Drafting Sale of Immovable Property Agreements – Part 2
24 Jul 2020
This article is the third article in a series of articles relating to important considerations when drafting Sale of Immovable Property Agreements. Here are the first two articles –
- The CPA and drafting of agreements relating to Immovable Property
- Drafting Sale of Immovable Property Agreements: Important considerations
The purpose of this article is to have a look at miscellaneous aspects that may also be important when drafting Sale of Immovable Property Agreements.
2. The Sectional Titles Act and the real right of extension
Section 25 (14) and (15) of the Sectional Titles Act, 1986, provides that if a purchaser buys a sectional title unit and there is still a real right of extension reserved in favour of the developer or the body corporate, that real right of extension must be disclosed in the Sale of Immovable Property Agreement.
If it is not disclosed in the Sale of Immovable Property Agreement, the sale is voidable at the instance of the Purchaser. In other words, the Purchaser can withdraw from the sale if the real right of extension is not disclosed in the Sale of Immovable Property Agreement.
3. The Housing Consumers Protection Measures Act
Although it is not required to expressly make reference to the implied referred to in the Housing Consumers Protection Measures Act, 1998, it is still important to take cognisance of the implied terms stipulated in the Consumers Protection Measures Act, 1998, so that you do not include any terms in the Sale of Immovable Property Agreement that conflict with these implied terms.
Section 13 (2) of the Housing Consumers Protection Measures Act, 1998, stipulates that –
The Agreement between a home builder and a housing consumer for the construction or sale of a home shall be deemed to include warranties enforceable by the housing consumer against the home builder in any court, that –
the home, depending on whether it has been constructed or is to be constructed
(i) is or shall be constructed in a workmanlike manner;
(ii) is or shall be fit for habitation; and
(iii) is or shall be constructed in accordance with
(aa) the NHBRC Technical Requirements to the extent applicable to the home at the date of enrollment of the home with the Council; and
(bb) the terms, plans and specifications of the Agreement concluded with the housing consumers contemplated in subsection (1); (own emphasis)
The Housing Consumers Protection Measures Act, 1998, provides a wide definition of home builder and includes a person who –
- constructs or undertakes to construct a home or to cause a home to be constructed for any person;
- constructs a home for the purposes of sale, leasing, renting out or otherwise disposing of such a home;
- sells or otherwise disposes of a home as contemplated above as a principal.
A housing consumer includes successors in title and section 13 (4) of the Housing Consumers Protection Measures Act, 1998, provides that –
Where a housing consumer has sold or disposed of a home to another housing consumer within the period contemplated in subsection (2) (b) (i), the housing consumer having sold or disposed of the home shall be deemed to have ceded his or her rights under subsection (2) to such subsequent housing consumer. (own emphasis)
From the definition of home builder, it appears that a Seller (for example a Developer) may be regarded as a home builder under the Housing Consumers Protection Measures Act, 1998.
It therefore follows that when drafting a Sale of Immovable Property Agreement and acting on behalf of a Developer you need to be aware of the provisions of the Housing Consumers Protection Measures Act, 1998. More specifically, you will need to be careful not to exclude or waive any of the deemed warranties, as such waiver or exclusion will be void.
Unlike the CPA, the Housing Consumers Protection Measures Act, 1998, does not provide for a situation where the implied warranties can be excluded if the Consumer has been expressly informed that the Property is sold in a specific condition and the Consumer expressly accepts the Property in that condition.
4. Additional seller warranties
When acting for the Purchaser, you may want to consider including various warranties and corresponding indemnities in the Sale of Immovable Property Agreement, relating to the status of the Property and claims that may relate to the Property.
Generally, where the Property is a farm or agricultural holding, the Purchaser can include the following warranties –
- No claim will lie in respect of the Immovable Property in terms of the Restitution of Land Rights Act, 1994.
- No consent to reside on or use the Immovable Property or part thereof has been given by any person in charge of the Immovable Property to any person, as contemplated in section 3 of the Extension of Security of Tenure Act, No. 62 of 1997 or under any other law.
- Generally, there are no facts, matters or circumstances which may give rise to any expropriation of the Immovable Property.
- There are no facts, matters or circumstances which may give rise to any declaration of the Immovable Property as a heritage site under the National Heritage Resources Act, 1999 nor as an informal township.
Depending on the specific Property, situation and condition thereof, one can also consider including various warranties relating to:
- Zoning of the Property and neighbouring properties
- Compliance with environmental laws
- Builders liens
- The structures on the land
(this is not a closed list and each transaction will need to be considered individually and based on specific facts at hand)
In brief, compliance with electrical, water, gas and electric fence certificates is prescribed by law and carries penalties for non-compliance. The beetle certificate is not prescribed by law anymore, but it is customary to include it in standard offers to purchase, especially for Property situated in coastal regions. Banks also often include these certificates as requirements for a loan for the Property that they are bonding in order to ensure that the Property is compliant for their security purposes.
Below is a detailed summary of the different types of certificates of compliance and explanations as to what is required by law:
Electrical Compliance Certificate
The requirements for an Electrical Compliance Certificate are set out in the regulations to the Occupational Health and Safety Act. In general, each ‘user’ or ‘lessor’ must have a valid electrical certificate. Although regulations refer to ‘user’/’lessor’ and not ‘owner’, the description of user/lessor necessarily incorporates the owner of the electrical installation who will also be the owner of the land.
In respect of property transfers, the regulations prescribe as follows:
- It is obligatory to obtain an electrical certificate where ownership changes.
- Save where there is a valid certificate in place that is (a) not older than 2 years, and (b) there were no alterations to the installation since the issue of the current certificate, a new certificate is not required for purposes of transfer.
Parties may nonetheless agree that a new certificate must be provided, even where the current certificate is less than two years old and no alterations or additions to the installation have taken place (which is often the case in many standard offers to purchase).
Although the onus is on the Seller to obtain this certificate and pay for the costs of repairs, this obligation can be shifted to the buyer by way of Agreement.
Beetle certificates are no longer required by law.
Despite the fact that it is no longer required in terms of legislation, standard agreements of sale, particular those in circulation in the coastal provinces (Western Cape and KwaZulu-Natal) continue to require a beetle certificate before transfer, given that these are the regions in which these beetles are most prevalent.
If you want to insert a clause deterring that a Beetle certificate needs to be obtained before transfer, it is advisable to refer to all wood destroying beetles in general rather than to specify the type of beetle in the Agreement, so as to obtain a certificate that includes confirmation that no wood destroying beetles of any nature were found in the premises.
The Seller and buyer can contract out of the requirement to provide a beetle certificate. However, if parties agree that no beetle certificate is necessary and the bank requires it for the buyer’s home loan, then it will need to be provided at the Purchaser’s expense. Obviously if it is a cash deal, this does not present a problem.
Electrical Fence Certificate
This is governed by the Electrical Machinery Regulations which were promulgated in terms of the Occupational Health & Safety Act. The overriding purpose of requiring an Electrical Fence Certificate is to ensure that the installation is safe.
The certificate is required where:
- There is a change in ownership of a property after 1 October 2012 at which Property there is an electric fence.
- There was no change of ownership but there has been an alteration or modification to an electric fence after 1 October 2012, even if it was installed before 1 October 2012.
There is no mention in the legislation of the certificate being valid for a fixed time period once issued (unlike electrical certificates) and once obtained it can be transferred from one owner to the next provided of course the Sale of Immovable Property Agreement does not specify a time period and provided there were no alterations to the installation after the certificate was issued.
With sectional title properties, the electric fence is generally situated on the common Property which is deemed to be body corporate property. Every owner of a section within a sectional scheme is also a member of the body corporate and is also therefore an undivided part share owner in the common Property.
The general consensus appears to be that the common Property falls within the duties of the body corporate, and it is accordingly adequate for the body corporate to have a compliance certificate issued for the electric fence of the entire scheme which can be produced and when called upon to do so.
Technically where there is a change in ownership of Property within a homeowner’s association on which an electric fence exists (typically your perimeter properties) then a certificate would need to be issued or be in place.
Water Installation Certificate
In 2011, the City of Cape Town Municipality passed a new water bylaw which requires that, with effect from 18 February 2011 onwards, all sellers of properties within its jurisdiction must furnish a Water Certificate.
This requirement is only applicable to properties that are situated within the jurisdiction of the City of Cape Town Municipality.
The certificate is required for both freehold and sectional title properties.
Although the bylaw does not specifically say that the certificate must be provided to the buyer, it has become commonplace to include such a provision in the offer to purchase. It safeguards the buyer who then knows that his or her Property at least complies with the requirements of the city’s water bylaw – and the Seller is in any event obliged to lodge it with the city before transfer.
Pressure Equipment Regulations were also promulgated under the Occupational Health and Safety Act (effective October 2009), which brought gas appliances installed in properties more or less in line with electrical installations.
From 1 October 2009, it is required that any person installing a liquid gas appliance at a property must have a certificate of conformity issued in respect thereof.
In terms of Regulation 17(3) of the Pressure Equipment Regulations, the law speaks of a certificate being required after any installation, alteration, modification or change of ownership of Property which necessarily implies that a certificate would need to be in place or issued upon the transfer of a property.
The parties cannot contract out of it – it is required in respect of all properties where there is a gas installation, whether the owner lives there, rents out the Property or whether it is vacant or stands empty for most of the year.
Unlike electrical certificates, there is no mention of how long the certificate is valid for once issued in the legislation although many standard offers to purchase will put a time frame on how old the certificate that is provided may be (usually two years).
Alien and Invasive Species
On 1 August 2014, the Minister of Environmental Affairs published the Alien and Invasive Species Regulations (“the Regulations”) which came into effect on the 1st October 2014 in a bid to curb the negative effects of Invasive Alien Plants (IAPs) and other alien invasive species.
The Regulations call on landowners and sellers of land alike to assist the Department of Environmental Affairs to conserve our indigenous fauna and to foster sustainable use of our land. Non-adherence to the Regulations by a land owner or a seller of land can result in a criminal offence punishable by a fine of up to R5 million (R10 million in case of a second offense) and / or a period of imprisonment of up to 10 years.
Property sales agreements subsequent to 1 October 2014, should incorporate a clause in terms of which the Purchaser acknowledges that he has acquainted himself with the extent and the nature of the Property he is buying and that he accepts the Property as such, including the vegetation on the Property.
It is well documented that as asbestos-containing materials like roofs and partitions deteriorate they release harmful asbestos fibres into the environment.
Although there is no law that requires asbestos to be removed, the cost of removal of asbestos is generally high and needs to be taken into account when considering the value of the property. It is possible to include a special condition in the Sale of Immovable Property Agreement stipulating that the asbestos-containing materials must be removed before transfer at the Seller’s cost.
We have seen numerous Sale of Immovable Property Agreements that are completely butchered and do not accurately reflect the intention of the Parties.
Generally, buyers and sellers are not experts in contracts and require a plain and understandable document. If you still use a legalese ridden contract and require an expertly drafted easy to understand plain language OTP, have a look at the automated contracts on the contracts.tech platform.
- The CPA and drafting of agreements relating to immovable property
- Drafting Sale of Immovable Property Agreements – Part 1
- The Voetstoots clause and what it means for property buyers and sellers
- What compliance certificates do I need when selling my house?
- In with the Consumer Protection Act and out “with a shove of the foot”
- Exemption from transfer duty – Budget Speech 2020