Can a foreigner lease or purchase immovable property in South Africa? And, if this is possible, what are the requirements for such a transaction to be valid? Also, can I lease or sell my property to any foreigner? The answers to these questions are pertinent to landlords and sellers garnering interest of foreign tenants and purchasers.

In South Africa the right of a foreigner to purchase immovable property was restricted in the past by the Aliens Control Act. These restrictions were uplifted in 2003 by the new Immigration Act (“the Act”) which repealed the Aliens Control Act and many of its restrictive provisions and now clearly defines who a legal foreigner is and who is not. In short, a legal foreigner is a person in possession of a valid temporary residence permit or a permanent residence permit approved by the Department of Home Affairs.

The new Act makes provision for various temporary residence permits to be issued to foreigners, including amongst others:

• A visitor’s permit
• A work and entrepreneurial permit
• A retired person permit

In principle a landlord or tenant can legitimately lease or sell immovable property to any person recognised under the Act as a legal foreigner.

Importantly, if a foreigner needs to secure funds to buy immovable property in South Africa, he may borrow only up to a maximum of 50% of the purchase price from a South African financial institution. The balance of the purchase price must be made up of foreign funds, which the foreigner will have to transfer to a South African bank account and the non-resident will need to provide proof of earnings as well as comply with the Financial Intelligence Centre Act.

That said, foreigners working in South Africa with a legal work permit, are not regarded as “non-residents” by the South African Reserve Bank. They are considered to be residents for the duration of the period of their work permit and are therefore not restricted to a loan of only 50% of the purchase price.

It is also important to take note that the Act criminalizes the letting or selling of immovable property to an illegal foreigner by making this transaction equivalent to the aiding and abetting of an illegal foreigner and is such an act classified as a criminal offence in terms of the Act.

In conclusion, a legal foreigner may let or buy immovable property in South Africa, provided that he is the holder of either a legal temporary residence permit or a permanent residence permit approved by the Department of Home Affairs. Ensure that you enquire from your potential tenant or purchaser whether they are legally present in South Africa and obtain the necessary proof from them before entering into any transaction with a foreigner. Also take account of the restrictions on local financing, particularly where the procurement of financing is a condition precedent to the agreement.

The Department of Trade and Industry have just gazetted the Property Sector Code, addressing the broad-based black economic empowerment ('B-BBEE') charter for the property industry, comprising both commercial and residential sectors. Businesses in this industry must now follow this code as from the date it was published, i.e. 1 June 2012.

Let’s have a look at what this entails.

The aim of the sector code is to promote economic transformation in the property sector, ensuring a more meaningful participation by black people (specifically including black women, youth and those with disabilities) in this sector. It is also aimed at promoting property development and investment in under-resourced areas, which enhances basic infrastructure, encourages investment and supports micro and small enterprises.

Commercial activities in the residential property industry are involved, including:

• Houses
• Community schemes
• Land zoned for development

It also applies to the commercial property industry, including:

• Office property
• Industrial property
• Leisure property
• Retail property
• Land zoned for development
• Other property services
• Property ownership
• Property letting
• Property management
• Property sales
• Property valuation

2. Limitation on application of the sector code

EMEs (exempt micro enterprises) are not required to obtain B-BBEE verification codes and will automatically be awarded a B-BBEE recognition level of 4. For purposes of the charter, EMEs are defined as businesses with a turnover of less than R5 million, but for estate agencies and brokers this is R2,5 million. For property asset owning businesses it uses an asset threshold of less than R30 million for EMEs.

QSEs (qualifying small enterprises) can choose which 4 of the 8 elements of the charter (see paragraph 3 below) may be used to measure their compliance.

QSEs are defined as those enterprises with a turnover threshold between R5 million and R35 million. For estate agencies and brokers this is R2,5 million to R35 million and for asset owning businesses the QSE threshold is between R30 million and R280 million.

3. Measurement categories for B-BBEE certification

The categories in terms of which enterprises will be measured are the following: Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development, Socio-Economic Development, Economic Development.

The latter category (economic development) is novel in the sphere of sector codes. It consists of two elements, namely:

• a commitment by entities dealing in property development to dedicate at least 10% of their annual property development investments to under-resourced areas;

And

• a commitment by entities engaged in property disposal to dedicate 35% of assets earmarked for disposal to black-owned enterprises with B-BBEE status 1 to 3.

4. How will this be monitored?

Rating agencies will be established whereby companies will be measured in terms of their compliance with the code. Companies will in addition be required to submit an annual certificate showing its level of compliance.

For more details, read the full sector code here (File Size: 5213.4KB), as published in theGazette.Gazette 35400 dated 01 June 2012 

The new Consumer Protection Act (“CPA”) brought about extensive changes to business transactions in South Africa. Lease agreements have also been affected by the provisions of the CPA in that a tenant, who is a natural person, is now entitled to cancel a lease agreement at any stage thereof by simply giving the landlord twenty business days written notice of cancellation. As a result, a landlord may no longer be guaranteed of a long term fixed lease income. 

This does not however mean that a landlord has no remedy against a tenant who prematurely cancels a lease agreement. The CPA also protects the landlord by providing that the landlord may reclaim from the tenant any amounts owed in terms of the lease agreement up to the date of cancellation, in addition to a “reasonable cancellation fee”. But what is such a reasonable cancellation fee?

In order to determine a reasonable cancellation fee, the CPA prescribes a list of factors which must be taken into consideration. These factors include, amongst others:

• the rental amount which the tenant stills owes the landlord up to the date of cancellation;
• the value of the lease transaction up to the date of cancellation;
• the duration of the lease agreement as initially agreed upon by the parties;
• losses suffered or benefits accrued by tenant as a result of the tenant entering into the lease agreement;
• the length of notice of cancellation provided by the tenant;
• the reasonable potential of the landlord, acting diligently, to find an alternative tenant between the time of receiving the cancellation notice and the time of the cancellation; 
• and any general practices relating to the relevant industry.

It must be noted that in terms of the CPA, a landlord cannot charge a cancellation fee which would have the effect of negating the tenant’s right to cancel the lease agreement. This means that a landlord cannot simply hold the tenant liable for the rental of the remaining lease period, and thereby negate the ability of the tenant to consider cancellation. The landlord is obliged to make an effort to find a new tenant and can only hold the current tenant liable for rental due during the time it takes a landlord, using his best efforts, to find a new tenant.

Before the CPA came into operation, our common law determined that a landlord may hold the tenant liable, in the case of breach by the tenant, for amongst others, arrears rental, damage caused to the property and for the monthly rental payable during the time it takes the landlord to find a new tenant.

It would appear as if a number of these common law principles, have been incorporated into the CPA with the effect that a landlord will in all probability not be able to charge a reasonable cancellation fee in terms of the CPA and also rely on common law remedies to recover additional damages.

What is clear from the CPA is that a tenant cannot merely prematurely cancel a lease agreement and walk away scot free. The CPA still provides the landlord with a right to recoup a number of his losses from the tenant albeit possibly being more limited than the damages that the landlord could have recovered under our common law. What a reasonable cancellation fee will be will however differ from case to case and will have to be determined with reference to the CPA factors set out above.

It would be advisable that a landlord that has a lease agreement which is subject to the CPA should seek advice and guidance from a legal specialist as to what a reasonable cancellation fee will be which he can impose in the case of the premature cancellation of a lease agreement. What this amount will be may affect the landlord’s leasing strategy and assist the landlord in not enforcing cancellation fees which contravenes the CPA.

Owners, agents and property professionals are often confronted with the legal terms ‘option’ to purchase and ‘pre-emptive right’ or a ‘right of first refusal’. So what is the difference between an option to buy property and a right of first refusal, and under which circumstances should each term be utilised in practice?

The option to purchase is often utilised by property developers. For example, a property developer wishes to build a shopping centre on an identified site. By obtaining an option to purchase from the owner of the land, the property developer secures a window period to approach an anchor tenant (often a grocery chain) and thereafter convinces a financier to finance the development on the basis of the future rental income that will flow from leases to be signed by the anchor and ancillary tenants at the centre. The option is exercised and the property is purchased at the pre-determined price as agreed upon in the option contract if and when all the essential role players have committed to the business plan presented by the property developer.

A right of first refusal, in contrast, if often a right sought by a tenant that may for various reasons wish to obtain a first right to purchase property that he is currently renting but possibly cannot afford to purchase at present or where the property has not yet been marketed for sale by the owner.

From the above one can determine that an option is a contract where the owner of property agrees with another person that he shall have the right to buy property at a fixed price and a specific time is fixed within which this option to purchase must be exercised. This means that the seller (the grantor of the option) is bound to sell if and when the option holder (i.e. the purchaser) decides to exercise his right to purchase in terms of the option and complies with any option requirements set. Conversely, the option lapses if the option holder does not exercise the option within the specific agreed upon time.

The option mostly favours the purchaser as the seller is effectively barred from marketing his property to the public at large during the option period. The grantor of an option, in exchange for this exclusivity, often requires the person requesting the option, to pay for this option. This in turns poses some risk for the potential purchaser that requested the option that he could lose his non-refundable ‘deposit’ if he decides not to exercise the option.

In contrast to an option agreement, the right of first refusal does not compel the owner (grantor) to sell, but compels him to give the potential purchaser (grantee) preference if and when the owner decides to sell during the existence of the right of first refusal. The right of first refusal does not impose an enforceable obligation to sell upon the owner, but restrains him from selling the property to a third party without first affording the holder of the right of first refusal the right to purchase or not to purchase. This implies that the grantor must provide the grantee an opportunity of purchasing the property or turning down the invitation. The invitation to purchase is usually triggered by a desire to sell or where the owner receives an offer to purchase from a third party. The holder of the right of first refusal is generally only afforded the right to purchase at a price determined by the seller and is not usually afforded a right to pre-determine the purchase price as in the case of an option agreement.
A right of first refusal must be in writing and signed by both parties and this right can also be registered against the title deed of the property. Conversely, an option agreement cannot be registered against the title deed of the property.

The owner that grants a right of first refusal is not restricted from marketing his property (as in the instance of an option agreement) as the property can be marketed for sale subject to the holder of the right being invited to purchase.

To Summarize:

Option agreements are usually employed by property developers that require a fixed option period in which they can obtain financing and secure rental incomes before formally exercising the option to purchase. The right of first refusal on the other hand is predominantly used in lease agreements where a lessee intends to purchase the property if and when the owner wishes to sell. Owners of immovable property, when requested to grant either an option or a right of first refusal, should be careful regarding the consequences, wording and the restrictions that may be imposed upon the granting of such rights and should consult a property specialist before an option to purchase or a right of first refusal is granted.

What is an Occupancy Certificate?

An Occupancy Certificate is a document that is issued by the Building Control sub-directorate in accordance with the National Building Regulations to certify that a building has been completed in accordance with the approved building plan and all other relevant City Council requirements (for example, the installation of fire fighting equipment to the approval of the Fire Department, payment of all fees and contributions, approved water and electricity connections etc.).

Arrange with the Chief Building Inspector for your area for the issuing of an Occupancy Certificate once your building work is complete, a final inspection has been conducted by the Building Inspector, and all other Council requirements have, to the best of your knowledge, been complied with.

Occupation Certificates – who needs them?

An Occupation Certificate is compulsory for every building before occupation, as required by the National Building Regulations and Building Standards Act (1977).  This is to show that all requirements have been met and to safeguard the owner.

The Occupational Certificate specifies the type of building – freestanding, terraced, cluster complex, town house complex, apartment or commercial building. The Certificate is required before water and electricity deposits can be accepted for newly built properties.

It is against the law to occupy a property without 1) a full set of approved plans / planning permission from Council and 2) an Occupation Certificate.  An illegal / uninspected building is not insured, this could lead to substantial losses in the event of fire / flood etc.  After a month’s grace to submit building plans – property owners can be fined up to R1000 a day for not complying with the Act.

In order to get an Occupation Certificate from Council you will need:

1. Approved building plans from the Municipality, plus any documentation from Town Planning regarding rezoning, building line relaxation, consent etc., and if necessary, an approved Site Development Plan (SDP).
2. Completion Certificate from a registered structural / civil engineer – this is for the foundations, concrete slabs, staircases, wooden / suspended floors, steel work, soofs, freestanding walls over 2.1m high, swimming pools and all structures built without prior planning permission.
3. Certificate (Roof Truss) – your truss supplier / installer should provide you with certification, alternatively consult your engineer.
4. IOPSA Certificate of Compliance (Institute of Plumbing South Africa) – this is required for all plumbing / drainage / sewerage work.  It can only be issued by a registered plumber – for more information visit www.iopsa.co.za
5. Glazing Certificate – your glazier will supply you with Certification.
6. Electrical Certificate of Compliance – this can only be issued by a registered Electrician.
7. Fire Certificate – this is required for all public buildings and buildings using flammable materials e.g. wood or thatch roofs.

To avoid delays / additional engineering fees etc. at the end of your building project – it is best to contact the Building Inspector prior to starting your building.  The Building Inspector will want to conduct the following inspections:

1. Trench / Foundation Inspection – prior to concrete being poured.
2. Wall / Structure Inspections – at floor level, lintel height and roof level.
3. Drain Inspection – before connection to the municipal water / sewerage system   and prior to infilling.
4. Concrete Slab inspection (if applicable) – before concrete poured.
5. Roof Inspection.

Your local Municipality, Builder or Architect will provide you with your Building Inspectors contact details.  It is best to call for appointments etc. before 10am whilst they are still in the office.

Once you have got your Occupation Certificate you will need to lodge copies with your bank (if the property is mortgaged) and your home / property insurance provider.  This will save a lot of time in the event of a fire / flood etc.

NATIONAL BUILDING REGULATIONS AND BUILDING STANDARDS ACT NO. 103 OF 1977

14 Certificates of Occupancy in Respect of Buildings(1) A local authority shall within 14 days after the owner of a building of which the erection has been completed, or any person having an interest therein, has requested it in writing to issue a certificate of occupancy in respect of such building-

(a)   issue such certificate of occupancy if it is of the opinion that such building has been erected in accordance with the provisions of this Act and the conditions on which approval was granted in terms of section 7, and if certificates issued in terms of the provisions of subsection (2) and where applicable, subsection (2A), in respect of such building have been submitted to it;

[Para. (a) substituted by s. 7 (a) of Act 62 of 1989.]

(b)   in writing notify such owner or person that it refuses to issue such certificate  of occupancy if it is not so satisfied or if a certificate has not been so issued and submitted to it.

(1A) The local authority may, at the request of the owner of the building or any other person having an interest therein, grant permission in writing to use the building before the issue of the certificate of occupancy referred to in subsection (1), for such period and on such conditions as may be specified in such permission, which period and conditions may be extended or altered, as the case may be, by such local authority.

[Sub-s. (1A) inserted by s. 7 (b) of Act 62 of 1989.]

(2) Any person licensed or authorized by a local authority to carry out the installation, alteration or repair of any electrical wiring connected or of which connection is desired with the electrical supply or distribution works of such local authority or any statutory body, shall, at the request of the owner of a building of which the erection has been completed or of any person having an interest therein or of the local authority, issue a certificate if he is satisfied that the electrical wiring and other electrical installations in such building are in accordance with the provisions of all applicable laws;[Sub-s. (2) substituted by s. 4 (a) of Act 49 of 1995.](2A) Upon completion of the erection or installation of-(a) the structural system; or(b) the fire protection system; or(c) the fire installation system,of any building the person appointed to design such system and to inspect the erection or installation, shall submit a certificate to the local authority indicating that such system has been designed and erected or installed in accordance with the application in respect of which approval was granted in terms of section 7.

[Sub-s. (2A) inserted by s. 7 (c) of Act 62 of 1989 and substituted by s. 4 (b) of Act 49 of 1995.]

(3) Any person who for the purposes of subsection (1)-

(a) submits a certificate contemplated in subsection (2) or (2A) which is substantially false or incorrect, knowing the same to be false or incorrect; or

(b) in a  fraudulent manner issues or obtains a certificate contemplated in subsection (2) or

(2A),shall be guilty of an offence.

[Sub-s. (3) substituted by s. 4 (c) of Act 49 of 1995.]

22 of 127 NATIONAL BUILDING REGULATIONS AND BUILDING STANDARDS ACT NO. 103 OF 1977 (as amended )

permits the occupation or use of such building-

(i)   unless a certificate of occupancy has been issued in terms of subsection (1)(a) in 

 respect of such building;

(ii)  except in so far as it is essential for the erection of such building;

(iii) during any period not being the period in respect of which such local authority has granted permission in writing for the occupation or use of such building or in contravention of any condition on which such permission has been granted; or,

(iv) otherwise than in such circumstances and on such conditions as may beprescribed by national building regulation, shall be guilty of an offence.

[Para. (b) deleted by s. 7 (d) of Act 62 of 1989.]

(5) The Minister may, on such conditions and for such period as he may think fit, by notice in the Gazette suspend the application of this section in the area of jurisdiction of any local authority.

Copyright © 2008 – M. Keuter – Licensed under Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 SouthAfricaLicense.

Amid all the scuttle and commotion in the world of business, there remains a few things that one should appreciate, amongst them… TIME!

This is something that attorneys do not have the luxury of accumulating as one races against the clock with pen, laptop, voluminous documents and a copy of the Supreme Court Act or Rules in tow.

This can be no more evident than in the life of a particularly busy property law practitioner. My facts to my story are simple, and indeed a common occurrence in the sale of immovable property. My client was the purchaser of a house which was sold through a local realty company. At first, the transaction moved smoothly until my client sought to take earlier occupation (as allowed in the contract). Here began a series of complications relating to borer beetle infestation, non-compliance of electrical and plumbing certification, and intermittent damage to the house. It must be said that my client was fortunate not to have moved in before transfer.

Having been astute to the problems arising, my client attempted to resolve the issues through communication with the transferring attorney, realtor and the seller. I pause to add that the seller consisted of 4 individuals who had given authority to one of them to conclude the sale transaction. My client’s attempts of resolution were not successful and the seller’s ‘team’ glossed over the problems raised and was shuffling swiftly to the registration of transfer. At this point, my client decided to seek some legal counsel.

Firstly, we pressed and ensured the compliance of the requisite certification for the borer beetle, plumbing and electrical. Secondly, we delayed the date for the registration of transfer so as to resolve the issues raised. Finally, and after repeated requests, we obtained copies of the relevant authority or Power of Attorney (POA) issued to the seller’s representative. I noticed that the 3 sellers signing the POA did so in South Africa and England respectively.

What is the general law governing these instances?

Section 2 (1) of the Alienation of Land Act 68 of 1981 (the “Act”) states that “no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority”. This section expressly states that the parties must have written authority at the time of entering into the sale agreement. It then struck me that the POA signed in England was concluded after the sale agreement was signed. The question begs: does it really matter? I was enjoined to look for further answers.

Professor AJ Kerr, a leading authority on the law of contact and agency, indicates that when a statute specifically sets out that an agent buying or selling land must have written authority, and such agent fails to obtain such authority, the agreement will be void and any subsequent obtaining of the authority will not have the effect of ratifying the agreement.

This intrigued me immensely. I again looked at the Act which does provide, in Section 2 (2) thereof, for a situation where an agreement of sale of land can be concluded by an agent without the necessary written authority. This is however limited to the instance where agents or trustees conclude agreements on behalf of a corporation yet to be formed. This was not relevant to my client’s case.

In looking at case law, a review of the legal position was expressed in the matter of S A I Investments v Van der Schyff N.O. & others 1999 (3) SA 340 (N). The court held that where an agreement to sell immovable property was concluded by an agent without the prior authority, any subsequent authority obtained is not sufficient. The agreement of sale was accordingly void ab initio. This principle was confirmed by a judgment of the Supreme Court of Appeal during 2006 in the matter of B S Thorpe, S Thorpe, A E R Dixon and Another v J A Trittenwein and Another. So, it was not that the act of signing the POA was in question, but the timing of such act.

The case law and commentary on this aspect shows a clear directive: beware concluding a deed of sale for immovable property on behalf of another without obtaining a written pre-authorization to act.

The Rental Housing Act 50 of 1999 (“the Act”) came into effect on 1 August 2000.  The aims of the Act are to regulate the relationship between tenants and landlords by laying down general requirements relating to leases, making provision for the establishment of Rental Housing Tribunals in each province, and establishing principles to govern conflict resolution in the rental housing sector. The Act furthermore defines a “landlord” as the owner of a dwelling or his/her authorised agent. 

Two crucial provisions contained in this Act are discussed below. The first is that the Act provides that a lease does not have to be in writing, but a landlord must reduce it to writing if a tenant requests him/her to do so. In addition, certain provisions are deemed to be included in the agreement. In other words, the provisions form part of the agreement whether or not the parties actually agreed thereon or included it in their written or verbal agreement.

These deemed provisions include:

• That the landlord must furnish the tenant with written receipts for all payments received.
• That deposits paid by the tenant to the landlord/agent must be invested by the landlord/agent in an interest-bearing account with a financial institution and the landlord/agent must pay the tenant interest at the rate applicable to a savings account with a financial institution. The tenant may request the landlord/agent to provide him/her with written proof in respect of the interest accrued on the deposit, and the landlord/agent must provide this on request.
• That the tenant and landlord/agent jointly, before the tenant moves into the dwelling, inspect the dwelling to ascertain whether or not there are any defects or damage to the dwelling. If there are any defects or damage, it must be recorded in writing and attached as an annexure to the lease.
• That, at the expiration of the lease, the landlord/agent and tenant must arrange a joint inspection of the dwelling to take place within a period of three days prior to the expiration of the lease. This is necessary, amongst other things, to determine whether the tenant caused any damage to the premises during the period of the lease.
• That, on the expiration of the lease, the landlord/agent may apply the deposit and interest towards the payment of all amounts for which the tenant remains liable under the lease, including the reasonable cost of repairing damage to the dwelling during the lease period. The balance of the deposit and interest, if any, must then be refunded to the tenant by the landlord/agent not later than 14 days after the tenant has vacated the dwelling.
• That the receipts which indicate the costs which the landlord/agent incurred in repairing any damage to the dwelling must be made available to the tenant for inspection as proof of the costs incurred.
• That, should no amounts be due and owing to the landlord/agent in terms of the lease, the deposit, together with the accrued interest, must be refunded by the landlord/agent to the tenant, without any deduction or set-off, within seven days of expiration of the lease.
• That, failure by the landlord/agent to inspect the dwelling in the presence of the tenant upon the expiry of the lease, is deemed to be an acknowledgement by the landlord/agent that the dwelling is in a good state of repair. The landlord/agent will then have no further claim against the tenant and must then refund the full deposit plus interest to the tenant.

It is important to note that these standard provisions listed above are enforceable in court and may not be waived by the tenant or the landlord.

The second important provision relates to the establishment of Rental Housing Tribunals (“Tribunals”) in each province. Complaints may be lodged by mail or facsimile or delivered in person to the office of a Tribunal. Any dispute that arose as a result of an unfair practice (as defined the Act) must be determined by a Tribunal unless proceedings have already been instituted in another court. However, a person retains the right to approach an ordinary court to institute proceedings for the recovery of arrear rental or for eviction in the absence of a dispute regarding an unfair practice. A ruling by the Tribunal is deemed to be an order of the magistrate’s court in terms of the Magistrate’s Court Act, 1944 and the proceedings of a Tribunal may be brought under review before the High Court within its area of jurisdiction. 

Contact details for the Rental Housing Tribunals:

Western Cape Housing Tribunal:
27 Wale Street, Ground Floor, Cape Town
Call centre: 0860 106 166Fax: 021 483 2060

Gauteng Rental Housing Tribunal:
Ten Sixty Six building, 14th FloorNo. 35 Pritchard Streets (Cnr Harrison and Pritchard Str)Johannesburg
Tel: 011 630 5035Fax: 011 630 5057

In February of 2011 the City of Cape Town municipality passed a new water by-law which requires that, with effect from 18 February 2011 onwards, all sellers of properties within its jurisdiction must furnish a Plumbing Certificate to the municipality before transfer.

In order to facilitate future compliance with this requirement on the side of the Purchaser, sale agreements usually include a provision that the Seller furnishes a copy of the Plumbing Certificate to the Purchaser, before transfer.

The certificate serves to confirm that –

• the water installation conforms to the national building regulations;
• the property’s water meter is registering;
• there are no defects that can cause water to run to waste; and
• no rainwater leaks into the sewerage system.

The intention of the by-law is to manage our scarce water resources responsibly. The City loses approximately 79 000 million litres of potable water in the distribution system annually and this by-law strives to control water wastage from private homes.

The by-law also provides the City with an opportunity to gradually eliminate the increasing number of storm water connections into sewers, which puts capacity pressure on our sewerage network and treatment capacity. These are typically illegal connections that people make after the approval of the plans and inspection of the completed buildings. There is also a health and safety aspect to prohibiting cross connections between storm water systems and sewers. One of the greatest contributions to health in the last 100 years has been the introduction and management of closed sewer systems to limit and control the spread of disease.

What is the procedure?

1. The Seller must acquire the Certificate of Compliance (COC) forms from the City of Cape Town.
2. The Seller should select an accredited plumber, i.e. one who has the requisite qualifications in terms of the South African Qualification Authority. If in doubt, contact the City for confirmation. Only accredited plumbers may work on premises or issue a COC.
3. The Seller will be liable to pay the COC fee to the plumber.
4. The Seller may be assisted by an estate agent for all of the above.
5. The conveyancer will request the original COC.
6. The conveyancer can now proceed with registration as the Deeds Office does not require a copy of the COC.

What is a plumber expected to check?

• The Hot Water Cylinder installation complies with SANS 10252 and SANS10254.
• The water meter registers when a tap is open and stops completely when no water is drawn. (The alternative would indicate a defect somewhere on the property.)
• None of the terminal water fittings leak and they are correctly fixed in position.
• No storm water is discharged into the sewerage system.
• There is no cross connection between the potable supply and any grey water or groundwater system which may be installed.
• The water pipes in the plumbing installation are properly saddled.

Who bears the cost of repair?

The by-law requires that remedial work and repair be executed prior to registration and in order to obtain the COC. The COC must be issued before transfer and thus the owner (the Seller) must pay for the expenses of repair.  

What about older houses with older systems?

Any plumbing installation constructed at any particular time should only conform to what the relevant water services by-law for that particular period required. For example, the City cannot now call for older installations to conform to “10 litre shower heads” or “6 litre basin taps”. Also, galvanized mild steel piping, which was ‘outlawed’ about a decade ago, would have been allowed during the construction of older houses. An exception is automatic flushing cisterns fitted to urinals, for which the period of grace has now expired.

However, be advised that the City of Cape Town will not allow wastage of water, or risk of injury or threat to health. The current by-law gives the Director of Water and Sanitation the authority to serve notice on the owners of homes with older installations constructed under previously promulgated by-laws where such installations have developed defects causing water to run to waste due to defective materials or poor plumbing practices and fittings.

Could the need for a Plumbing Certificate cause a delay in registering the Transfer of a property?

There is no need for the Seller to wait until he has a confirmed buyer before arranging for the inspection or repairs. The Seller will be reminded of this requirement by the estate agent and the inspection can be arranged within a matter of days. Should there be no defects, the certificate would be issued immediately.
The Municipality will not delay the issue of rates and taxes clearances if the water COC has not yet been complied with.

The transfer can be delayed however if the owner does not complete all necessary repairs.

How will the by-law apply to sectional title units?

Most sectional title units have one main meter on common property with sub-meters for each unit. Only the main meter is of importance to the municipal authority. The vast majority of piping is also on common property. In this case, the certification would include the operation of the sub-meter, if applicable, any leaks in the system, and the geyser installation.

Why is it necessary to have the same property re-certified every time the property is sold?

The by-law provides that a certificate is required for every sale being registered as there is no guarantee that a purchaser has not made changes to the water installation before he/she resells the property.

In the recent judgment of Riverspray Lifestyle Estate (Pty) Ltd v Auby, the Court held that the agreement of sale between the parties was void because the bond was not obtained within the period stipulated in the agreement. However, of specific interest was the reminder that where parties to an agreement include a provision that the seller may extend the bond due date at his own volition, for any period of time, without notice or permission from the purchaser, such provision was void: allowing one party only to exclusively determine whether an obligation was complied with renders the term void for vagueness. 

The facts were briefly that Auby entered into an agreement with Riverspray Lifestyle Estates in terms of which he bought a unit in a sectional title scheme which would be known as Riverspray.  The scheme was still to be erected. The purchase price was R675 000 and a deposit of R15 000 was payable within three days of signature of the agreement by the purchaser.

The agreement provided, amongst other things, that: “This agreement is subject to the purchaser obtaining mortgage bond finance from a financial institution in the amount of R735 000… Such bond to be approved in principle within 21 … days of signature of this agreement by the purchaser, or in any extended period which the seller at its absolute discretion may allow without permission of the purchaser”. A further clause provided that: “Should an amount be inserted at clause … regarding the obtainment of a mortgage bond, then the agreement shall be subject to a mortgage bond of the said amount being granted to the purchaser on normal terms and conditions as laid down by a commercial bank on security of the property or any other acceptable security”.

Auby did not get a bond within the 21 day period as stipulated. When he was advised by the bank that his bond application was unsuccessful, Riverspray’s consultants managed to secure a bond in the amount of R607 500. Because this amount was less than the bond amount in the agreement, Auby signed an addendum which acknowledged the shortfall and in which he undertook to deliver a guarantee or submit a cash payment to make up the shortfall.

Sometime later Auby resiled from the agreement, claiming that it was invalid. Riverspray thereupon approached the Court for an order directing Auby to comply with his obligations in terms of the agreement and to do the necessary to take transfer of the property in his name.

The Court found in favour of Auby, holding that:

• It was clear that the suspensive condition was not fulfilled because Auby did not manage to get a bond for R735 000 in the stipulated period and the agreement had to fail.
• In addition, the Court noted that the clauses that purported to allow the seller to extend the bond due date indefinitely and without notice to the purchaser, were void. The reason was that it was a “general principle of our law of obligations that, when it depends entirely on the will of a party to an alleged contract to determine the extent of the prestation of either party, the purported contract is void for vagueness.”

As such, no valid agreement of sale ever came into existence. Sellers and purchasers - therefore do not include any provision in an agreement that allows the other party the exclusive right to determine whether there was compliance with the provisions of the agreement, as such an agreement could be considered void.

A trust is a legal entity with its own distinct identity. It has the contractual capacity to acquire, hold and dispose of property and other such assets for the benefit of its nominated beneficiaries. All trusts are governed and administered in terms of the Trust Property Control Act, and formed and governed in terms of a trust deed, a written agreement concluded between the trustees and the founder of the trust.

Perhaps the most significant purpose for establishing a trust is the separation of ownership, which is often desired for reasons including asset protection, risk mitigation and limiting ones tax liability. In order for the trust to transact, a trustee(s) are duly appointed in the trust deed who are thereby authorised to act on behalf of the trust. A trustee may act on behalf of a trust provided that he has been duly appointed to act in this capacity in the trust deed, that the trust has been registered with the Master of the High Court and the Master has authorised such appointment in writing by issuing Letters of Authority to this extent. Further, the trustees’ powers to transact are set out in and may be limited by the trust deed.

There are various advantages related to purchasing property in a trust as opposed to buying it in your personal capacity of which the following are the most prominent:

A trust is a flexible vehicle, capable of catering for various changes and uncertainties occurring in one’s life over time e.g. a larger family, death, insolvency, legislative and financial changes and other circumstances.

Since the property is not registered in your name, the value of your personal estate upon death is reduced. The direct implication hereof is a reduction in your estate duty exposure. Also, should the asset value have increased over time, this growth will be excluded from your estate and the capital gains tax (“CGT ”) payable on your estate is reduced accordingly. Executor’s fees pertaining to these assets will also be eliminated.

Provided that you do not establish your trust(s) with the intention of prejudicing creditors, purchasing or transferring a property into a trust helps to protect the specific asset from creditors.

It is advisable to create and operate a trust with appropriate tax advice. In this way a trust will enable you to mitigate your tax liability with specific reference to income tax, CGT, estate duty, donations tax and transfer duty.

Trusts are excellent succession planning tools as a property bought in a trust can remain in the trust indefinitely. Consequently, there is no need to transfer the property from the deceased into the name of his heir. In turn this saves on unnecessary transfer costs and CGT duty.

When finance is required to purchase a property in the current “market” the banks are less likely to grant a 100% bond to a trust and demand a deposit of up to 20% when a trust acquires a property. It appears in some instances individuals may receive up to 100% property finance.

Looking at the downside, the following count under the most burdensome disadvantages of purchasing property in a trust.

All trusts are taxed at an income tax rate of 40%. Consequently, it seems to be more favourable to buy a property in your individual capacity rather than in a trust. Here is why: CGT on the growth of the value of the property comes into play once a property is sold.

Trusts are subject to the highest inclusion rate. 66.66% of the net gain must be included in the trust’s taxable income for the year in which the property is sold. Consequently trusts are taxed at an effective rate of 26.6%. This is compared to individuals who are subject to an inclusion rate of 33.33% and a maximum effective rate of only 13.33%. However, if the profit or gains are distributed to the beneficiaries of the trust during the same tax year, the tax payable may end up being the same amount, as if a natural person is disposing of a second property.

Another downside of the trust owning the property is that the founder does not enjoy control over that property as the trust will be the legal owner of the property and the trustees will have the power to administer same.

Therefore based on the above, if administered correctly, one can benefit tremendously from the exercise of purchasing a property in a trust. It is, however, crucial to determine whether the addition of a trust to your portfolio is necessary and beneficial based on your individual needs and circumstances.