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Taking the headache out of development financing

In 2020, the world experienced unprecedented upheaval with the COVID pandemic. Not only the healthcare impacts, but the associated lockdowns and restrictions on movement will have ramifications for years to come. Millions around the world have experienced the catastrophic consequences of the pandemic. Wreaking havoc with the global and local economy, 2021 will be a year spent continuing to deal with the crisis. 

The construction industry is a key driver of economic growth and creates employment which South Africa is in desperate need of. With property developers looking for astute investment opportunities to enable and support growth, the industry is looking at a positive year ahead, however finance in this sector can be a significant stumbling block, one which can threaten the viability of even the most attractive project. 

Traditional banks are under extreme pressure to focus on existing clients and with economic contraction a reality, they remain risk averse. 

Accessible finance remains a challenge for most property developers. Before starting any property development, it is critical to establish how much you can borrow and how you will manage the associated costs of financing. Not having adequate funding secured can cause serious delays and even threaten the chances of a successful project. 

Another frustration is the length of time it can take to get finance approved. This leaves developers with cash flow frustrations and unfortunately places great strain on development projects, even affecting their viability. Access to finance is critical to avoid a deal falling through. 

Do you ever feel that your bank doesn’t share your vision for a project? Don’t let an opportunity slip away while you worry about the uncertainty of financing a deal. Take the time to find a financial institution that understands your project, is flexible and responds quickly to changes in the market. Finding a trusted partner for your development will take the headache out of financing.

Photo by Micheile Henderson on Unsplash

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Property: Green Shoots, Agent’s Commission and Fidelity Fund Certificates

“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate” (Andrew Carnegie, billionaire industrialist)

Dollar billionaire Andrew Carnegie said it a century ago, and it still rings true – wise property investment can be hard to beat when it comes to accumulating wealth. The exciting opportunity for buyers at the moment is of course the more attainable sale prices and the lower interest rates resulting from the pandemic and the lockdown. It is, by all accounts, still very much a buyer’s market.

On the other side of the coin, sellers and estate agents are no doubt heartened by recent signs that the first green shoots of a recovery are in the offing, and so the time is ripe for a reminder that, in terms of the Estate Agency Affairs Act (“the Act”) only agents with a valid and current Fidelity Fund Certificate (FFC) can operate and earn commission. 

The challenge for agents is that when it comes to the issue of FFCs, they are at the mercy of the Estate Agency Affairs Board (EAAB), which has reportedly struggled in the past to issue certificates efficiently and on time. This problem will presumably be exacerbated by the ongoing lockdown restrictions and the risk of precautionary office evacuations.

However there is some good news for agents (not such good news perhaps for those sellers or landlords hoping to save on commission!) in a recent Supreme Court of Appeal (SCA) judgment…

No FFC, but not the agent’s fault 

  • Two estate agencies (“S” and “A”) jointly brokered a lease agreement, but when S asked for its 50% share A refused, partially on the basis that S had no valid FFC at the time the commission was earned.
  • In fact S had done everything necessary to apply for its annual FFC, which was issued by the EAAB on 1 January 2018 in the wrong name (S had converted from a close corporation to a company). The EAAB acknowledged its error and in May 2018 issued a correct FFC to S, backdated to 1 January.
  • However the High Court dismissed S’s commission claim, holding that mere entitlement to an FFC is not enough – a valid FFC must have been actually issued at the time the commission was earned.
  • S appealed to the SCA, which reversed that finding and awarded S its 50%. The Court held that the Act’s strict and peremptory requirement for a FFC had to be interpreted in light of both Constitutional considerations and consistency “with what the Act seeks to achieve”.
  • On that basis, and commenting that “But for the error on the part of the Board, [S] was entitled to, and would have been issued with, a valid fidelity fund certificate for the period 1 January-31 December 2018” and that “the fault lies squarely and solely with the Board”, the Court concluded that “the estate agents were rightly considered to have been in possession of a certificate”. S is therefore entitled to its commission.

Agents – don’t lose your commission!

The Court was however at pains to point out that the particular facts of this case were “in a narrow compass” and it is clear that the general rule remains – hold a valid and current FFC or almost certainly forfeit your commission. Do not even try to rely on an EAAB mistake unless you have complied strictly with all the formalities for a certificate and can prove that you are entitled to one.

And as the Court put it, if something does go wrong with the issue of your FFC “…estate agents should not adopt a supine attitude in the face of the Board’s errors. They should do what is reasonably within their power to have the situation rectified. In the meantime their compliance with the requirements should be a primary factor in the determination of disputes that arise before the error is rectified” (emphasis supplied).

Source: Lawdotnews and Gerings Attorneys.

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