Archives: General Interests & News Flashes

We have already in the past published newsflashes and articles reporting on a number of judgments of our courts including our Supreme Court of Appeal, the effect of which is the following:

When a property is sold the municipal authority can only insist upon receiving payment of amounts which  relate to bills which are not older than two years.  If such amounts are paid, rates clearance and thereby permission for the transfer of ownership must be given.  The fact that the older debt remains payable cannot retard the transfer process.

The restriction placed upon the municipal authority as stated above does not mean that it is deprived of the right to pursue recovery of the balance which might be owed (i.e. older debt) by the previous owner.  It is perfectly entitled to take legal action against the previous owner and to try and recover the monies from that owner.  It may not however take action against the new owner for that debt.

When and if the municipal authority obtains the necessary judgment against the previous owner and even though the property might have been transferred to someone else and even though (as stated above) the new owner cannot be held liable for the old debt, the municipal authority is allowed to cause the property to be attached by the Sheriff of the Court and to sell the property at a sale in execution to recover the money due to it.

The effect of paragraph 3 above is to force the new owner to pay the debt and to thereby save his property.

This issue has now been brought squarely before another court in the Pretoria High Court which court found that the portion of the law which allows municipal authorities to attach properties after they have been transferred to new owners is unconstitutional and amounts to an improper and arbitrary depravation of a property right.  Such rights are of course protected in terms of our Constitution.  The matter will no doubt now be carried forward to the Constitutional Court for a final ruling but it is our view that the judgement of the Pretoria High Court will not be overruled as it was very well reasoned.

The result of the judgment is that, for the time being in any event, owners of property need not concern themselves with unpaid municipal debt of previous owners.

As a matter of interest the same court found that municipal authorities are not permitted to refuse to render municipal services (i.e. open accounts) to the new owner of the property simply because the previous owner might still owe money to the municipal authority.

Milton Koumbatis
8 November 2016

“I’ll answer him by law” (Shakespeare)

It’s very tempting, when you have a bad tenant who doesn’t pay his/her rentals or otherwise remains consistently and unapologetically in breach of the lease, to slap the biggest and strongest padlock you can find onto the front door/driveway gate.

Don’t do it!  By taking the law into your own hands you immediately put yourself in the wrong and can land yourself in all sorts of trouble with unnecessary delays, extra legal costs, perhaps even a damages claim.
A recent High Court case illustrates.

The landlord who locked the gate and paid the price

• The tenant of four sets of commercial premises allegedly –
  • Failed to honour an acknowledgment of debt (presumably for rental arrears), and
  • Sub-let a portion to some 150 people as accommodation without the landlord’s permission
• The landlord put a lock on the entrance gate to deny access to the tenant and his sub-tenants
• The tenant immediately approached the Court for relief.  To understand the outcome (a decisive victory for the tenant) we need to understand how our law views the whole question of “self-help law”.

Taking the law into your own hands

It has long been a fundamental principle of our law that “no man is allowed to take the law into his own hands; no one is permitted to dispossess another forcibly or wrongfully and against his consent of the possession of property, whether movable or immovable. If he does so, the Court will summarily restore the status quo ante, and will do that as a preliminary to any inquiry or investigation into the merits of the dispute.”

In other words, no matter how strong your case against your tenant may be, a court will without further ado order you (in the form of a “spoliation order”) to allow the tenant back in.  It won’t enquire into whether the tenant’s occupation is wrongful or illegal, nor will it enquire into your respective legal rights.  Those enquiries only come later, when you comply with the law by bringing a proper eviction application before the court.

To succeed in obtaining a spoliation order, your tenant needs to prove only two things –

1. That he/she was “in peaceful and undisturbed possession of the disputed premises” and
2. That he/she was “deprived of that possession without consent or recourse to law”.

Tenant 1, Landlord 0

After finding on the facts that the tenant and his sub-tenants had been in physical possession of the premises prior to being locked out, the Court ordered the landlord to immediately restore access and possession to them.  The landlord must also pay the tenants’ legal costs, so it’s back to square one, and with somewhat lighter pockets.

Lessons for landlords

Prevention being, as ever, much better than cure, make sure up front that your tenant is good, trustworthy and creditworthy.  Check with your lawyer that your lease is water-tight.  Take sureties if you can.  Insist on holding a reasonable deposit.  Treat good tenants like gold, even if it means giving them a bit of rent relief.

Most importantly, if and when your tenant falls into arrears or otherwise seriously breaches the lease, seek legal assistance without delay!

“There’s many a slip ‘twixt the cup and the lip” (very old and very wise proverb)

You sell your property for a good price and, with the deal in the bag, you start daydreaming about how to spend the proceeds.  Then – disaster of disasters – you realise that in the excitement of the sale you forgot all about VAT.

It’s an easy mistake to make, and a recent High Court case shows just how costly it can be.

“Oops, we just lost R221k”

The facts in this case were as follows –

• The liquidators of a close corporation in liquidation sold a property to the buyer for R1,8m.
• The sale was vatable, in other words the sellers would have to account to SARS for VAT on the purchase price.
• Clearly the sellers intended the sale to be VAT exclusive so that they would receive the full R1.8m net of VAT.  Indeed the bank holding a bond over the property, in giving its consent to the sale (a condition of the sale), specified that the offer price must exclude VAT.
• Unfortunately for the liquidators, the sale agreement itself was silent on this point, and our Value Added Tax Act specifically provides that any price charged by a vendor is deemed to include VAT.  So, if you make the same mistake as the liquidators and don’t specifically provide in the sale agreement that the buyer will pay VAT on top of the purchase price, the buyer only pays the stated price.  No more and no less.
• The buyer, when presented with a pro-forma invoice for VAT on the sale price, refused to pay it – and eventually asked the High Court to order the liquidators to pass transfer to him against payment of just the R1,8m.
• The liquidators asked for “rectification” of the contract to reflect the “true” agreement and the “common intention” of the parties to exclude VAT from the price.  The Court however refused rectification, holding that no such common intention had been proved; and anyway, the liquidators should have formally applied for rectification, and hadn’t done so.
• The end result – the close corporation in liquidation must transfer the property to the buyer and loses the R221,053 VAT which it owes SARS.  The liquidators clearly have some explaining to do to the bondholder.

Don’t make the same mistake!

As always, when it comes to big contracts, and property sales in particular, sign nothing without legal advice.

“…..the law regulating the granting of emoluments attachment orders was misapplied and abused by the credit providers.  This caused enormous hardship to individuals against whom those orders were issued” (extract from judgment below)

How does the Constitutional Court’s new ruling on garnishee orders (more properly referred to as EAOs or Emoluments Attachment Orders) affect you?

Here is a practical summary of what the changes to the law mean to lenders, debtors and employers; at least until proposed new legislation (reportedly soon to be tabled in parliament) replaces them –

• Who can issue EAOs? EAOs are court orders obliging a debtor’s employer to deduct amounts from his/her earnings and pay them over to the creditor.  In the past, clerks of the court were able to issue them – a process which led to allegations of rubber-stamping in some local courts.
• Judicial oversight: Now, a magistrate must decide whether or not to grant an EAO after considering two factors –
  • Is it “just and equitable” for an EAO to be granted?
  • Is the amount “appropriate?”  The court will have to decide here what the debtor can afford to pay.

Note that existing requirements including a 10 day registered-post warning to pay the debt, and proof that the debtor consented in writing to the issue of an order, remain in place.

• Which court?  Where the NCA (National Credit Act) applies – which it will in most such cases – creditors can no longer choose courts far away from debtors.  Only a court where the debtor lives or works will have jurisdiction, making it much easier for him/her to be heard in court.
• Existing orders: The changes are not retrospective and apply only from 13 September 2016, the date of the judgment.  Therefore existing EAOs are valid, and payments already made to creditors under them are not affected.
• Lenders:  Be even more careful than before when lending money to make sure that your debtors can pay you back.  Incautious lenders will find that even loans not falling foul of the NCA’s reckless lending provisions will now be more difficult to recover.
• Debtors:  If you have an existing EAO against your salary or wages, you can still challenge it in court on an individual basis.
• Employers: As said above, existing orders are still valid and must be complied with unless individually set aside – take advice in any doubt.