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June 2016

152 75 Prevance - Bridging Finance South Africa

Real Estate Alert 17 June 2015

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SECTION 118 (1) THE INTERPRETATION OF ‘IN CONNECTION WITH THAT PROPERTY’
Section 118(1) of the Local Government: Municipal Systems Act, No 32 of 2000 (Municipal Systems Act) states that:

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Prevance Launches Auction Funding

There are opportunities in the market to buy properties on auction at a low price. This extends, not only to distressed properties but all properties that are being sold by the various auction houses currently operating in the market.

In order to take advantage of these opportunities, the buyer has to put down normally a 10% deposit on the fall of the hammer and needs to come up with the balance of the purchase price within approximately 30 days. Furthermore, the buyer has to fund the outstanding clearance amounts and transfer costs, etc.

This places any potential buyer under pressure unless he has the funds available.

Even for experienced operators in this market, there is a limit to the amount of funding they have available. There may be additional opportunities which may fall by the wayside.

So Prevance Capital, who are long established in providing bridging finance solutions for property related transactions, have come up with an innovative product for those entrepreneurs who would like to take full advantage whenever a property deal presents itself.

How it works is that the entrepreneur sets up a facility with Prevance Capital in advance. What Prevance normally requires is a first mortgage bond over some existing property as security for the facility.

Once this is in place, the operator has the fire power to bid for a property and, at an auction, knowing full well that they have the full ability to perform should the hammer fall in his favour. This would give him possible advantage over his competition in the bidding process.

Once the property has been bought, Prevance will then fund the deposit and the balance of the purchase price and other costs involved, and give the operator around 6 months to dispose of the property and repay the loan to Prevance.

This removes all pressure from the operator and enables him to market the property for a longer period and obtain a better price. He may even want to renovate the property.

This is a major headache off the operator so he can focus entirely on these deals ensuring a higher profit.

In addition, he may be able to manage a few properties at the same time increasing his returns. Even for those operators who have their own equity, by gearing this up will ensure much higher percentage returns on his investment. So why not leverage existing properties where the banks are reluctant to provide mortgages?

Prevance Capital believes in partnership and looks forward to developing long term mutually beneficial personal and business relationships with its clients.

Check their website www.prevance.co.za or call them on 0860 987 987.

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Transfer and Bond Fees 2016

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The Conveyancing Process (Diagram)

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Am I really responsible for the municipal debts of a previous owner?

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“I bought a house a few months ago. The municipality issued a rates clearance certificate to the seller and the property was transferred in my name. When I recently queried a high water account with my municipality, the municipality responded by saying that there is still quite a large arrear debt against the property and that unless I pay they will take steps against me to collect and even sell my property if necessary. Surely this can’t be lawful?”

Section 118 of the Municipal Systems Act (“MSA”) has been the cause of a lot of concern for home owners as this section and in particular Section 118(3) is viewed as enabling a municipality to hold a new home owner responsible for the arrear municipal debts of a previous owner.

According to Section 118(1) of the MSA, a property may not be transferred unless a rates clearance certificate has been issued by the municipality where the property is situated. The certificate must certify that all amounts due to the municipality for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties (“municipal fees”) during the two years preceding the date of application for the certificate have been fully paid. This subsection says nothing about historical arrears which may be older than two years.

According to Section 118(3) an amount due for municipal fees is a charge upon the property and enjoys preference over any mortgage bond registered against the property, thereby creating a security provision in favour of the municipality for the payment of the outstanding debts. No time limit is attached to this provision and it does not matter when the secured debt became due. It can include debts up to 30 years old (for rates, refuse and sewer charges) and 3 years old (for electricity and water), including debts of more than one previous owner, all of which are secured through Section 118(3) in favour of the municipality.

The issue that is the cause of the consternation is where a new (innocent) owner is now held responsible for municipal debts older than two years incurred by previous owners, without any prior knowledge that there is arrear debt and that municipalities may, as in your case, hold the new owner responsible for the arrear debt of someone else. The new owner is caught by surprise, particularly as a rates clearance certificate was issued creating the impression (even if not legally correct) that all debts with the municipality have been settled by the seller.

Our Supreme Court of Appeal has recently confirmed that a rates clearance certificate does not mean that there is no further municipal debt tied to a property. Our courts also confirmed that if the seller or previous seller is unable to pay or cannot be located, the purchaser or new owner will be held liable for these debts, in extreme cases even potentially allowing the municipality to sell the property itself to settle the arrear debts. This right (or hypothec) of the municipality over the property established by Section 118(3) thus survives any form of property transfer without exception.

Based on this court decision, it potentially leaves a new owner vulnerable to the municipality enforcing its rights over the property, even resorting to disconnecting water and electricity to force a new owner to settle arrear municipal debts.

Our courts have not however had occasion to test the constitutionality of Section 118 of the MSA, and in our view there could be constitutional grounds for testing the fairness of the current interpretation of Section 118(3) and the application thereof by municipalities.

We accordingly recommend that should the municipality persist in your case to require settlement of a previous owner’s arrear municipal debts or face disconnection of municipal services, you should approach a legal advisor for assistance.

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Complete Piece of Mind (Prospective Seller)

Complete Piece of Mind (Prospective Seller)

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The sale of property has in recent years become more complex as a consequence of various newly imposed regulatory and legal requirements.

At Jooste Heswick we know that prevention is better than cure. It is therefore prudent that our service does not only commence after a Contract of Sale has been finalised – our service to you as our client goes beyond the legal processing of the sale of your property. It includes assistance during the marketing and negotiation phase thereof, as well as in the finalisation of the practical aspects once registration of transfer has been completed.

In our experience working in conjunction with and in support of your chosen estate agent, assist in concluding a successful Contract of Sale and ensure the fluent and effective transfer of your property – on time!

In addition to the processing of your transfer, our service to you include the following:

      1. Perusal of your Offer to Purchase prior to you accepting and signing it,
      2. Ensuring that timeperiods in your proposed sale agreement are practically attainable,
      3. The legal and practical consequences in relation to suspensive conditions,
      4. Title deed searches and verification of property details,
      5. Ensuring that notice is given timeously to the appropriate institutions,
      6. The disclosure of defects if and where applicable,
      7. Assistance with compliance in relation to Electricity, Beetle infestation, Gas and Plumbing certification (where applicable),
      8. Your liability for Capital Gains tax (if any) and the processing thereof in conjunction with your auditors,
      9. Assistance to foreigners,
      10. Repatriation of funds abroad,
      11. Estate planning,
      12. Ensuring that the purchase of a new property is practically linked to and financially secured in relation to the sale of your existing property,
      13. Assistance when planning to buy a new property.

As the seller, you are disposing of your ownership rights – these rights have to be protected and it is therefore your prerogative, as the seller, to nominate the attorney and conveyancer responsible for the processing of your sale. Do not relinquish this right – ever!

Our firm is well known in the property industry and our knowledge is a given, however, we have found that our personal relationships with our clients is the single most important aspect which ensure a positive and memorable experience.

Visit website.

Head Office : 011-274-1700