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Category: Property Law

FIRST-TIME HOME BUYER?

FIRST-TIME HOME BUYER?

Buying a property is a rather big deal, which is why you should be sure that you are able to afford it before you end up running into debt. Owning your own home is a very rewarding experience, but there are usually some obstacles along the way. Follow the steps the below to be sure that your new home is your dream home.

  1. Make sure you have a healthy credit score

Your credit score lets banks know how well (or badly) you manage your debt. A good credit score improves your chances of getting a home loan.

In order to build up your credit score, make sure you pay all your bills on time, every time. Clear as much of your debt before applying for a home loan. If you don’t have a credit card, you should apply for one to aid your score. Check your status by getting a credit report from a credit bureau.

  1. Save up for a deposit

Having a deposit saved makes you more attractive to sellers, agents and banks, which means, if you have a deposit ready, you have a higher chance of getting your loan approved. A deposit also means that your loan repayments will be lower; you’re in a better position to negotiate an interest rate if you have a deposit since there is a lower risk for the bank.

  1. Look out for any additional costs

There are a number of additional costs that are incurred when buying and taking ownership of a house, and these may come as a shock to a first-time buyer.

Make sure to account for additional buying costs such as the loan initiation fee, transfer duty, loan registration costs and conveyancing fees. Also ensure that you take additional homeownership costs into consideration, e.g. loan repayments, homeowner’s insurance, municipal rates and taxes, water and electricity, maintenance, and security.

  1. Ensure the price is worth it

You should make sure that there are no damages to the property. Be sure to check for any leaks, as it might become a costly and annoying long-term problem.

If you’re planning to make this your forever home, you might want to consider what facilities are available nearby in case mobility becomes a problem. Is there a doctor close by? Are the transport links good?

Conclusion

From this it should be clear that buying a house is a rather complex activity that necessitates a lot of thought, calculating, and logical reasoning. It is advised to obtain the help of a professional to be absolutely sure that the money you end up paying is worth all the possible obstacles that you may encounter.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

JOINT OWNERSHIP: HOW DO I TERMINATE WITHOUT THE CO-OPERATION OF THE OTHER JOINT OWNER?

JOINT OWNERSHIP: HOW DO I TERMINATE WITHOUT THE CO-OPERATION OF THE OTHER JOINT OWNER?

Nature of joint ownership:

Joint owners own undivided shares in the property which they own jointly. Consequently, the joint owners cannot divide the joint property while the joint ownership remains in existence, and a joint owner also cannot alienate the property or a part thereof without the consent of the other joint owner. The rights in respect of the joint property need to be exercised jointly by the owners thereof.

Ways in which joint ownership can arise:

Joint ownership can come into existence by way of an inheritance in which an indivisible property is left to more than one person in indivisible shares; by way of a marriage in community of property, by the mixture of movable property in such a way that it forms a new movable item or by way of an agreement in terms of which the parties agree to jointly buy a property and that both will have equal indivisible shares in the property.

Division of joint property:

Any joint owner can claim the division of the joint property according to that joint owner’s share in the property.[1] It is a requirement for the division of the joint property that the parties need to try to divide the property among themselves first, before approaching the Court for an action to divide the property, which action is called the actio communi dividendo[2].

The underlying principle of the actio communi dividendo is that no co-owner is normally obliged to remain such against his will. If there is a refusal on the part of one of the co-owners to divide, then the other co-owner can go to Court and ask the Court to order the other to partition. The Court has a wide discretion in making a division of the joint property, which is similar to the discretion which a court has in respect of the mode of distribution of partnership assets among partners. 

The Court may award the joint property to one of the owners provided that he/she compensate the other co-owner, or cause the joint property to be put up to auction and the proceeds divided among the co-owners.[3]  Where there is no agreement between the parties as to how the joint assets are to be divided a liquidator is ordinarily appointed, and he can then sell the assets and divide the proceeds, if it is not possible to divide the assets between the parties.[4] If the immediate division of the joint property will be detrimental to the parties, the Court can order in certain cases that the division or the sale of the property be postponed for a period.[5]

It is beneficial that there exist means to divide assets which are jointly owned by parties, who no longer wish to be co-owners, but who cannot reach an agreement on the division of the assets. Without such an action, people might be stuck with a property which they derive no benefit from because it is in the possession of the other co-owner, who refuse to sell the property.

[1] Inleiding tot die sakereg, Van Niekerk & Pienaar, Juta, p 53 – 61.

[2] Robson v Theron 1978 (1) SA 841 (A).

[3] 1978 (1) SA 841 (A).

[4] 1978 (1) SA 841 (A).

[5] Van Niekerk & Pienaar, p 61 – 62.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

HOW BINDING ARE BODY CORPORATE FINES?

HOW BINDING ARE BODY CORPORATE FINES?

In an estate or sectional title scheme, it is challenging to ensure that everyone will stick to the conduct rules and to aid this, body corporates often fine the chancers. How far can the body corporates stretch their fining, and are these fines binding?

Each body corporate may choose what to impose formally in their code of conduct unless a rule is already part of the conduct rules in terms of the Sectional Titles Act. This is the only way the fines can be binding as enforceable, and they have to be reasonable and fair.

When fines are imposed, they cannot favour or benefit certain residents while leaving others out of mind. Substantially, they must serve the same purpose. The notification of a fine must be received by the owner or resident through writing. There is a correct way in which fines may be imposed:

  1. Complainants to lodge complaint

This must be lodged in writing or through an incident report to the trustees or the estate’s managing agent.

  1. Notice of particulars of the complaint

The owner and the tenant, or the resident, must be given a notice of the particulars contained in the complained as well as reasonable time to respond to the complaint. The resident/tenant must also be given enough information regarding the incident, including the rules that they may have broken.

  1. Second notice

Should the owner or resident not heed the first notice, a second notice may be issued mentioning the contravention is continuous or has been repeated. The transgressor must then be invited to a trustee meeting where they will be given a platform to present their case or defend themselves.

  1. The hearing before the fine

Before a fine is imposed, a hearing must have taken place. In the meeting, witnesses may be called to testify in favour of the transgressor and the transgressor may state their side of the story. Those who laid the complaint may also be cross-examined.

  1. Discussing evidence

Once the hearing is over, the trustees may then review the evidence presented to them and make a decision on whether or not to impose the fine.

If a fine is imposed, the amount should be reasonable, substantial and be proportionate to the purpose of the penalty.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

TITLE DEEDS WHEN BUYING OR SELLING PROPERTY

TITLE DEEDS WHEN BUYING OR SELLING PROPERTY

If you’re planning to buy a new property, you’ll need to get the title deed transferred into your name to prove that you’re the owner of the property. You’ll need the assistance of a lawyer specialising in property transfers (also known as a conveyancer) to help you transfer the title deed into your name.

You’ll only become the owner of the property when the Registrar of Deeds signs the transfer. After it’s been signed, a copy of the title deed is kept at the Deeds Office closest to you.

How long does it take? 

A search may take 30 to 60 minutes. In some of the larger offices, the copy of a deed is posted or it must be collected after a certain period of time.

To obtain a copy of a deed or document from a deeds registry, you must:

  • Go to any deeds office (deeds registries may not give out information acting on a letter or a telephone call).
  • Go to the information desk, where an official will help you complete a prescribed form and explain the procedure.
  • Request a data typist to do a search on the property, pay the required fee at the cashier’s office and take the receipt back to the official at the information desk.
  • The receipt number will be allocated to your copy of title.

Fortunately, a conveyancer will help you with the process so that you don’t have to worry about all the paperwork yourself. You should contact your legal advisor to find out more.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

CAN I OBTAIN FINANCING IF I DON’T OWN IMMOVABLE PROPERTY AS SECURITY?

CAN I OBTAIN FINANCING IF I DON’T OWN IMMOVABLE PROPERTY AS SECURITY?

The article gives a brief overview of what a notarial bond is, the requirements that need to be complied with to register a notarial bond and give tips regarding clauses that will prove to be useful in a notarial bond. It also deals with the situation where a debtor disposes of an asset listed in a notarial bond, contrary to the provisions thereof.

A very useful way of obtaining financing to start a new business, is to register a notarial bond over the movable property belonging to the business. For instance, notarial bonds are regularly utilised in transport companies – a notarial bond is registered over the vehicles forming the core of the business, but the vehicles do not need to be in the physical possession of the creditor, thus the business can fully operate.

What is a notarial bond?

A notarial bond is a general or special bond where the movable assets of a debtor are used as security for a debt. In terms of the notarial bond, the debtor undertakes to pay his debt towards the creditor, failing which the creditor will be entitled to sell these movable assets and to utilise the proceeds thereof to satisfy his claim against the debtor. There are 2 types of notarial bonds: 

  • General notarial bond: all the movable assets on the debtor’s property serves as security for the debtor’s debt.
  • Special notarial bond: specific movable assets identified in the bond will serve as security for the debt.

How does a notarial bond differ from a pledge?

A pledge requires the delivery of the movable asset pledged. A notarial bond does not require the delivery of the movable assets identified in the bond, but in terms of section 1(1) of the Security by Means of Movable Property Act 57 of 1993, the movable property listed in the notarial bond will be deemed to have been pledged to the creditor as effectually as if it had been delivered to the creditor. The fact that the creditor is deemed to be in possession of the property thus places him on equal footing with that of a pledgee. The creditor, upon registration of the notarial bond in the deeds registry, acquires a real right of security in the movable property specified in the bond.

Requirements:

  1. Existence of a principal debt;
  2. Assets which serve as security must be movable, including corporeal and incorporeal assets.

Corporeal assets include furniture, vehicles, the goods of a business, animals and the future offspring of animals and stock in trade.

Incorporeal assets include an unregistered long-term lease of immovable property, a short-term lease of immovable property, a liquor license, a water use license, site permit, shares in a company, goodwill of a business, book debts etc.

What if more than one creditor uses the same asset as security for their debt?

A bond which was registered first enjoys priority over a bond registered thereafter.

Important clause to insert in the bond:

To prevent the debtor from disposing of assets which serve as security in terms of the notarial bond, a clause should be inserted disallowing the debtor to sell, alienate, dispose of, transfer or permit the removal of the asset from the debtor’s place of residence or place where he carries on business, without the prior written consent of the creditor. 

What happens if a debtor disposes of the asset identified in the notarial bond, contrary to the stipulations in the notarial bond?

The creditor will be able to apply for provisional sentence summons against the debtor, provided that the notarial deed meets the requirement of being a liquid document. A liquid document is a document which indicates, without having to consult extrinsic evidence, an acknowledgement of debt, of which the amount is easily determinable. A notarial bond will in general qualify as being a liquid document. 

A creditor will also be able to claim back an asset which has been sold, contrary to the provisions of the notarial bond, to a bona fide third party, from such third party. The reason for that is the fact that a notarial bond, which has been registered in the Deeds Registry, creates a real right, which is a right that attaches to property, rather than a person. 

It is not easy to obtain credit in the economic environment in which our country currently finds itself. However, there are ways to get your business off the ground and registering a notarial bond over the property of your business is a recognised method of securing your business’ debt. If notarial bonds can be utilised more frequently, it can help a lot of new businesses get the financing they need to buy equipment, vehicles and machinery necessary for the operation of the business.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

  • Explanatory Notes Part 1: Course in Notarial Practice, compiled by Gawie Le Roux, Erinda Frantzen and Ilse Pretorius
  • The South African Notary, sixth edition, M J Lowe, M O Dale, A De Kock, S L Froneman, A J G Lang
UNDERSTANDING SALES

UNDERSTANDING SALES

You decide to buy a fridge and a washing machine on Gumtree. It is important to note that there are several elements involved in this seemingly simple sale: (1) the sale agreement; (2) the transfer of ownership; (3) the risk of damage to the items; and (4) defects in the item.

(1) Sale Agreement

The law distinguishes between the contract of sale and the actual transfer of ownership. These two are treated as separate events in the overall transaction. The sale agreement is the underlying contract in terms of which the seller undertakes to transfer the property to the buyer in exchange for consideration. All the remedies under the law of contract are available here and it is in terms of the sale agreement where the buyer is afforded the most legal protection e.g. if the seller guarantees the washing machine will work for 3 years and it does not, then you can claim from the seller for breach of contract; or if the seller misrepresents that the washing machine is a front-loader when in fact it is a top-loader, the contract can be cancelled on the basis of misrepresentation and the goods and monies paid are to be returned. However, the agreement of sale does not on its own transfer property from the seller to the buyer.

(2) Transfer of Ownership

To pass ownership there must be delivery of the item and the intention to actually transfer ownership. In the case of a cash sale, the price must also be paid at the same time as delivery in order for ownership to transfer. In a credit sale, ownership passes on delivery and payment of the purchase price is postponed. In our law, ownership can be transferred if these requirements are met without a valid contract of sale. However, the buyer would have a claim against the seller in unjustified enrichment.

(3) Risk

A further element to consider is who bears the risk of damage or destruction to the property before it is delivered. Risk passes from the seller to the buyer when the sale agreement is ‘perfected’. This is when the price has been set; and the item be determined or identified. Any suspensive conditions must also be fulfilled. A suspensive condition suspends the operation of the contract until the happening of a future event e.g. I will sell the washing machine to you if my cousin does not buy it by Wednesday. The operation of this contract is suspended until Wednesday. Where damage takes place prior to the fulfilment of the suspensive condition, the seller bears the risk.

(4) Defects

Where there is a latent defect (one not visible upon reasonable inspection) then the buyer can ask for a reduction in the purchase price. Only where the item is so defective that it is not fit for its purpose and that a reasonable person would not have bought the item, can it be returned. This is the extent of a buyer’s remedies for latent defects. It is only where the seller is a professional seller (e.g. retail store trading in appliances) or a manufacturer, that the buyer claim for all losses e.g. the loss suffered where a faulty washing machine damaged clothing and the surrounding walls and cupboards.

However, where an item is sold ‘voetstoots’, it is sold in its condition ‘as is’. This voetstoots clause forms part of the sale agreement. Where such a clause is present, there is a duty on the buyer to properly inspect the property and ensure that there are no defects. If the buyer notices a defect later on, he will have no remedies available against the seller.

Conclusion

In most cases where you have entered into a sale and are dissatisfied with the outcome, the most extensive relief would be contractual remedies for breach of the sale agreement. However, it is important to establish whether risk has in fact transferred to you before you took delivery of the item. Furthermore, buyers should be cautious as to whether items are being sold ‘as is’, because such a clause leaves the buyer without any remedies where the item is defective. However, this voetstoots clause would not protect a seller who is acting fraudulently. Should you wish to know more, feel free to make an appointment with our offices.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

FEARING FORECLOSURE: WHAT ARE YOUR RIGHTS AS THE HOMEOWNER?

FEARING FORECLOSURE: WHAT ARE YOUR RIGHTS AS THE HOMEOWNER?

The recent junk status announcement has shaken us into a quick action of tightening our belts and letting go of luxuries to afford our day to day expenses. This financial condition inhibits the possibility of purchasing a new house, let alone affording your current home.  Have you thought about what you would do if your foreclosure wiped its shoes on your doormat?

You have the option to sell

Selling, rather than waiting for foreclosure, offers a greater possibility of you receiving greater value for your home. You may choose to sell privately or through an estate agent. It is advisable that your qualified conveyancing attorney be notified of any concerns, as well as any interests of potential buyers. During this time, look for alternative home solutions, and consider a suitable transfer date.

  • Prior to the signing of the agreement of sale and the transfer of ownership, the property still belongs to you.

You have time

Before receiving a foreclosure notice, the bank allows a grace period for you to catch up on your bond instalments. It may be difficult to do so, considering your finances have already been tightrope walking over the past few months. Meeting with your bank allows the opportunity for a payment restructure to be discussed and agreed upon.

  • The repossession procedure is paused during the time you are in application of or in debt review. The National Credit Act allows this opportunity.

Approach your lawyer

If, after attempting to recover payments, you receive foreclosure summons, contact your lawyer. As stated by section 26(3) of the South African Constitution, your eviction may not be finalised without an official court order. The courts consider all relevant circumstances before reaching a final eviction decision.

  • You may not be arbitrarily removed from your home.

You won’t be homeless

You have the right to adequate housing, despite your previous or current economic standing. Adequacy is determined by a place to eat, shelter, a place to sleep, and a place to raise a family, and this accessibility is the responsibility of the state. Following the outcome of the sale by the bank, the home is no longer in your ownership, and the state classifies you as an unlawful occupier.

  • The eviction process will then follow that of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

National Credit Act

Constitution of the Republic of South Africa [1996]

Prevention of Illegal Eviction from and Unlawful Occupation of Land Act [No. 19 of 1996]

CO-OWNING PROPERTY WITH SOMEONE ELSE: THE UPS AND DOWNS

CO-OWNING PROPERTY WITH SOMEONE ELSE: THE UPS AND DOWNS

What is co-ownership?

Co-ownership is when one or more people jointly own the same property. In essence, it is when they legally share ownership without dividing the property into physical portions for their exclusive use. It is thus commonly referred to as co-ownership in undivided shares.

It is possible to agree that owners acquire the property in different shares; for instance, one person owns 70 percent and the other 30 percent of the single property. The different shares can be recorded and registered in the title deeds by the Deeds Office.

The benefits

On paper, it’s a great idea. For starters, the bond repayments and costs of maintaining the home are halved. However, there can be problems and although not every friendship or relationship is destined to disintegrate, there does often come a time when one of the parties involved wants to sell up and move on to bigger and better things.

The risks

If ownership is given to one or more purchasers, without stipulating in what shares they acquire the property, it is legally presumed that they acquired the property in equal shares.

The risks, the benefits and the obligations that flow from the property are shared in proportion to each person’s share of ownership in the property. For instance, one of the co-owners fails to contribute his share of the finances as initially agreed, resulting in creditors such as the bank or Body Corporate taking action to recover the shortfall.

Having an agreement

If two people own property together in undivided shares it is advisable to enter into an agreement which will regulate their rights and obligations if they should decide to go their own separate ways.

The practical difficulties that flow from the rights and duties of co-ownership are captured by the expression communio est mater rixarum or “co-ownership is the mother of disputes”. It is therefore important that, when the agreement the co-owners entered into does not help them solve disputes, certain remedies are available to them.

The agreement should address the following issues:

  1. In what proportion will the property be shared?
  2. Who has the sole right to occupy the property?
  3. Who will contribute what initial payments to acquire the property.
  4. Who will contribute what amounts to the ongoing future costs and finances.
  5. How the profits or losses will be split, should the property or a share be sold?
  6. The sale of one party’s share must be restricted or regulated.
  7. The right to draw funds out of the access bond must be regulated.
  8. A breakdown of the relationship between the parties.
  9. Death or incapacity of one of the parties.
  10. Dispute resolution options before issuing summons.
  11. Termination of the agreement.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

http://igrow.co.za/co-ownership-of-property-what-you-need-to-know/

http://www.privateproperty.co.za/advice/property/articles/the-pitfalls-of-property-co-ownership/5046

http://www.jgs.co.za/index.php/property/owning-prop-jointly-the-do-s-and-dont-s

RENTING PROPERTY TO FOREIGNERS

RENTING PROPERTY TO FOREIGNERS

Renting property in South Africa is a straightforward process. The country has a vast selection of rental accommodation including bachelor flats in apartment blocks, Victorian cottages, stand-alone houses with big gardens, and semi-detached units in modern townhouse complexes.

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.

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.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

http://www.expatarrivals.com/south-africa/accommodation-in-south-africa

http://www.avidfirefly.co.za/00000/index.php?option=com_k2&view=item&id=92:can-i-lease-or-sell-my-house-to-a-foreigner?

PAYMENT OF BUILDING DRAWS- KNOW YOUR RIGHTS

PAYMENT OF BUILDING DRAWS- KNOW YOUR RIGHTS

When purchasing a property in a new development directly from the Developer, normally one of the agreements entered into between the parties is a Building Agreement.   Apart from the daunting fact that the Purchaser signs an agreement instructing a Contractor to build your dream house on a vacant piece of land at the time that the agreement is entered into, the legal jargon contained in the Building Agreement can in itself be incomprehensible or just downright confusing.   Read more about what you need to know and understand about the payment of building draws

Most new developments requires a Purchaser to sign a Deed of Sale for the purchase of a vacant plot, together with a separate Building Agreement to be entered into between the Purchaser and the Developer regarding the terms and specifications for the erection of your house on the plot, subsequent to transfer.  The simultaneous conclusion of these two agreements is normally made subject to each other.  It also sometimes happens that the building contractor with whom a Building Agreement is entered into, is not the same entity as the Developer from whom a plot within the development is bought.

The terms of a Building Agreement between the prospective Purchaser (called the “Employer” in a Building Agreement) and the Contractor, set out the contract sum for the house to be build, and also normally includes a detailed list of the specifications of the house, as well as the cost and detail of any extra additions required by the Employer to be added to the property.

The clause containing the contract sum will also deal extensively with the dates and times by when the Employer is required to pay instalments of the contract sum to the Contractor.  By means of example, the Building Agreement will normally refer to payment of 20 (twenty) percent of the contract sum when the dwelling reached floor height, 20% when the dwelling reached roof height and so forth, up until 100 percent of the contract sum have been utilized.

The Building Agreement will normally also contain further clauses relating to the financing of the contract sum, for example, by means of a building loan or otherwise, as well as the completion date for the erection of the dwelling, public liability insurance and the like.

The Contractor will not commence any building operations until the full contract sum is secured, either in terms of a building loan with a financial institution, and/or the payment of the full contract sum into the trust account of the Conveyancers instructed to attend to the registration of the development.

It is important to note that the Employer is only liable for payment of the contract sum in accordance with the instalment percentages agreed upon in the Agreement, and only once the Contractor have reached the various levels of progress with the erection of the dwelling as agreed upon.   As such, a Contractor is for example not entitled to request a progress draw payment/instalment prior to commencement of the erection of the dwelling if the Building Agreement stipulates that the first progress draw payment can only be requested from the Employer when the dwelling reached floor height.  Even though this is common practice, there is no contractual basis for a Contractor to request payment of any instalments towards the contract sum prior to commencement of the building operations if the Building Agreement does not make provision for any upfront payments.  The Employer is also under no obligation to entertain such a request for payment if the Agreement does not provide for same.

The above also applies in respect of the payment of each progress draw or instalment to the Contractor.  Should the Employer’s contract sum be invested in the trust account of the Conveyancers dealing with the development, the Contractor should request payment of a written building draw instalment to the Conveyancers upon the Contractor reaching a specific stage in the building process requiring payment of a building draw.  The Conveyancers should obtain the written consent from the Employer authorizing payment of the amount of the building draw instalment prior to any payments being made to the Contractor.    The above measures are protecting the Employer from losing control over the payment of building draws and preventing a Contractor from receiving any portion of the contract sum without the required progress in the building operations being made.

The Employer should also make the necessary enquiries with the Conveyancers to ascertain the exact amount of fees charged by them to administer the payment of building draws and to obtain the relevant parties’ consent.  As this requires the Conveyancers to make payments from the Employers investment held on the Conveyancers’ trust account at the office of the Conveyancers, a nominal administrative fee is normally charged by them for each building draw instalment having to be paid to the Contractor.

In short, Employers, be sure to keep close tabs on the progress with the building of your house, and make sure that you know exactly when and for which amounts building draw instalments is being requested.  Keep diligent records of any payments being made, and seek independent legal advice should you feel that you are being pressurized to make payments without the Contractor living up to the terms of the Agreement.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)