General Interests & News Flashes – Page 9

06 Aug 2019

COMMENTARY ON THE PROPERTY SECTOR TRANSFORMATION CHARTER CODE

Section 20(1) of the Property Practitioners Bill states that:

“The Property Sector Transformation Charter Code, as amended from time to time, applies to all property practitioners”

But how will the code be enforced on the industry? Well, this will be done in an indirect but very effective way. From the time that the Property Practitioners Bill becomes law, one of the requirements for the issue of a Fidelity Fund Certificate will be that the Property Practitioner is “in possession of a valid BEE certificate.” (Section 50(a)(x)). To get this BEE certificate you will have to comply with the Code.

This Property Sector Code was published in the Government Gazette on 9 June 2017. Its main purpose is to set out a path for transformation in the property sector. In the preamble it states that the Code:

Constitutes a framework and establishes the principles upon which Broad Based Black Economic Empowerment (B-BBEE) will be implemented in the property sector; and
Establishes targets and qualitative undertakings in respect of each element of B-BBEE; and
Outlines processes for implementing the commitments (to transformation) contained in the code and creates mechanisms to monitor and report on progress.

It is therefore of vital importance for all owners of estate agencies to know what is happening here so that they can start preparing themselves for compliance. It will also be of interest to all estate agents to know of these big changes that will be taking place in the industry.

The Code starts by setting out the challenges facing the property sector, starting with situation created by the Native Land Act of 1913, which denied black South Africans the right to the ownership of more than 93% of the productive land in South Africa. It sets out the sad situation that we are faced with in the property sector where property ownership is predominantly white and where black people are underrepresented as employees and business owners in all parts of the property sector.

The code also seeks to redress gender inequalities in the sector, especially in respect of black women.

Amongst the objectives of the code are:

To promote economic transformation, especially as regards ownership and control and management of businesses, and make the sector more representative;
To unlock obstacles to property ownership by black people;
To promote development and encourage investment, especially in under resourced areas;
To support micro and small enterprises;
To improve skills development;
To facilitate the accessibility of finance;

EXEMPTED MICRO ENTERPRISES

The Code will not apply equally to all businesses in the property sector. The Code recognizes that it will be more difficult for smaller businesses to comply and lower levels of compliance will be required by these smaller businesses. Businesses falling below certain thresholds are totally exempted from specific compliance with B-BBEE requirements.
Property enterprises whose businesses are “asset-based”, I assume this to mean enterprises which trade in property, are exempt if the net assets of the business are less then R80 million. Enterprises who are services based, like property management companies, will be exempt if the turnover is less than R10 million.

Estate agencies however, get a special mention and they are only treated as Exempted Micro Enterprises (and exempt from the B-BBEE requirements) if the annual turnover is less than R2.5 million.

QUALIFYING SMALL ENTERPRISES

Assuming your estate agency has an annual turnover of more than R2.5 million, the next category of enterprises that you might fall into is the category of “Qualifying Small Enterprises”. These are enterprises with assets of less than R400 million for asset-based enterprises and an annual turnover of less than R50 million for service-based enterprises.
But once again, estate agencies get a special mention, an estate agency business will fall into this category if it has an annual turnover of less than R35 million.

So, for an estate agency to fall into the category of Qualifying Small Enterprises, it must have an annual turnover of more than R2.5 million, but less than R35 million. I think that a lot of estate agencies will fall into this category.

GENERIC CATEGORY

Estate agencies with an annual turnover of more than R35 million will fall into the Generic (unlimited) category. Other service-based property businesses will only fall into this category if they have an annual turnover of more than R50 million.

START-UP ENTERPRISES

A new business will be treated as an Exempted Micro Enterprise for the first year. If it is going to tender for contracts above a specific value during this period, it will however need to submit a scorecard for a Qualifying Small Enterprise, or a Generic scorecard, depending on the value of the contract.

THE SCORECARD (section 10)

Your B-BBEE compliance is determined on the basis of a scorecard. There is a slight difference in the weighting on the scorecards for Qualifying Small Enterprises and Generic Enterprises (to make it easier for the smaller enterprises) but the emphasis on the various elements remains similar. The factors that are measured in the scorecards are:

CATEGORY	QUALIFYING SMALL ENTERPRISE	GENERIC
Ownership	27 points	30 points
Management control	9 points	9 points
Employment equity	11 points	13 points
Skills development	17 points	19 points
Enterprise and supplier development	35 points	39 points
Socio-economic development	2 points	2 points
Economic development	4 points	5 points

Total	105 points	117 points

The category of economic development is unique to the property sector. Under this heading the extent to which an entity contributes towards development in under resourced areas is measured.

The maximum score possible is 105 points for QSE’s and 117 points in the Generic category. If you exceed targets you can also qualify for bonus points.

Scores for each category are calculated based on set formulas and the outcome of the calculation will determine your level of compliance.

OVERSIGHT

The implementation of the code is to be overseen by the Property Sector Charter Council. Entities within the property sector will be encouraged to contribute towards funding the Charter Council and this will be recognised as part of Enterprise Development or Supplier Development. You can therefore buy some points by contributing to the costs of the Council.

Qualifying enterprises (including all estate agencies with a turnover of more than R2,5 million) will have to submit a B-BBEE report, a certificate and a scorecard, verified by an accredited BEE verification agency, to the Charter Council on an annual basis. They will then receive their BEE certificate.

KEY PRINCIPLES IN MEASURING B-BBEE COMPLIANCE

Substance takes precedence over legal form.
Misrepresentation will be dealt with in accordance with the B-BBEE Act.
The splitting of enterprises to enable them to qualify in lower category may constitute an offence.
All representations about compliance must be supported by suitable evidence.

APPLICATION OF THE CODES

How this code is to be applied and how the scores are to be calculated is very complicated and requires specialist knowledge of the B-BBEE Act. That is where the BEE verification agencies will come in.

An enterprise will be awarded points on their scorecard for compliance with different categories. The closer you are to your targets, the more points you will earn. You also have the possibility to earn bonus points if you exceed your targets. Once your scorecard is marked, it will determine at which level of B-BBEE compliance the enterprise is at.

Below you will find the targets that have been set in the various categories on the scorecard. Compliance to this level will give you a score in excess of 100%. You will then qualify as a level 1 Contributor. The levels go right down to Level 8, and if you score less than 30 points, you will be treated as a Non-Compliant Contributor.

OWNERSHIP

In this section, the targets for ownership of property sector companies that render services (like estate agencies) are stated as follows:

27% ownership by black people

10% ownership by black women

3% ownership by “broad-based ownership schemes and/or designated groups”

3% ownership by “new entrants”.

To score in this category, property owning companies are given a period of 10 years to achieve 50% black ownership, in annual increments.

MANAGEMENT CONTROL

The targets that are set in the code for Management Control of estate agencies are the following:

50% of voting rights must be held by black people at board level, of which one half must be held by black females;

50% of the executive directors as a percentage of all executive directors must be black and half of these directors must be black females;

60% of the executive management must be black, and half of these must be black females.

The code specifically defines the term “management” in the context of an estate agency. Somebody is part of management if he is earning more than R360 000 per year and is “possessing a level of authority”. This means that for someone to qualify as a manager for the purposes of your scorecard, the person will have to earn no less than R30 000 per month.

In generic enterprises, for someone to qualify as a senior manager, they must earn more than R450 000, for someone to qualify as a middle manager, they must earn between R225 000 and R450 000 per annum and a junior manager must earn between R225 000 and R150 000. These requirements obviously put in place to prevent window dressing. If you are going to call an employee a manager, they will need to have a salary that goes along with the title.

EMPLOYMENT EQUITY

The employment equity targets for estate agencies are as follows:

50% of all agents must be black and 35% must be black females.

35% of the total management team must be black and 18% must be black females. (Remember, these people need to earn decent salaries – as stated above – to qualify as managers.)

30% of the administrative team must be black.

It seems as if there’s quite a bit of overlap between the categories of Management Control and Employment Equity, and you may be able to earn points in both categories for the same thing.

SKILLS DEVELOPMENT

Under this heading, targets are set for enterprises to use a certain percentage of their income for skills development, including learning programs, apprenticeships and internships. An agency will need to spend 5% of its expenditure on skills development to qualify for the full quota of points in this section.

ENTERPRISE AND SUPPLIER DEVELOPMENT

Under this heading, targets are set for enterprises to use the services of other entities that are BEE compliant.

SOCIO-ECONOMIC DEVELOPMENT

Under this heading, you are awarded points if you reach targets for contributions to socio-economic development projects that benefit black groups and promote transformation and development.

ECONOMIC DEVELOPMENT

Under this heading, enterprises are encouraged to invest in economic development projects, especially those in under resourced areas.

WHAT LEVEL OF COMPLIANCE IS REQUIRED TO OBTAIN A “VALID BEE CERTIFICATE”?

My understanding of the law at this stage is that it will not matter what your level of compliance is, and that all you will have to do is go through the process to work out your scores and then submit that to the Charter Council. The Charter Council will then issue you with a BEE certificate. This certificate might reflect that you are completely non-compliant. The certificate will however be a valid BEE certificate and on the strength of the certificate you will qualify for your Fidelity Fund Certificate.

This process would therefore just help the Charter Council to assess the current situation within the property sector as regards transformation.

I’m confident however that this situation will not last forever. My prediction is that, in terms of the Regulations to the Property Practitioners Act, the Minister will regulate that a “valid BEE certificate” will have to reflect that you qualify at a certain level of compliance. At that stage things are going to get very interesting in our industry. I also predict that this is going to happen sooner rather than later.

Miltons Matsemela

Deon Welz

05 Aug 2019

Choose your conveyancer wisely!

The importance of the choice of a transferring attorney was emphasized in the recent High Court case of Agu v Krige and Others (20763/2017) [2019] ZAWCHC 46. The case involved the theft of R720 000 of trust money by a deceitful conveyancer.

In the court, Agu, who was the Purchaser of a property, was asking for an order in terms of which Krige, the Seller, would be forced to transfer the property to her. This was despite the fact that the conveyancer, who had received the purchase price, had stolen the money.

The sale agreement stipulated that payment of the purchase price by the Purchaser was to be made in full to the Seller’s conveyancer before transfer. The purchase price was then to be held in an interest-bearing trust account (with interest accruing to the Purchaser) until transfer was registered. The purchase price was then to be paid to the Seller.

The Purchaser had paid the full purchase price to the conveyancing attorneys (who had been nominated by the Seller). The Purchaser contended that they had therefore discharged their obligation to make payment. The Seller obviously denied this, and alleged that the Purchaser’s obligation to pay would only be discharged once he had received payment.

The Court therefore had to determine whether the conveyancer was the Seller’s agent in receiving the funds for the property. If the conveyancer was the Seller’s agent, then the Purchaser could be said to have paid the purchase price and would be entitled to the transfer of the property. If the conveyancer was not the Seller’s agent to receive the purchase price, then the Purchaser could not be said to have paid, and would not be entitled to transfer unless she paid again.

The Court found in favour of the Purchaser and held that the conveyancer had acted as an agent for the Seller when collecting the purchase price. Thus, the Purchaser had “complied with her obligation in terms of the deed of sale by making payment of the purchase price to the [conveyancer].” The Court therefore ordered the Seller to transfer the property to the Purchaser.

Our feeling is that this is another one of those cases that could have gone either way, and it is a judgment that might be overturned on appeal.

But what should we learn from this case? It emphasises the importance of making use of an honest and reputable conveyancer when purchasing or selling property. It is also a reminder to look at your own deed of sale, and, if you had wanted the case to turn out differently, you should make appropriate changes to ensure that this question is not open to interpretation.

If you need assistance in making changes to your deed of sale, do not hesitate to contact one of our attorneys.

Storm Barry and Deon Welz
July 2019

03 Jul 2019

Employers: What is Your Duty to Accommodate Religious Beliefs?

“The employer has a duty to reasonably accommodate an employee’s religious freedom unless it is impossible to do so without causing itself undue hardship. It is not enough that it may have a legitimate commercial rationale. The duty of reasonable accommodation imposed on the employer is one of modification or adjustment to a job or the working environment that will enable an employee operating under the constraining tenets of her religion to continue to participate or advance in employment” (Extract from judgment below)

What do you as an employer do when your business needs an employee to be on duty on Saturday mornings, but she declines on the basis that her religious beliefs prohibit her from working on “the Sabbath”? Whose rights trump whose?

This is dangerous ground. Our laws are particularly hard on employers found guilty of “automatically unfair discrimination”, and amongst the many “arbitrary grounds” of discrimination which could underpin such a finding are “religion”, “conscience” and “belief”.

A recent case in the Labour Appeal Court illustrates both how these laws work in practice, and the dangers of failing to comply with them.

Our law makes a dismissal automatically unfair if ‘… the reason for the dismissal is that the employer … unfairly discriminated against an employee, directly or indirectly, on any arbitrary ground, including, but not limited to race, gender, sex, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, political opinion, culture, language, marital status or family responsibility” (emphasis added).

Employers need to tread with extreme caution here, as a recent Labour Appeal Court decision once again warns…

Dismissed for refusing to work on Saturdays

A manager was required, along with all other managers, to work on Saturdays doing stock-taking.
She refused on the basis that she was a Seventh Day Adventist, a religion requiring her to observe the period between sundown on Friday and sundown on Saturday evening as the holy Sabbath, during which time she was not permitted to work. Her various suggestions on how she could be accommodated were rejected by her employer.
She was dismissed for “incapacity” and her dispute over the fairness of that dismissal eventually reached the Labour Appeal Court.
The Court held her dismissal to have been automatically unfair, and ordered her employer to pay her 12 months’ remuneration plus costs.

Who must prove what?

The actual outcome of this particular case was largely dependent on its specific facts, so as always take legal advice on your own situation.

But the Court’s findings provide a good example of how our laws on automatic discrimination are applied in practice –

Firstly, it was for the employee to show that her religion was the “true or real or dominant reason for her dismissal and that a sufficient [connection] exists between her dismissal and her religion”. She had to produce evidence “which is sufficient to raise a credible possibility that an automatically unfair dismissal has taken place”, whereupon the employer could “prove the contrary by producing evidence to show that the reason for the dismissal did not fall within the circumstances envisaged … for constituting an automatically unfair dismissal”.
The Court rejected the employer’s claim that the employee’s refusal to do the stock take was the dominant reason for the dismissal rather than her “personal convictions that underlay it”. She was, it held, “dismissed and discriminated against for complying with and practicing the tenets of her religion”.
Next, said the Court, “the decisive enquiry … is whether the discrimination is fair, rationally connected to a legitimate purpose and does not unduly impair or impact on [the employee’s] dignity”, it being up to the employer to prove such a defence.
In particular, a dismissal “may be fair if the reason for the dismissal is based on an inherent requirement of the particular job”, but then the employer would also have to prove “that it is impossible to accommodate the individual employee without imposing undue hardship or insurmountable operational difficulty”.
On the basis of the evidence available to it, the Court found that the employer did not “reasonably accommodate” the employee. The dismissal was accordingly automatically unfair.

03 Jul 2019

Your Last Will: The Dire Consequences of Neglecting Formalities

“It is not intended for the Court to make a will for the deceased based on what his intentions may have been” (Quoted in the judgment below)

Your “Last Will and Testament” could be the most important document you will ever sign because it’s the only safe way to ensure that your loved ones are properly provided for after you are gone.

It’s essential therefore to put in place a will that complies with South African law. We’ll discuss the formalities required for your will to be accepted as valid, and we’ll illustrate the importance of complying with them by reference to a case in which a divorced accountant’s emailed “Final will” was not validated by the High Court.

So although the accountant clearly intended to leave his estate to his new fiancée, it instead goes to his ex-wife under his original written will.

As a general rule our law holds us to our agreements and statements, whether we express them verbally, electronically or in written form.

But there are exceptions – some things just have to be in writing and signed before the law will recognise them. One of those exceptions is quite possibly the most important document you will ever sign – your “Last Will and Testament”. Ultimately it’s your final gift to your loved ones – a gift that ensures they are properly provided for when (not “if”) you die.

Don’t neglect this or procrastinate – without a will you have forfeited your right to choose who inherits your assets and who is appointed as executor. And it’s equally vital to validly update or replace your will after a significant “life event” (marriage, birth, death, divorce etc) – we’ll consider below the sad case of an accountant who intended to change his will but just never got around to it.

But first, what must you do for your will to be valid?

The formalities

To be valid, a South African will must comply with a list of formalities. There are several of them and they require strict compliance, so getting specific legal help is a no-brainer here. But in general terms your will should be in writing and signed by you in the presence of two “competent” witnesses.

The question arises whether in this age of electronic contracts and signatures an “electronic will” (perhaps in an email, a video, a Social Media post or the like) might suffice. In short, the answer is almost certainly no, it won’t. The Master of the High Court (who accepts your will as valid or not) needs to see a piece of paper and physical signatures. And the same applies to any subsequent amendments to your will.

An escape route

There is however a possible escape route – our Wills Act provides that a Court may order the Master to accept an otherwise invalid will when satisfied that it was intended by the deceased to be his/her last will. That’s a great tool which has often enabled our courts to avoid situations of “injustice through formality”, but there is still absolutely no safe substitute for a properly-executed will.

As this recent High Court judgment illustrates all too clearly…

The accountant who emailed his “Final will” to his fiancée

In 2006, a “very meticulous” accountant drew up a written will, properly drawn and formalised. In it he left everything to his then wife, from whom he was divorced in 2011.
In 2014 he became engaged to another woman with whom he had been in a “romantic relationship”.
On 4 January 2016 he emailed his new fiancée, under the subject line “Final will”, recording in part that “This serves as my final will and testament … If I die, all my assets and investments go to [my fiancée] … “My life policies must all go to [my fiancée]”.
Subsequent emails made it clear that both the accountant and his fiancée were aware that there could potentially be disputes regarding the validity of the emailed “will”, and accordingly an “Action” list that the fiancée then sent to the accountant included an action item “Will”. In the end however he never got around to actually making and signing a written will.
When the accountant died on 14 September 2016, the Master appointed as executor the bank nominated in his 2006 will.
The fiancée approached the High Court for an order recognising the 2016 email as the true will, alternatively revoking the part of his 2006 will leaving the estate to his ex-wife. Unsurprisingly, the ex-wife opposed this application.
Firstly, the Court accepted on the facts that the accountant had indeed drafted the email, but it then turned to the second leg of its enquiry – “Whether the deceased intended the disputed Will to be his Last Will and Testament”.
Commenting that “it is not intended for the Court to make a will for the deceased based on what his intentions may have been”, the Court found that it was “improbable that he would have intended the disputed Will to be his Last Will and Testament”, and that – this is the critical part – his email was “nothing more than an email in which he was assuring the applicant that he will make her a beneficiary of his estate”.
The end result – the accountant clearly intended to leave his estate to his fiancée. But he never got around to drawing up a formal written will to that effect, so the 2006 will stands, the ex-wife takes all and the fiancée leaves with nothing.

The bottom line – “intention” is not enough!

Whatever you intend should become of your worldly goods, and no matter how you may have recorded your wishes, the only safe way to ensure that they are honoured is to execute a valid written will.

This is a vital document and there are dire consequences to not getting it 100% right so ask your lawyer for help!

03 Jul 2019

Property Transfers and Trust Account Theft: A R720,000 Warning

“The issue of whether a conveyancing attorney receives the money as the agent of the seller, or of the purchaser, or of both, or as trustee for both to await the event, is a somewhat vexed question … and each case must be considered in the light of its own facts and the particular contractual terms under which the conveyancer received payment” (Extract from judgment below)

Buying a property, whether to live in, work in or just as an investment, invariably involves a substantial amount of money changing hands.

Whether you are the seller or the buyer, the last thing you want is for the money to be stolen by a dishonest transferring attorney. If it happens, who carries the loss? Must transfer still be passed to the buyer? Who must lodge a claim with the Legal Practitioners Fidelity Fund and hope that it pays out without delay?

A recent High Court case involving the theft of over R720,000 from a trust account is a timely warning of the risks to both parties and of the uncertainties involved in deciding who suffers what loss. We’ll end off with some practical tips for both sellers and buyers.

A lot of money changes hands in property sales, and for many of us buying or selling a house is the largest single financial transaction of our lives.

A recent High Court judgment involving a theft of R720,000 by a dishonest conveyancer (transferring attorney) provides a timely warning to both buyers and sellers to proceed with extreme caution. And as always, the core message to both is this: Sign nothing without your lawyer’s advice!

The conveyancer who stole from her trust account

A seller sold a sectional title unit to a buyer for R720,000. The sale agreement provided for payment in full by the buyer to the conveyancer, the funds to be held in trust in an interest-bearing account until transfer, interest to accrue for the buyer’s benefit.
The conveyancer had, as is usual unless otherwise negotiated, been nominated by the seller. In this case the buyer asked to use her own attorneys but the seller “vehemently” insisted on nominating his attorney.
On request from the conveyancer, the buyer paid the R720,000 (plus R16,700 towards the transfer costs payable by her) into the conveyancer’s trust account.
When later it became clear that the conveyancer had stolen these funds, the buyer demanded transfer from the seller. The seller refused – the money was gone and he wasn’t prepared to lose both his property and the purchase price.
At the same time however he (the seller) lodged a claim with the Legal Practitioners Fidelity Fund, which was at that time still called the Attorneys Fidelity Fund and is referred to below as “the Fund”. In the event of such a theft, the Fund will in its own words “assist you with the reimbursement of your monies if your claim is valid.”
However, the Fund refused to pay the seller’s claim because of its view that the loss was sustained by the buyer, not by the seller.
The buyer disagreed. It wasn’t, she said, her loss, it was the seller’s. She wasn’t going to now pay the purchase price over again and then have to claim from the Fund. So she asked the High Court to order the seller to pass transfer to her.
What the Court had to decide is whether or not the conveyancer was the seller’s agent to receive payment of the purchase price from the buyer. If so, the buyer had paid and was entitled to transfer. If not, the buyer had not paid and had no right to transfer.
The danger for both seller and buyer here is that as the Court put it “the issue of whether a conveyancing attorney receives the money as the agent of the seller, or of the purchaser, or of both, or as trustee for both to await the event, is a somewhat vexed question … and each case must be considered in the light of its own facts and the particular contractual terms under which the conveyancer received payment.”

So whose agent was the conveyancer?

In the end the Court ordered the seller to pass transfer to the buyer, finding on the facts and on the Court’s interpretation of this particular payment clause that –

The conveyancer in this matter had acted as agent for both the buyer and the seller – as agent for the buyer in investing the funds pending transfer, but as agent for the seller in receiving payment of the purchase price.
Accordingly the buyer “complied with her obligation in terms of the deed of sale by making payment of the purchase price to the [conveyancer] who was nominated by the [seller] to receive payment of the purchase price on the latter’s behalf”.
“In addition, the Deed of Sale provided for the mode of actual payment of the purchase price and once this was done, the [buyer] had discharged her obligations. She did what was required contractually in respect of the purchase price and had no control of the process thereafter.”

The seller is therefore down R720,000 plus costs, and will be hoping that the Fund will now pay out his claim without further ado.

Sellers

Choose a competent and trustworthy conveyancer. Don’t ever be railroaded by anyone into appointing someone else! And if your attorney isn’t also an admitted conveyancer, ask him/her for a referral to a trusted colleague who is.

Buyers

As we saw above, the wording of the sale agreement is central to the level of risk you run – it should be clear that in paying the purchase price to the conveyancer you are paying the seller in complete discharge of your obligations under the sale agreement.

Bottom line – as always, ask your attorney for advice and assistance before you sign anything!

30 May 2019

You Signed a Property Sale Agreement, Can You Still Accept a Better Offer?

Selling property, particularly your own home, is one of the more stressful events in life. Will you get the right buyer? The best price? What if it all goes wrong?

Then an offer comes in that is acceptable, but not perfect. If for example there is a bond clause and the buyer’s bond application fails a month down the line you’ve lost all that valuable marketing time. You’ll never know whether you just missed the “perfect offer” while your buyer filled out bank forms and got FICA’d for the tenth time.

Relax; there is an answer – the “72-hour clause” often found in standard sale agreements. We’ll cover what the clause means, how it works, when you need it, and what should always be covered in it, with a note also for property buyers.

You put your property on the market and an acceptable but not-perfect offer comes in. On the “a bird in the hand is worth two in the bush” principle you want to accept the offer even though it’s not ideal.

Perhaps it’s not perfect because it’s subject to a suspensive condition – common ones give the buyer time to sell his/her current house or to obtain a bond. In both scenarios your sale will fall through if the buyer is unsuccessful within the stated time, and if that happens you are back to square one after a long and fruitless delay. Bear in mind that that delay could be a protracted one depending on what your sale agreement actually provides – normally no less than 30 days to get a bond, sometimes several months to sell an existing house. That’s a lot of very valuable marketing time lost – and you’ll never know for sure whether you just missed out on that “perfect offer”.

The “72-hour clause” and what it does

This is where the “72-hour”, “continued marketing” or “escape” clause comes in handy.

In a nutshell, it allows you to continue marketing your property until suspensive conditions are met. If your marketing pays off and an unconditional offer does come in, you can give your existing buyer 72 hours’ notice to match it. So the buyer would have an opportunity to make the sale unconditional – either by waiving (abandoning) the condition or by fulfilling it.

If the buyer fails to do whatever the clause requires within the 72 hours, you are clear to accept the new offer. If on the other hand the buyer does perform in time, the existing sale immediately becomes fully binding and the transfer process can get underway.

A note for buyers

The clause is usually there for the seller’s benefit so perhaps avoid it when you can. But if it’s a choice between your offer being accepted or not, bear in mind that having a signed sale agreement at least gives you a solid base for a full bond application and/or a concerted effort to finalise your own house sale.

Just be ready to react quickly if the seller does indeed give you the 72 hour notice – you don’t want to be rushing around in a last-minute panic.

Buyers and sellers – check the wording!

Although 72-hour clauses are common in standard sale agreements, the exact wording can vary substantially, and may need tailoring to meet your specific needs. You might for example want to be given proof of availability of funds together with a bond clause waiver, or proof that the sale of the buyer’s house is a viable one – every situation will be different.

Apart from everything else, make sure that –

The 72 hour period specifically excludes Saturdays, Sundays and Public Holidays (religious holidays too if important to you),
You can extend the 72 hours by mutual agreement if you want to,
There are clear requirements for the method and timing of giving notice and of waiving conditions, and
You aren’t binding yourself to anything else that could turn around and bite you down the line.

Delete the clause if it doesn’t apply.

As always, have your lawyer check it all for you before you sign anything!

30 May 2019

Directors at War and the Liquidation Option – A Tale of Sibling Rivalry

“Family quarrels are bitter things. They don’t go according to any rules” (F. Scott Fitzgerald)

What happens when a company’s board is deadlocked to the extent that directors can no longer agree on the decisions vital to the proper running of the company and its business?

If all else fails (and this is usually a last-prize option), liquidating the company and placing it into the hands of independent liquidators may be your only choice.

A sad tale (which played out recently in the High Court) of sibling in-fighting that reduced a successful and profitable property development company to dispute and deadlock provides a perfect example. We’ll discuss the Court’s decision, its reasoning, and the three grounds on which a court may liquidate a solvent company.

A company’s directors have both the power and the duty to manage the company’s affairs for its benefit.

When two or more directors are in place, it’s perhaps natural for the occasional disagreement to arise between them. Indeed, regular expression of a variety of different viewpoints and ideas can make for a strong, dynamic board and business. Provided, that is, that the directors are in the end result still able to agree on the decisions vital to their company’s continued operations.

What happens though when disagreements and disputes escalate and make it impossible to continue running the business? Typically, communications break down to the extent that decision-making is paralysed. First prize will of course always be an amicable settlement – through formal mediation perhaps, or negotiation to buy out a dissenting director’s shareholding. But if these attempts fail, the company is in big trouble.

Fortunately our law offers you an effective remedy in the form of the “just and equitable” liquidation. It comes with its own risks and can be costly, so it’s often regarded as a last-resort option (ask your lawyer for advice on the various other remedies that may be available to you), but it works. A recent High Court decision illustrates…

Sister v brothers in a deadlocked development company

A sister and her two brothers owned, through their trusts, equal shares in a farm (partially inherited from their father and partially purchased from their uncle’s deceased estate).
They were also the three directors (and, again through trusts, the equal shareholders) of a company formed to subdivide, develop and sell residential plots on parts of the farm.
The company operated successfully and profitably for many years, paying substantial dividends to the shareholders, and has always been and remains solvent.
Trouble began brewing it seems several years ago, primarily between the sister and the brother in charge of the day-to-day running of the company’s business. Serious disagreements arose around an unhappy saga of sibling fallout – including the disputed existence of a partnership, alleged fraudulent stripping of over R6m by the brothers, and a litany of purported personal and familial abuse.
All these allegations were hotly denied, although an undertaking by the brothers to not “emotionally abuse” their sister in a settlement agreement at one point clearly indicated to the Court that the relationship breakdown was not confined to the siblings’ professional affairs. The relationship between the directors and shareholders was, said the Court, “that of partners in a family context”.
The sister applied for the liquidation of the company on the grounds that it was “just and equitable”. This is a procedure provided in the Companies Act for a court to have the discretion – even though a company is solvent – to liquidate it in order that an independent liquidator can take over.
The brothers opposed the application, claiming that there was no deadlock in the functioning of the company or between the directors and shareholders, but the Court disagreed. Its order liquidating the company, and its reasons for doing so, provide a useful summary of how this particular law works in practice…

3 grounds on which to wind up a solvent company

The Companies Act allows a court to liquidate a solvent company on application by director/s or shareholder/s on any of three grounds –
- “The directors are deadlocked in the management of the company, and the shareholders are unable to break the deadlock, an
- Irreparable injury to the company is resulting, or may result, from the deadlock; or
The company’s business cannot be conducted to the advantage of shareholders generally, as a result of the deadlock;
The shareholders are deadlocked in voting power, and have failed for a period that includes at least two consecutive annual general meeting dates, to elect successors to directors whose terms have expired; or

It is otherwise just and equitable for the company to be wound up.”

That last “just and equitable” ground gives courts a wide discretion to reach a decision based on all the facts of each particular case. The Court in this matter found that the involvement of all the directors in the business had effectively come to a standstill and took into account the facts that there had not been a directors’ meeting since 2014 plus the sister had refused to sign the latest financial statements.

It concluded that “the directors do not communicate and there is clearly immense personal animosity between them, and a lack of trust and confidence”, making it difficult to see how the company could continue its business. The lack of substantiation provided by the sister to back up some of her disputed allegations did not, said the Court, detract “from the fact of the breakdown in their relationship, and the lack of trust and confidence”.

It was therefore just and equitable that the company be wound up.

30 May 2019

Equal Pay for Equal Work – Can You Differentiate Without Unfairly Discriminating?

“Prohibition of unfair discrimination: No person may unfairly discriminate, directly or indirectly, against an employee, in any employment policy or practice, on one or more grounds, including race, gender, sex, pregnancy, marital status, family responsibility, ethnic or social origin, colour, sexual orientation, age, disability, religion, HIV status, conscience, belief, political opinion, culture, language, birth or on any other arbitrary ground” (from the Employment Equity Act)

“Unfair discrimination” in the workplace is both unlawful and severely penalised by our courts, so it’s vital to distinguish it from lawful “differentiation”.

Most employers and employees will have heard of the “equal pay for equal work” principle in our labour laws, but there is still a lot of uncertainty over its reach, and over when an employer may fairly and lawfully differentiate between employees carrying out the same duties and/or work of equal value.

Let’s clarify with reference to a recent Labour Court decision concerning two “surveillance auditors” in a casino, whose unequal pay packages sparked allegations of unfair discrimination on the basis of both race and gender.

Our employment laws and labour courts come down heavily on any unfair discrimination in the workplace, but it’s not always easy to decide whether “differentiation” between employees is or is not “unfair discrimination”.

Take for instance a recent Labour Court case where a black female employee complained to the CCMA (Commission for Conciliation, Mediation and Arbitration) about the higher salary paid to her white male colleague.

They were both employed as “surveillance auditors” in a casino with the same job descriptions, doing the same work on a daily basis, graded at the same level, and reporting to the same surveillance shift manager. Nevertheless her remuneration package was nearly half of her colleague’s – unfair discrimination, she said, on the grounds of race and gender.

The CCMA agreed with her and ordered her employer to (1) place her in the same salary bracket as her colleague and (2) pay her a once-off amount of the annual difference in their packages.

Requirements and defences

The Labour Court however set aside the CCMA’s award and ordered a re-hearing before a different commissioner. Its decision, although based on “reviewable irregularities” in the CCMA (in itself a topic of interest to labour lawyers more than to their clients) neatly summarises the legal principles as they applied in this case. Principles important to both employers and employees –

Where unfair discrimination is alleged, the onus is on the employer to prove that the discrimination did not take place or that any discrimination that did take place was rational and not unfair, or is otherwise justifiable.
There is a general requirement on employers to “ensure that employees are not paid different remuneration for work of equal value based on race, gender or disability”.
1. “Work of equal value” means work that –
  - “Is the same as the work of another employee of the same employer, if their work is identical or interchangeable;
  - Is substantially the same as the work of another employee employed by that employer, if the work performed by the employees is sufficiently similar that they can reasonably be considered to be performing the same job, even if their work is not identical or interchangeable;
  - Is of the same value as the work of another employee of the same employer in a different job, if their respective occupations are accorded the same value …”.
  - (In this case of course there was no dispute that the first category – same work – applied, so the other categories were not analysed by the Court, but in many workplaces they will be highly relevant.)
Where there is differentiation, an employer can raise various defences to justify it – seniority, length of service, qualifications and the like. In this case the employer relied on the male employee’s superior (30 years’ worth) relevant experience in security, much better qualifications and “market forces” which it said forced it to match his existing package in order to recruit him.

The commissioner’s failure to adequately address these defences was central to the Court’s decision here, but the practical issue is that as an employer, whatever defence/s you raise, you will have to prove “rationality, fairness or other justifiability”.

As always, our labour laws being as complex as they are (the above is of necessity just a brief summary of a particular case), and the penalties for getting them wrong, take specific legal advice in any doubt!

30 May 2019

Business Rescue: Are Your Suretyships Enforceable? A R5.5m Lesson for Directors and Creditors

“Some people use one-half their ingenuity to get into debt, and the other half to avoid paying it” (George Prentice, newspaper editor and author)

When a company goes into business rescue, creditors are often in for a beating. So as a creditor, if you had the foresight to cover your position upfront with personal suretyships from individuals with assets (normally the directors of the debtor company), you will no doubt be keen to recoup your losses by calling in those suretyships asap.

What happens though if you assent to a business rescue plan whereby the debtor company’s debt to you is extinguished? Does that also extinguish the surety’s personal liability to you?

Let’s have a look at the lessons for both creditors and directors in a recent case where two sureties tried to dodge a R5.5m claim in the High Court with that very argument …

You are owed a lot of money by a company that goes into business rescue. The business rescue plan provides for creditors like you to accept a dividend of only a few cents in the Rand in settlement of your debt. You stand to lose heavily.

But perhaps there’s hope yet – a director with assets has signed personal suretyship. Can the director now say “sorry, you adopted the business rescue plan so your claim no longer exists”, and refuse to pay you?

The directors’ defence

A creditor was owed R6.5m for the lease of mining equipment to a company which was placed under business rescue. In terms of a business rescue plan approved by the creditor it was paid only a portion of its claim, losing its right to claim anything further from the debtor company.
The two directors of the debtor had signed a deed of suretyship in terms of which they stood as co-sureties and co-principal debtors with their company for all amounts owing.
The creditor duly sued the directors for its shortfall of some R5.5m The directors’ defence was that they were not liable because –
- The suretyship entitled the creditor to go after them only for “any sum which after the receipt of such dividend/s or payment/s may remain owing by the Debtor.” (Own underlining).
- Nothing remained owing by the debtor which had been released from its debt by the business rescue plan.
In other words, argued the directors, nothing was owed by the debtor company, so they were liable for nothing.
Not so, said the Court. That “would render the terms of the deed of suretyship nonsensical and militates against the very reason for a creditor obtaining security against the indebtedness of a debtor i.e. to mitigate the risk of the debtor being unable to fulfil its obligations due to inter alia business rescue.” The business rescue plan made no provision for the position of sureties and therefore “the liability of the sureties is in my view preserved. And while the debt may not be enforceable against [the company], it does not detract from the obligation of the sureties to pay in the circumstances of this case.” In other words, a surety’s liability is unaffected by the business rescue unless the plan itself makes specific provision for the situation of sureties.
Bottom line – the directors must personally cough up the R5.5m (plus interest and costs).

Lessons for directors and creditors

The outcome here could have been very different had the wording of either this particular suretyship or the business rescue plan supported the directors’ defence.

Creditors – when securing your claim with a director’s suretyship check that you are fully covered in any form of business failure situation. And ensure that a business rescue plan specifically provides that its adoption does not release sureties.

Directors – when you sign personal surety understand exactly what you are letting yourself in for. And if you are unlucky enough to find yourself in the middle of a business rescue, actively manage your personal liability danger – particularly when it comes to the wording of the rescue plan.

30 May 2019

Tax Freedom Day 2019 Has Arrived!

“Untold Wealth: That which does not appear on income tax returns” (Anonymous)

“Tax Freedom Day” is the first day of the year that we South Africans (as a whole) have earned enough to pay off the Tax Man and to finally start working for ourselves.

It arrived this year on 18 May. That’s five days later than in 2018, and a whole 37 days later than in 1994 when we first started measuring this – not a happy trend, nor unfortunately one likely to be reversed in future.

But it could be worse. Taxpayers in a lot of other countries are still working for government – Norwegians for example only celebrate on 29 July!

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