severance pay and a salary is a double benefit not intended by the BCEA.
Employers: Two practical steps to avoid liability 

Employers should take two lessons from this ruling:

  1. Don’t just “sit on your hands watching the world go by”! As this Court put it, employers are incentivised to ensure that their employees get another job. Which is exactly what the cleaning company did here: it “did not just sit on [its] hands and impassively watch the world go by,” it managed to find alternative employment for 30 employees. It was extremely pro-active in this regard, meeting with the new employer, giving it all the information it needed, and allowing employees paid time off to attend interviews at a venue which it arranged. 
  2. Act early and urgently. This employer avoided the claim for notice pay by giving over four weeks’ notice of termination. What’s more, it engaged in the consultation process and issued notice of retrenchment circulars at the earliest opportunity, then acted “as a matter of some urgency” to collaborate with the new employer in arranging new job offers.   
Another point to consider

It’s worth noting perhaps that the Court also mentioned in passing (“obiter dicta”) that even if an employee were to find her own new employment “through her own efforts and without the aid of her retrenching employer” she “needs no soft cushion of severance pay to land on” and would have to justify any such claim. 

Still, on the “better safe than sorry” principle, employers should not take chances here – rather be pro-active in arranging alternative employment as soon as you can.  

A final thought for employees

Before you decide to reject any offer of alternate employment bear in mind that, as this court confirmed, it will be up to you to prove your entitlement to severance and/or notice pay – it’s not automatic!

Whether you’re an employer planning to retrench staff, or an employee facing an impending retrenchment, getting the best legal advice is key.

Disclaimer: The information provided herein should not be used or relied on as 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 us for specific and detailed advice.

© LawDotNews

How Can I Buy Property in South Africa as a Foreigner?

How Can I Buy Property in South Africa as a Foreigner?

“I never knew of a morning in Africa when I woke up that I was not happy.” (Ernest Hemingway)

 Are you a visitor dreaming of waking up with giraffes on your lawn and wondering how to make it happen? Or a local being asked by overseas friends and relatives: “This country’s magic, how can I buy myself a property here?” We have all the answers…

First up, can you even buy as a foreigner?

The good news here is that we’re as welcoming to property buyers as we are to visitors! Foreigner or local, there are very few restrictions on buying SA property – and many reasons to do so. 

Why buy South African property? 

Whether you’re looking for a holiday home, an emigration or retirement option, or just an investment, there are a host of advantages to buying a property in South Africa:

  • Affordability: South Africans have become used to the rand consistently underperforming against most other currencies. The latest “Big Mac Index”, for instance, shows the rand as 50% undervalued, making it the ninth weakest currency on the index. The stronger your home currency, the more affordable even very high-end South African properties will be for you.
  • Blue skies ahead for property: For a variety of economic and political reasons, the general consensus is that 2025 should present significant growth opportunities in both the residential and commercial sectors. 
  • Options, options, options: South Africa offers a wide range of properties, with popular options including coastal homes, secure complexes, luxury suburban houses, vibey city apartments, bushveld estates, and retirement communities. You’re sure to find something to meet both your preferences and your investment goals.
  • Capital growth potential: Property provides a stable asset in South Africa, with great potential for capital appreciation.
  • Strong legal protections for property owners: Our legal system, with an effective land registration process at its core, provides robust property rights for both foreign investors and locals.
  • Potential for rental income: Our strong tourism sector and consistent demand for rental properties, combined with the affordability aspect we touched on above, provide attractive opportunities to generate rental income.
How can you finance the purchase?

Foreign buyers can obtain mortgage bonds from South African banks, typically financing up to 50% of the property’s purchase price, with the balance funded through foreign currency brought into the country. Some banks are more flexible than others in this regard, with non-residents who live and work here qualifying for up to 75% loans (possibly even more if motivated) with some lenders. 

You must transfer the monies from abroad via a bank or other authorised dealer. To simplify the process of repatriating funds when you eventually sell the property, ensure that your title deed is endorsed “Non-Resident” and keep proof of the original inflow of funds. 

Make it clear in the sale agreement that you will be importing funds from overseas – and be sure that the deadlines set for you to pay the deposit, to get bond approval, and to pay the balance of the purchase price, are all realistic. It goes without saying that you should get a local lawyer to check every aspect of the agreement carefully.

How does the registration process work?

It all begins with you making an offer, which – if accepted by the seller – becomes a deed of sale or sale agreement. This is followed by the transfer of ownership of the property to you in the local Deeds Office in a process managed by a conveyancing attorney. Count on it taking about three months – perhaps a bit less if all goes smoothly or a bit more if there are unexpected delays. 

If you won’t be here that long, you will need to sign transfer and bond documentation overseas – normally at a South African embassy/consulate or (in some countries) before a Notary Public or other authorised person. Ask the conveyancer for advice specific to your country.

Taxes and other costs to consider

Foreign buyers are subject to local taxes, including transfer duty (a government tax levied on property transactions) and other costs of transfer. A cash flow projection will ensure that you are able to pay these as they fall due.

If you sell your property at some point, Capital Gains Tax may apply to the profit you make from the sale. 

Will I still need a visa?

Owning property here does not give you any form of residency status, so you will still need a valid visa, work permit or residence permit as applicable.

Ask us for the details. We’ll help you to understand all the legal and financial requirements, and to navigate the processes involved. 

Disclaimer: The information provided herein should not be used or relied on as 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 us for specific and detailed advice.

© LawDotNews

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