Property Law Archives - Knoetze Law Inc.

Community Scheme Disputes and the Ombud’s Powers to Resolve Them

October 2021 | Property Law

“[The Ombud} has been given wide inquisitorial powers whereby such disputes can be resolved as informally and cheaply as possible by means of qualified conciliators and adjudicators, without the need for legal representation, save in certain limited circumstances.” (Extract from first judgment below)

If you have a dispute with anyone in a “Community Scheme” – sectional title, Homeowners Association (HOA) or the like – remember that your first port of call should be the CSOS (Community Schemes Ombud Service).

What disputes can the Ombud resolve?

Disputes are inevitable in any community situation, with sources of conflict ranging from noise issues to problem pets, common area usage disagreements, parking space complaints and so on – the list is endless. Another perennial battleground is owners fighting with administrators (normally a body corporate or Homeowners Association) over levies, rules and regulations, and the like.

The Ombud’s mandate here is wide, with the CSOS promising “affordable, reliable justice” via its conciliation and alternate dispute resolution process for anyone party to, or “materially affected by” any of a wide range of disputes including levy disputes, nuisance complaints, repairs and maintenance disputes, complex meetings, financial, governance and management issues, exclusive use rights and the like – the list is long and widely-worded.

How does it work?

Costs are low and the process is straightforward, with legal representation restricted to cases where the adjudicator and all parties agree to it or where the adjudicator decides that a party cannot deal with the adjudication without it. There are media reports of the CSOS struggling in practice to provide the quick and reliable service promised on its website, but all in all, it should generally be your first port of call. In fact the High Court has now warned that you will almost always have no choice in the matter.

You must approach the Ombud before you go to court, unless…

The High Court has now stated categorically that, whenever the CSOS has the power to adjudicate a dispute, you have to go that route first and can only go direct to court in exceptional circumstances –

The scene in this first case is an inner-city 10 storey mixed-use sectional title scheme. The parties are on the one hand a group of loft owners unhappy with a new biometric security/access control system and with a new conduct rule limiting their right to lease out their loft apartments on a short-term basis; on the other, the body corporate trying to resolve security issues in the building with the new rules.
The loft owners asked the High Court to intervene as a matter of urgency and were soundly defeated, with the Court ordering them to pay costs on the punitive attorney-and-client scale after finding that “…this is not only a matter which should not have been brought before this Court and should have been taken to the Ombud, but is also one which constitutes an abuse of process…”.
As the Court put it: “…the statutory powers which an adjudicator has in terms of the Act are extremely wide and go beyond the powers which a court has in relation to neighbourly disputes and associations in terms of common law, not only insofar as their reach is concerned, but also in relation to their ambit. In numerous instances an adjudicator has an equity i.e. fairness-based power, not only to decide what is ‘reasonable’ in relation to the conduct of, or the decisions which have been taken by an association such as a body corporate of a sectional title scheme … but also to direct what should ‘reasonably’ be done in place thereof. A High Court does not have such powers.”
Thus: “…where disputes pertaining to community schemes such as sectional title schemes fall within the ambit and purview of the CSOS Act, they are in the first instance to be referred to the Ombud for resolution in accordance with the conciliative and adjudicatory processes established by the Act, and a court is not only entitled to decline to entertain such matters as a forum of first instance, but may in fact be obliged to do so, save in exceptional circumstances…” (emphasis supplied).
Exceptions, said the Court, would include challenges to the “constitutionality or legal validity or status of a particular statutory power or a provision in the Act” plus “in certain instances it is conceivable that the High Court may be approached in the first instance, as a review court.”
Each case will be different so take full advice before deciding whether to approach the Ombud or go straight to the High Court.

Going direct to court when the Ombud has no jurisdiction

Another recent High Court judgment concerned a sectional title scheme dispute in an industrial complex. After their unit was destroyed by fire, the unit’s owners claimed from the scheme’s insurers.
The insurers repudiated the claim on the basis that they had, following a previous fire, suspended the scheme’s fire cover pending the filing of valid electrical and fire equipment certificates of compliance by all the owners of units in the scheme.
The owners approached the Ombud, claiming some R480k from the body corporate for damage to the unit and lost rental on the basis that “the body corporate had negligently failed to comply with its statutory ‘duty of care’ to ensure that the buildings in the scheme were properly insured”.
The CSOS adjudicator said he had no jurisdiction to hear such a matter, and the High Court agreed, holding that the claim was personal to the individual owner “and did not pertain to the scheme itself…”.
Moreover “It was clearly not intended that the Ombud would have the power to adjudicate on delictual claims for damages, which involve weighty considerations pertaining to wrongfulness (which depend on prevailing societal norms and public policy) and fault, and the quantification and determination of the quantum of any damages which may have been sustained pursuant thereto, which are matters which are best left for judicial officers and Courts.”

Arrear levies – when can the Ombud help with collection?

Our courts have held that the Ombud can assist with the collection of arrear levies or contributions, but only where there is a dispute involved.

Thus (to quote from a 2017 High Court judgment): “If the claim for arrear levies or contributions is not disputed, for example if an owner simply ignores a demand for payment or simply refuses to pay, without disputing the amount of the claim or the proper determination of the levy, the Body Corporate can institute legal action in court to recover the arrear levies from the owner … If, on the other hand, the amount of the levy is disputed because it was not properly determined and this dispute is raised after the defaulter had received a demand, the appropriate forum for recovery of the levies would be the regional office of the Ombud service.”

The bottom line

To avoid any mis-steps here, seek professional advice before deciding when and how to take community scheme disputes to the Ombud.

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 your professional adviser for specific and detailed advice.

Buying Your First House – An Action Plan

September 2018 | Property Law

“Buy land – they’ve stopped making it” (Mark Twain)

So you’ve decided to buy your first house – exciting! There’s nothing like owning and living in your very own dream house, and if you choose wisely your home could well be one of your most important investments ever.

Get started with these tips –

First, understand how much cash you will need

Make a list of all the costs you need to plan for (there are plenty of convenient online calculators to help you figure out what your transfer and bond costs are going to be so Google for one that suits you) –

Deposit: Unless you pay the whole purchase price in cash, you will need to raise a bond. You may qualify for a 100% bond, otherwise be ready to pay at least 5% – 10% of the price as a cash deposit. Of course there may be benefit in paying more if you can afford it.
Bond registration costs: The bank’s attorneys will register your bond and you will need to pay them the registration costs. The bank will also charge you a bank initiation fee.
Transfer costs: Standard procedure (unless your sale agreement provides otherwise) is for you to pay the transfer costs, even though it is usually the seller who chooses the conveyancing attorney.
Transfer duty: This government tax is payable unless there’s VAT on the sale, and the sale agreement will almost certainly provide for you to pay it. No duty is payable on a property valued up to R900,000 and a sliding scale applies to houses above that threshold.
Associated costs: Make a list – moving, redecorating, furnishing, Internet connections and so on. Don’t forget this step, these costs can add up alarmingly!

So what’s your price range?

You now have your figure for one-off costs, but before you finalise your budget make provision also for all your new ongoing costs as they will all affect long-term affordability –

Recurring and monthly costs: Rates/taxes/levies, homeowner’s insurance, water, electricity and so on. Provide also for both short- and long-term maintenance costs for both home and garden.
Your bond repayments: This is the crunch – will you be happy with the lifestyle you can afford after paying your bond every month? When you first apply for a bond shop around for the best interest rate and – this is vital – be absolutely sure that you will always be able to afford the monthly payments, even when (not if) interest rates start rising again. Get a bank pre-approval here – with today’s restrictions on credit grantors when it comes to responsible lending practices, it will help you gauge affordability. And as a bonus, it gives you a great negotiating tool when you move on to the offer stage!

The end result – you have your budget, that gives you your price range, and you can move on to…

House hunting

Lots of questions to ask yourself here of course –

Location, location, location: What area/s will you concentrate on? Where do you want to live? What sort of lifestyle are you after? What amenities do you want close by? Research the area – what are average selling prices in the suburb and is your budget up to it? Do houses in the area have a history of good value growth? What are crime levels like?
Searching: With your price range and target area in mind, the “thrill of the hunt” is at last upon you! Online searches are increasingly popular but choose whichever channel or channels you are comfortable with.
If buying in a community scheme: Check what Rules and Regulations you are letting yourself in for – you will be held to them. Make sure that the Home Owners Association or Body Corporate’s finances are sound (ask for audited financials and management accounts). Ask about any special levies or other planned expenditure on the horizon (get it in writing).
Plans, defects and the rest: Ask for copies of approved building plans (check for any unlawful structures or deviations from plan), look for and ask about defects like leaking roofs, problem foundations etc – consider getting a full professional report unless you are very sure of your own abilities in this regard.

Approach your choosing and purchasing decision as though it’s the most important financial decision you will ever make (it may well be).

Making an offer, and the legal bits

So now you’re ready to make your offer on a house. Excitement mounts – will the seller accept? Or perhaps counter-offer? You can’t wait to find out. You are presented with a Deed of Sale, a pen and a cheerful “just sign here, we’ll do the rest”.

Hold on a second!

Take no chances here. Before you sign anything, have your lawyer check the paperwork for you, with a Deeds Office search for anything that may affect your decision-making such as restrictive title deed conditions, servitudes (giving other people rights over your property) etc, etc.

Remember also that with property sales what counts is what’s in writing so tell your lawyer about any verbal undertakings or disclosures given to you.

How to Escape from a Property Suretyship

July 2018 | Commercial Law, Litigation, Property Law

“Suretyship is the precursor of ruin” (Thales of Miletus, one of the Seven Sages of Ancient Greece)

As the philosopher and mathematician Thales pointed out two and a half millennia ago, signing surety for another’s debts carries huge risk. Yet every day directors of property holding companies happily sign personal suretyships for their company’s (usually substantial) debts.

The problem is that it all seems so safe in the beginning. You need a bank loan to buy or develop a property, you’ve done your homework and the deal’s a good, sensible one. It’s only when things go wrong down the line that your signature on that suretyship document comes back to haunt you, and by then it’s far too late – or is it?

A recent High Court decision illustrates one of the very restricted circumstances in which you may be able to escape from the trap you signed yourself into.

The developer, the trust and the bank

A property developer lent some R10m to an associate’s companies for a shopping mall development. The associate’s companies then borrowed a further R5m from a bank, which took a R5m mortgage bond over the one company’s property as security. And – here’s the rub – the developer also signed suretyship to the bank for the R5m both personally and on behalf of his family trust.
The developer signed these suretyships believing that there was enough equity in the bonded property (valued at R12m) to cover both the R5m bond and another bond that he was told about of R2.7m. What he didn’t know at the time was that there was yet another bond over the property, and this was a big bond for R15m. Neither his associate nor the bank had told him about it.
Only when both of the associate’s companies failed did the developer realise that there was no equity in the property at all, with bonds totalling R22.7m against a value of R12m, and that the bank’s liquidation dividend would leave it with a large shortfall.
The bank duly sued the developer and his trust as sureties for R5.7m (R5m plus interest). To understand how that turned out in court we need to look at when our law will let you off the hook, and when it won’t…

So when can you escape from a suretyship?

Our law will generally hold you to the agreements you make, and a suretyship is no exception. You can only free yourself from it if it “was induced by fraud, duress, undue influence or mistake, whether induced by misrepresentation or otherwise”.
Without going into all the legal niceties (you definitely need your lawyer’s specific advice if you ever find yourself in this unhappy position) the general principle is that, where you rely on a “justified error as to the nature or contents of the [suretyship] document”, you must show that you were “misled as to the nature of the document or as to the terms which it contains by some act or omission (where there was a duty to inform) of the other contracting party.”
In lay terms, you have to prove that the bank either actively misrepresented, or failed to disclose, something “material” (significant or vital) to you. And where you rely on a failure to disclose something (as in this case) you have to further show that the bank had a “duty to speak” i.e. had a duty to tell you about it. That’s because our law generally requires you to be aware of what you are contracting yourself into, rather than requiring the other party to “tell all”. The exception to that is where you can prove that the other party had “exclusive knowledge” of something material and your right to know about it “would be mutually recognised by honest men in the circumstances”.
That’s quite a mouthful and it’s not easily proved, but in the particular circumstances of this case the developer succeeded in doing so. The Court had accepted that the developer wouldn’t have signed surety if he had been aware of the R15m bond, and that the bank officials knew of his concern about there being enough equity in the property to cover the R5m. Moreover the developer hadn’t done a deeds search (which would have revealed the extra R15m bond) because as he saw it there was a “relationship of trust” between him and the bank’s officials and he would have expected them to tell him about it.
Critically, the bank’s disclosure to the developer of the R2.7m bond but not of the R15m one led the Court to conclude that, having thus made an incomplete disclosure to the developer, “a duty arose requiring the [bank]’s officials to speak and to make a full and honest disclosure to the [developer] of the material facts in their knowledge.”

The developer and his trust are accordingly off the hook. But there’s a strong confirmation there of just how narrow your potential escape route is from a suretyship.

So as always take legal advice before signing anything!