“However It should be remembered that the leisure property market always lags behind in the residential property cycle by about a year to 18 months. Although noteworthy recovery is not expected in this sector for some time to come, there are great leisure investment opportunities available.”

“In late 2008 the global recession hit, and many households had to tighten their belts and closely watch their wallets to survive, so second homes and leisure properties fell off the list of priorities. Many of these homes were put on the market and demand for leisure property declined.”

Goslett says the property investment landscape has changed, and buyers need to be absolutely sure of their investment before they commit financially. As with any property investment, leisure buyers need to establish a few key factors that will influence their return on investment potential.

He says holiday home buyers should take into account that location remains important, so they should research the area and establish the level of property appreciation over the past year. They must find out whether the are and its facilities are well maintained and establish the general market conditions prevailing in the suburb.

“Property is a long term investment, so buyers should not just look at the property and the area as it is now, but find out how it will be in the future. Leisure buyers should look at future developments and infrastructure planned for the suburb, as well as zoning and transport routes or nodes that may affect the atmosphere of the area.”

Also, there is no point in investing in a holiday home that is going to put extra strain on your finances, so holiday home buyers need to consider their financial position, paying particular attention to the acquisition costs such as a deposit, transfer fees and conveyancing fees, as well as the impact of possible interest rate increases, ongoing monthly maintenance, security and insurance costs and the rates, taxes and utility tariffs in the area.

“Holiday home buyers should also consider the practical implications of managing a property in a different town and consider appointing a professional rental management company that can conduct regular inspections and screen, select and place tenants. These fees need to be added into the overall budget.

“Although a holiday home could always generate rental income when it is not in use by the owners, there is no point in owning a holiday home that will seldom or never be used. Leisure property buyers should carefully consider how much use they will make of the property in the years to come to establish whether or not the purchase will be worthwhile.

“You have to do the necessary homework and comparisons and be sure that the investment you are making is worth the financial commitment you are making,” says Goslett.

That’s the word from Berry Everitt, managing director of the Chas Everitt International property group, who says that the latest statistics indicate that the average deposit now required by the banks has fallen from an average of around 18 percent a year ago to about 12 percent.

“This does of course make it easier for new buyers to get into the market, in the sense that they no longer need to have as much cash saved up and can buy now while prices are still low. However, the long-term implications may actually not be as positive, because no matter what the price, a smaller deposit means a bigger loan, which means, first, that the borrower must earn more to qualify, and second, that the minimum monthly repayments will be higher.

“This, in turn, will restrict the borrower’s ability to pay the loan off faster and save a large amount of interest – a situation that may be exacerbated by the fact that the banks often charge higher rates of interest on low-deposit loans.”

Taking the example of a home costing R800 000, he says a 12 percent deposit would equate to a loan of R704 000 and a minimum monthly repayment of just over R6 300, at the current prime interest rate of 9 percent.

“The buyer who pays an 18 percent deposit, however, will require a loan of just R656 000, and face a minimum monthly repayment of under R6 000. He may well then be in a position to pay an additional R300 a month off his loan capital, which would enable him to pay off his home two years earlier and generate interest savings of about R108 000 – or more than twice the additional amount of deposit cash paid (R48 000).

“In short, it always pays to put down the biggest deposit you can muster, even when interest rates are low and there is an urgency to get into the market.”

He lists 10 pointers:

Flexibility is key for sellers. Impulsive and cash-carrying buyers are thin on the ground and banks remain cautious about lending. They’re also taking much longer to approve loans, so properties are staying on the market for extended periods. Sellers who can’t or won’t budge on price need to be able to sit tight for much longer.

Buy with a long term view. This is not the time to make a quick buck – investors should have long-term plans mapped out before they get into the property market.

Do your homework. Buying a home is often fraught with emotion, which can skew your judgment. The following questions can help to keep focused: Can you afford it? Is the location of value to you in terms of its accessibility to amenities such as schools, shops, your place of work, public transport? Is the location going to add to resale value? Tried and tested locations can ensure that the property performs as an investment in spite of market dips.

Security sells. Gated estates are holding and increasing in value all the time.

Calculate before you renovate. Current market conditions make it far too easy to overcapitalise on a renovation. If you’re not seasoned in renovations for resale, seek help from someone who is before you start on any changes. Kitchens, bathrooms and state-of-the-art security are always value adders.

Avoid high risk decisions. Entering the current property market without some kind of financial buffer is like sky diving without a parachute for the sheer thrill. Having a fall back position allows you to make unhurried cool headed decisions. If you don’t have a safety net, then it’s wise to put your energies into savings that will give you more leverage in turbulent times.

If you can’t sell, then rent out a second property. There’s an increasing demand for residential and commercial space to rent in Cape Town and costs incurred by landlords can be offset against tax payable on rental income.

Be an impeccable landlord. Keeping good tenants is the key to long-term investment returns – a high turnover of tenants can be costly.

Check references. Don’t leave any stone unturned when you check tenants’ references. Make use of a reputable letting agent who will carry out all the required checks on your behalf – the benefits far outweigh the agency fee which is tax deductible from your rental income.

There’s still a chance for buyers to grab bargains. The buyers market is likely to do so for another couple of years. If you can afford to buy, then get in now, particularly in the lower to middle priced brackets. The super high priced market has largely remained bullet-proof with prices holding their own.

Rob Johnson, executive director of the Master Builders Association of the Western Cape (MBAWC) says that to get the maximum benefit from your investment you should choose your contractor wisely and enter into a formal contract before beginning the work.

He says that 90 percent of payment problems experienced by contractors and owners are due to no contracts being signed.

“Often the urgency and excitement to start the building work, normally after protracted negotiations, results in the administrative documentation being ignored by all parties. Also, people don’t think of signing a contract when the builder is a friend, relation or acquaintance as they believe that the person will not let them down. Some also seem to think that a contract is unnecessary when it comes to smaller jobs.

“However, disputes usually arise around the time that the last payments are due to contractors. In most cases, owners feel the contractors haven’t complied with discussions held before the work started. Alternatively, contractors become aggrieved after non-payment for requested extras and variations over and above the originally priced scope of work. All these problems can be avoided if a suitable contract, containing procedures for dealing with disputes, is put in place from the very beginning,” says Johnson.

He says owners should be proactive and insist on having building contracts that have been approved by the Master Builders Association in their region and by other recognised professional bodies.

Contract documents as well as advice on the correct documentation for specific contracts, are available from MBAWC’s offices in Rondebosch.

“The cost of a document is a small price to pay for keeping your investment safe and your relationship with the contractor smooth,” Johnson says.

It frequently happens that a member in a sectional title scheme or a home owners’ association (HOA) asks either the managing agent or the trustees or directors (executives) for the contact details for all the other members.

The managing agent or executive often suspects that the reason for such a request is that the owner wants to lobby support for a resolution of members, for a complaint about the running of the development or to make some challenge to the authority of the executive body. Consequently, the request is unpopular and often refused, or the information is delayed or only partly provided.

The good news for owners making such a request is that both the prescribed rules under the Sectional Titles Act and the Companies Act – which applies to HOAs constituted as non-profit companies – provide that this information must be made available.

The Sectional Titles Act requires owners to keep the body corporate informed of changes of ownership of the section and the prescribed rules provide that the trustees keep a register of owners showing their service addresses and that other owners must be allowed to inspect this register.

The Companies Act is even more specific and detailed in this regard. Non-profit companies – including all those that were formed under section 21 of the previous Companies Act – must keep a register of members and members must be allowed to inspect the register at no cost and to copy it at no more than a maximum prescribed cost. The records must be made available within a certain period after the request and if the company prevents or delays the inspection or copying, it commits a criminal offence.

This does not mean that all the information regarding owners must be freely given. It is the right of co-owners and members of an association to be able to contact the other owners or members. A postal address is sufficient for this purpose; after all, those members are also entitled to their privacy. The scheme is not obliged to provide an enquiring member with all of the members’ contact details, such as email addresses or home, business and cellphone numbers that they may have made available for their own convenience.

There are interesting parallels in the provisions of the legislation for sectional title schemes and non-profit companies in this context. In a sectional title scheme, only owners, bond holders and the scheme’s managing agent are entitled to see the body corporate’s records; there is no provision for unauthorised outsiders to enjoy this access to scheme information. Any member of the public may inspect and copy the registers of members and directors of a non-profit company, but not other records, such as accounting records, financial statements and minutes of meetings. Both sectional title schemes and non-profit HOA companies are thus protected from outsiders that want to exploit their sensitive, private information.

Anton Kelly is one of the course conveners of the home owners’ association management course and the UCT (Law@Work) sectional title scheme management course. Call Emma on 021 447 7565, email emma@paddocks.co.za or visit www.Paddocks.co.za.

With the lingering effects of the global recession still biting hard, and no real relief in sight, many families are re-examining their lifestyles and financial options says Elaine Hurford of Country Estates, Prince Albert.

Retrenchments remain a reality, and for the self-employed the future may be even more dismal as business dries up and clients retreat.

Hurford, who is the principal of this independent small town agency says: “In the city it’s hard to shave much off the monthly expenses – schooling, travel, municipal rates, monthly power bills, food and security costs are fixed. Insurance is higher and then there are endlessly-escalating levies for sectional title dwellers. Executive wardrobes, grooming and entertainment can gobble up a budget as restaurant and retail prices soar. All this adds up to a frightening whack whether it’s coming off a fixed salary, or has to be budgeted for in the roller-coaster of the fluctuating incomes of the self-employed.”

She notes that although property sales in the cities have declined, now might still be just the right time to sell up and make the big move to the country.

“If you’re selling, this is not the time for greed or hoping for an overseas buyer who will pay an over-the-top price. If you put your city house on the market at the right price you stand a good chance of a sale. Or, if you have a nest egg to cover the cost of a country purchase, you could let the house and retain your foothold in the city” she says.

“And once having sold your city home, there’s a fair chance that you can buy a good country property and still put a substantial amount of change in your pocket. This cash cushion will stand you in good stead while you establish your new country life or business.

“Country living has advantages which convert to instant savings with cost reductions in security and insurance, rates and utilities, school fees, staff wages, entertainment, wardrobe and grooming, home maintenance and repairs, food bills – grow your own or buy from locals.”

Hurford says these savings must however be offset against some hidden costs in a country lifestyle. Depending on where you settle, there may not be doctors, dentists, vets, computer repairmen, or reliable vehicle workshops. This means travel to the nearest big town for some essential services.

“The big question however, is how to earn a living. And that, ultimately will decide whether you move to the country, or put the idea right out of your head. The first and most obvious route is the hospitality industry – either a guesthouse or a restaurant. When I first moved to the country 16 years ago, there were just two other guesthouses in the town. Now there are 65 accommodation venues There was one restaurant and the local hotel. Now there are eight.

“The answer is to find a niche. If it’s in hospitality, offer something that nobody else has. Or simply be better than everyone else with an edge in service, price or facilities. Better still, find out what else the town really needs and provide it. It could be a cleaning service or laundromat, a print shop, a handyman or garden service, a nursery, or even kennels. Many people like to travel with their dogs, but are unable to find appropriate accommodation,” she says.

Hurford points out that country towns often have more self-catering accommodation than anything else and suggests delivering home cooked meals, offering picnic baskets, braai packages, or a fully-stocked fridge with fresh local produce on arrival.

She warns that not all country towns enjoy year-round popularity. Seaside areas can be strictly seasonal, which makes for a horrible dip in income in winter, whereas up-country towns are more likely to provide year-round customers with fewer seasonal ups and downs.

“Be prepared to work harder than you did in the city and even to do two or more jobs. Your income may need to come from several different sources. And don’t imagine that country life is always stress-free. Services are fewer and invariably slower. Be prepared for hordes of city visitors descending on you at weekends and holidays.

“Anonymity is impossible and privacy sometimes hard to achieve. You have to be on good terms with almost everybody even if you don’t like them because inevitably you’ll find that the annoying neighbour or irritating local gossip is an expert plumber or a whizz with car repairs – and you never know when you’re going to need their help.”

She says because finding somewhere to live is going to be your first priority, you should find an estate agency you like and stick with it.

“In small towns, most agents have all the same properties anyway. Beware the agent who says “oh a guesthouse! yes, why not – I have just the thing for you” when the hospitality market is already overtraded. Do your research properly and if necessary, spend several weekends and holidays in the town of your choice, getting a feel for areas and property prices.

“Visit the municipality and get a copy of the building regulations. Ask about proposed developments in the area. And talk to the locals by all means, but bear in mind that everyone has a different point of view, some may be misinformed, others may have an agenda (‘oh no, a coffee shop will never work here’ – the person you are talking to is planning one already) and don’t be misled by over-rosy accounts of the bliss of country life.

“It may turn out to be blissful for you, but more likely than not, there will be a period of major adjustment with many ups and downs, a tightening budget, and unforeseen pitfalls. Above all keep your sense of humour; be prepared to be patient, be flexible, and to compromise more often than you might like. In the end you’ll be giving yourself a far better quality of life, making new friends, learning new skills and saving money.

“Country life may not be quite what you thought it was going to be, but compared with the stress of the big city, the uncertainty about things like security and worries about personal safety, you will find the clean air and a tangible feeling of freedom among the many mitigating qualities that have made the move worthwhile for thousands of South Africans – and foreigners – in the past few years, “ she says.

Call Elaine Hurford on 023 541 1158 or visit www.country-estates.co.za.

Caption

This renovated three-bedroom Prince Albert house on a 2 000m2 plot with a borehole in a cul-de-sac is for sale through Country Estates at R1.3 million.

However, according to specialist sectional title attorney and director at BBM Attorneys, Marina Constas, buyers need to investigate all the options.

“For the most part, retired people have to choose between buying a unit in a sectional title complex or buying a life right. I’m often asked how sectional title ties up with retirement villages. The answer is that a developer may decide to sectionalise the village under development and register it as a sectional title scheme. In that case, the Sectional Titles Act applies and the fact that it is strictly a retirement village reflects in the rules of the complex,” she says.

Buying a life right is completely different – and a concept that many South Africans don’t fully understand. On signing an agreement, a buyer commits to paying a contribution (in other words the purchase price) and has the right to live in the unit for the rest of his lifetime or until he leaves the village.

She emphasises that the life right option should never be regarded as a property investment as there is no asset that grows in value, which means that neither the buyer nor his estate stand to benefit financially from the transaction. However, this structure does suit many people as it guarantees them a safe place in which to live until the end of their days. These villages also cater specifically to the needs of elderly people and ensure that the best medical care is easily available.

Constas points out that life right developments don’t fall under the Sectional Titles Act, but under the Housing Development Schemes for Retired Persons Act 65 of 1988, which protects elderly people buying into villages and is exceptionally specific about what must be included. In terms of this legislation, a Section 21 company must run the life rights scheme. This Section 21 company now falls under new Companies Act and must have a memorandum of incorporation rather than a memorandum of articles.

She says that if a developer follows life rights there are a few important prerequisites. First, there must be an endorsement made against the title deeds of the scheme as well as the units to which the Housing Development Schemes for Retired Persons Act applied. It is also compulsory to get an architect’s certificate declaring that the building is fit for its purpose.

She says that because buyers are liable for levies and have to pay for facilities used, the agreement between the developer and the occupant has to specify the estimated levies for a period of two years in advance. It also has to go on record that the prospective occupant knows his rights and is aware of what he could recover if the contract ends.

“If you die or leave, the Section 21 company or trust running the scheme may retain a percentage of the original contribution or the new sale price, whichever is greater. For example, if this takes place within 12 months, the occupant or his estate will get 80 percent of the original payment. After 12 months, he will get 70 percent and, after 24 months, 50 percent. The reasonable cost of fixing up the interior of the unit will also be deducted from the payment to the occupant or his estate,” she says.

Constas emphasises that anyone buying either a sectional title unit or a life right in a retirement village should get advice from an attorney before signing any agreement.

This is according to Craig Deats, executive director for sales and distribution at bond originator ooba.

“Although consumers work hard throughout the year to earn a bonus and deserve to enjoy it, finding a balance between saving and indulgence is very important, especially at this time of year. They should deposit some of their annual bonus into their home loan – it’s a great Christmas gift that will result in large savings over the term of the loan.

“It is always useful to have some extra cash over the holiday period, but even putting half of your bonus into your bond can mean significant savings over the term of your loan.”

For example, assume a home owner paying off a bond of R500 000 with an interest rate of 9 percent over 20 years, gets a bonus of R17 000 after tax. Paying R8 500 into the mortgage could reduce the term of the loan by up to 10 months, equivalent to a saving of roughly R45 000 in instalments.

Deats says although this option is definitely the most sensible option for forward-thinking home owners, it is sometime difficult to part with the hard earned bonus, especially if you are not seeing immediate benefits.

“Home owners need to keep the long term benefits in mind. Instead of spending the entire bonus on Christmas presents or a short, festive season break, remember that the long term savings could contribute to something much more significant, like a trip abroad.”

He says that potential home owners should also look to save their 13th cheque lump sum towards a mortgage deposit, due to the many economic benefits a deposit creates for prospective home owners.

“Banks look favourably at buyers with deposits and will be more open to negotiate competitive interest rates on home loans, as a result of the reduced risk to the bank. Besides improving your chances of getting your home loan approved, a bigger deposit could result in a more favourable bond rate that will save you thousands in interest over the term of the loan.

“As a home loan is paid back over a long period, generally between 20 and 25 years, even a small reduction in the interest rate on your bond can save you thousands of rands in interest payments over time,” says Deats.

That’s the advice of Berry Everitt, managing director of the Chas Everitt International property group, who says: “SA consumers and particularly homeowners have clearly done a lot over the past three years to cut their spending and pay off debts, but recent events in Europe reveal that we all need to stay prepared for further financial turmoil in the world.

“Consequently, households in SA should keep looking for more ways to save and do better financially, so that they can build up a cushion against the type of financial shocks that have proved so devastating for many people over the past few years – like sudden huge increases in the costs of transport, food, water and electricity – and against future interest rate increases.”

In addition, he says, many people have borrowed against the equity in their homes and depleted their retirement savings to stay afloat in recent years, and they should be looking to rebuild those resources as fast as possible.

“What is more, this is not the time to buy a new car or go travelling if your home – which is most people’s biggest asset – is in need of repairs or renovations that have been neglected while you struggled to keep your finances on an even keel. Similarly, you should not be tempted to go on a spending spree this festive season just because you’ve paid off a big chunk of your credit card debt and are feeling unusually prosperous.”

Everitt says that consumers should be using any breathing space they have now to create a longer-term financial strategy, drawing on the hard lessons learnt over the past few years.

“For example, if you’ve been successful in paying off debts by strictly restructuring your household budget and being very disciplined about your spending, don’t waste all that effort. Take the cash that is free now that your debts have been repaid and do something really constructive with it. If you are renting, start saving for a deposit on a home of your own so that you can get the long-term benefits of the current low prices and low interest rates. If you already own a home, use the extra cash to reduce the capital amount of your home loan, cut the repayment term and generate huge savings in interest.”

He says families should also use the opportunity to make contingency plans now so that they won’t be thrown into a panic and will already know what their financial situation is and what they need to do if, for example, one spouse gets retrenched or the family faces a medical emergency.

“And in line with that, they should continue to look for ways to cut costs, barter goods and services and earn additional income in a very determined effort to further improve their financial position in the coming year. We don’t believe anyone can afford to be complacent about this or return to the carefree spending habits of the past decade.”

He says that where more than one agency is mandated to work on the marketing of a property, it is quite possible for two or more agencies to have dealings quite independently of each other with the eventual buyer. Both may therefore have legitimate claims to having played a role in bringing about the transaction and may, independently of the others, have a legitimate claim for their full brokerage.

“This is precisely what happened in the recent case of Wakefields Real Estate vs Attree (666/10) [2001] ZASCA 160 (28 September 2011),” says Slot.

He emphasises that the court did not find that the agents had to share the brokerage, but rather that the seller was liable to pay each agency its brokerage in full.

Commenting on the judgment, Robert Ferrandi, Partner at Bisset, Boehmke and McBlain attorneys, says that the court had found that it is often assumed that only one or another party can be the “effective cause” of a sale. The court however, held that effective cause is not so easily determined and it is quite possible for more than one agency to have a legitimate claim. So, by dealing with several agencies, contends Ferrandi, the seller could unwittingly be obliged to pay double commission.

Slot says the judgment highlights the critical role of sole or exclusive mandates to avoid the potential danger of multiple commission claims. he says it is equally important that such mandates are in place from the start of the interaction between the client and the estate agency.

“Sellers often take the view that agents promote exclusive mandates solely to serve their own purposes, but with a sole mandate in place other agencies can still bring buyers. However, since they have to work through the exclusively mandated agency, the risk of multiple commission claims is significantly, if not entirely removed. Top agencies usually work in partnership with each other so that sellers do not have a realistic danger of facing a double commission situation.

“If you add to that the congruence of interest between seller and agent that should result in the best price being achieved for the property and which is generally absent in open mandates, then this judgment makes a very solid case for exclusive mandates awarded to the right agent and agency.”

He says sole mandates can go a long way to preventing or reducing the likelihood of this problem, particularly if in place from the start of the marketing campaign.

“With a sole mandate in place, other agencies can usually also bring buyers, but they always work through the mandated agent so that a deal results in a commission split between agencies rather than a double commission claim against the seller.

“Problems can however still arise where a sole mandate expires without being extended and a second sole agency agreement is then signed with a different agency. The buyer introduced by Agency A during the original sole mandate period that results in a sale during Agency B’s sole mandate could still result in a double commission claim.

“This can be avoided if the outgoing agency provides a list to the seller of persons introduced to the property during the mandate period. The seller is then in a position to either do away with potential double commission claims or, and this is the suggested route, negotiate an agreement with the incoming mandated agency to exclude those buyers from the facts of the mandate for a reasonable and finite period.”

“This fear is often justified. Owners find themselves suddenly liable for their portion of a new levy and these special levy payments can be substantial.

“The Prescribed Management Rules make it clear that the annual budget must be drawn up by the trustees and approved by members at the AGM. In a perfect world this budget would always include a surplus that allows for the accumulation of a reserve fund to cater for ongoing maintenance and upgrades in services such as security and lifts. Regrettably, many schemes are not run in this efficient way.

“However, PMR 31(4) gives the trustees the power to raise special levies from time to time for unforeseen and unexpected expenses provided that two requirements are met:  the expense for which the special levy is raised must be necessary, and the expense must not have been included in the budget approved by owners at the last AGM. The trustees may decide whether to make the special levy payable in one lump sum or in instalments.”

Trustees are given total discretion in the interpretation of “necessary” and “unforeseen” – subject to the provisions of sections 39 and 40 of the Sectional Title Act, and in terms of section 37(2) of the act, the owners at the time the special levy is raised are liable for the payments.

“Certain clauses in the act as it now stands make it clear that no owner can dispute the amount of the levy once it has been decided on by the trustees. A new amendment, however, is likely to give owners more say here and, provided a quorum is achieved at the members’ meeting, may make them able to veto a special levy.”

If an owner does decide to dispute whether a special levy was really necessary (and not budgeted for) in the current legal system he can take the matter to arbitration. She says any owner who believes that a special levy was raised irregularly would be well advised not to react by withholding payment as this can only result in his paying additional expenses such as collection commission, interest and legal costs.

Trustees who are considering raising a special levy should also ensure they are adequately informed of the options available to members of their body corporate.

“In the current economic climate,” says Cockcroft, “there will almost certainly be some owners who would be hard pressed to produce large sums of money quickly to cover their portion of a hefty special levy.”

Propell can make loans for one to five years to help fund projects. Propell can also allow owners who are able to pay their portion of a special levy in a lump sum to be excluded from finance charges while others who cannot do this can make use of the extended repayment term as decided on by the trustees.

“Often one comes across the belief that the legal processes are effective and that there is, therefore, no need for concern because when attorneys approach the defaulting member, they will sort things out. What this mindset fails to acknowledge is that, in some instances, it can take a very long time to achieve satisfaction, that this is an expensive process which has to be funded by the body corporate, and that the debt will probably mount exponentially until the legal process has run its course.”

She says Propell often encounters a serious lack of knowledge in trustees about the steps and time frames involved in the recovery process.

“Bodies corporate should make it clear that any levy not paid within seven days of the date due will be followed up immediately, and that any legal costs incurred to recover the outstanding amounts due are by law for the defaulter’s account.”

First legal action will take the form of a letter of demand allowing the debtor seven days to pay. Such letters are usually sent by registered and by ordinary post. If payment of the amount due is not received from the debtor within the seven days (allowing perhaps two or three extra days for slow postage) the legal process is initiated with a summons to appear in court.

The Sheriff of the Court has to serve the summons on the debtor and provide the attorney with a return of service setting out the date and manner of service on the debtor. If the debtor fails to enter an appearance to defend within 10 working days, the attorney will apply for default judgement and a warrant of execution over the movable property of the debtor at court. Due to the backlogs in the courts the response to this can take anything from a further one to eight weeks.

This judgement, says Cockcroft, is a powerful weapon in the body corporate’s armoury because it can only be rescinded on full payment of the entire amount owing or an agreed sum or upon formal application to court setting out the defence. Once a default judgment is granted the defaulting owner will be blacklisted by the credit bureaus.

If the defendant is still unable or unwilling to pay up, the attorney will proceed to instruct the sheriff of the court to execute the warrant on the defendant’s movable property.

Courts are more reluctant to issue a warrant over the immoveable property of the debtor if the member is living in the unit and has no obvious alternative accommodation. A formal application has to be made to the court showing that all other remedies have been exhausted.

If the worst case scenario is played out, and the sheriff is authorised to auction the unit, the bank holding the bond has the power to veto the auction on the grounds that the amount owed to it (the bank) is greater than the value of the property.

If the sale does not take place, the attorney can also apply to the court for sequestration or liquidation of the member or any commercial business with which he is associated. This can result in a private auction and the affected parties getting together to make a deal.

If the defendant does appear in court in response to the summons, the magistrate is likely to recommend that a deal be worked out between him and the body corporate. This would be similar to the deal that he probably could have arranged had he responded to the letters of demand – but if he has no resources with which to strike such a deal, the execution against his moveable goods and ultimately on his unit will be proceeded with.

Cockcroft says there are two key lessons to be learnt from this.

“First, bodies corporate and/or their managing agents should communicate timeously with the defaulting member to try to come to an arrangement which will prevent the matter being handed over to an attorney for collection.

“Second, once a matter is handed over for collection, although the arrear levies will almost certainly be recovered eventually, trustees need to be aware that various obstacles may be encountered along the way which could result in matters taking much longer to resolve than they might expect.

“In cases where a body corporate has a high percentage of legal matters running concurrently, the costs of carrying the legal fees for the duration of the sometimes drawn out process, combined with mounting arrear levies, can very often be crippling and have catastrophic effects on the scheme. In extreme cases action may well have to be discontinued due to lack of funds for the payment of legal fees.”

Cockcroft says Propell, along with its levy guarantee product, can advance a portion of the arrear balance to a body corporate at the outset and can also fund any legal fees until these are recovered from the defaulting owner. This means that the body corporate is relieved of the financial burden associated with instituting legal action against levy defaulters and can continue to meet its monthly obligations.

Call 021 940 8200 or email catherine@propell.co.za.

Pointing this out recently, Michael Bauer, general manager of property management company IHFM, said that the act specifies that the body corporate is always a preferred creditor, ahead of the banks and second only to the municipality, whose rates and taxes are the first bills that have to be paid when cash is raised by the sale of a unit.

Where the proceeds from the sale are too small to cover the money owing, said Bauer, the buyer will not be exonerated from paying them down the line.

“The conveyancers involved in the transfer will usually issue a certificate undertaking that the outstanding levies will be paid – but, if there is doubt as to whether the proceeds will be sufficient to meet the debt, the body corporate should demand the cash owing upfront.

“Experience has shown that it can be dangerous to allow a transfer to go through without the debts being settled, especially on sales-in-execution. Trustees have to be extra cautious wherever they are faced with a sale-in-execution.”

On standard transfers, said Bauer, there is seldom any problem but the trustees should always check that their managing agent is now billing the new owner. Quite frequently, this is overlooked and the new owner then finds himself with a three or four month levy bill.

Bauer pointed out, too, that Clause 15(b) of the Sectional Title Act stipulates that transfer cannot be withheld for an “unreasonably long” period once the levies are paid.

“Very few reasons are permitted to hold up a transfer. One of the few might be a serious problem in the unit concerned (such as a leaking balcony) which should be put right at the outset.”

Doubt sometimes arises over which ancillary bills have to be paid by the seller and which by the buyer. For example, the trustees or managing agents have to issue a levy clearance paid up certificate and give their consent to the transfer taking place. The fee for this is for the seller’s account but in a sale in execution the buyer has to pay this bill.

Bauer said that inexperienced bodies corporate trustees also occasionally do not realise that they have the power to withhold the levy clearance certificate and thereby prevent the transfer. If this happens the seller can get away with fairly large sums still owing on levies.

“Bodies corporate trustees must also take note that they are entitled to charge compound interest on arrears owing and for any legal fees they may have incurred in relation to these. Quite frequently, a debtor will ask for leniency claiming, probably justly, that he is under huge financial strain. Bodies corporate are, however, in no position to be accommodating here because they have no assets of their own, but represent all the owner-members in the scheme and cannot expect them to cover a defaulter’s debt.

“At IHFM we have come across cases in schemes in which we have taken over the management role where a member’s levies have not been paid for over a year. It is unreasonable to expect other members to pay such large sums.”

Michael Bauer is a regular contributor to www.sectionaltitlesa.co.za. Visit www.ihfm.co.za, call 083 255 4442 or email michael@ihfm.co.za.

Is your house in a company, close corporation (CC) or trust? If so, read on – it’s important.

In the past, people bought their residential immovable property in companies, CCs and trusts, rather than in their own names for tax efficiency or asset protection. Since 2001, the tax benefits of holding residential property in legal entities have all but evaporated. First, companies, trusts and CCs pay a higher effective rate of capital gains tax (CGT) than natural persons. Second, natural persons who sell their primary residences pay no CGT on the first R1.5 million profit they realise when they sell their residences. Legal entities don’t qualify for this break. Third, persons who buy interests in legal entities that own residential property pay transfer duty (a tax on the acquisition of immovable property) when they buy those interests – and not only when they buy the property from the entity concerned.

So, holding residential property in a legal entity may be a bad thing from a tax perspective. But what if your property is a company, CC or trust already? How do you unscramble the egg?

Fortunately, the South African Revenue Service (SARS) has offered relief. Until December 31 2012 persons who hold residential property in companies, CCs and trusts may transfer that property into their own names free of taxes, if they meet certain requirements.

Know that this is not a do-it-yourself exercise. You need to get advice from an attorney or other professional adviser to understand whether you meet the requirements for the relief, what the tax implications are, how to practically implement the relief, and to register the transfer in the Deeds Office.

Simply put, to qualify for the relief you must meet the following requirements:

The property in the company, CC or trust must be a residence. So, commercial property such as an office or warehouse does not qualify.

The residence must have been used mainly for domestic purposes from February 11 2009 by persons who are (1) natural persons and (2) connected persons in relation to the company, CC or trust. Simply put, a shareholder holding 20 percent or more of the shares in a company is a connected person in relation to the company; any member of a CC is a connected person in relation to a CC; and any beneficiary of a trust is a connected person in relation to the trust. Practically, this means that the connected person had to live in the house himself; if he rented the whole house, or the larger part of the house to tenants, he will not qualify for relief. It also means that a second or third home used mainly for domestic purposes (for instance a holiday home) may also qualify for the relief.

The company, CC or trust must dispose of the property to the natural person by December 31 2012. This does not mean that the property must be registered in the name of the natural person in the Deeds Office by that date; but the parties must have signed some written agreement to transfer the property by that date.

The company or CC must be deregistered or wound up – or in the case of a trust be terminated – within six months of the disposal of the property. To do this, the entity must have disposed of all its assets and liabilities.

If the transaction is implemented properly, the parties should suffer no transfer duty, CGT or secondary tax on companies (STC). For CGT purposes, the person taking over the property effectively “takes over” the CGT base cost of the residence.

However, bear in mind the following practical aspects:

The law does not provide for relief from donations tax. So, be very careful when implementing the transaction to make sure that donations tax does not arise.

The transfer of the property to the natural person may have estate duty implications for the natural person as the value of her estate may be increased.

If the company, CC or trust has registered a bond over the property, the bond would need to be cancelled and possibly refinanced in the name of the natural person.

If there are loans owing by or to the company, CC or trust these would need to be settled, otherwise the relevant creditor may suffer CGT or income tax if the loans are simply written off.

The relief does not apply to assets other than residential immovable property such as commercial immovable property, golf memberships and motor vehicles.

You need to think carefully about what the underlying cause for the disposal will be – for instance, will it be a sale or a distribution?

You will need to pay conveyancing fees and charges to transfer the property.

If you think you are a contender for relief then get professional advice, and remember the December 31 2012 deadline.

(Legislation: Paragraph 51A of the Eighth Schedule to the Income Tax Act, 1962; section 64B(5)(kA) of the Income Tax Act, 1962; and section 9(20) of the Transfer Duty Act, 1949.)

Ben Strauss is a tax director, and Rekha Jaga is a real estate director at Cliffe Dekker Hofmeyr.

But what if the boot is on the other foot? What if it is the managing agent or the trustees who are slack? Do owners have any right to act against inefficient managing agents who are failing to carry out their duties?

“Indeed owners do have this right,” says Steward. “But they must act in the prescribed way. This means that they must serve written notices on the trustees of the body corporate that they (and probably other members) request the disciplining or removal of the managing agents.

“If the body corporate then fails to respond (as, regrettably, often happens), the owners can apply to the courts for an order to appoint a curator ad litem.

“If the court agrees to this, the infill curator is given full authority to dismiss the current managing agent, to appoint another in his place and if necessary employ temporary assistance to help get matters such as the levy collections back on track. The temporary curator is also entitled to call a special meeting of members at which he can propose the dismissal of the trustees and the re-election of new trustees.”

Steward says that perhaps up to 20 percent of South Africa’s sectional title schemes run into financial and maintenance problems at some stage and in almost all cases the problem emanates from having inefficient managing agents and/or ineffective trustees who don’t know their responsibilities and aren’t familiar with the Sectional Title Act.

“This is always a very serious situation because once the management of a scheme slides so does the value of all the units in it, causing every member in the scheme to suffer – and this happens far more frequently in South Africa than most people realise.

“I encourage any dissatisfied owners who find themselves in this very unhappy predicament to act at once, if necessary getting a court order. It is imperative that they do not allow inefficient trustees or agents to wreck their investments.”

And usually, says Berry Everitt, managing director of the Chas Everitt International property group, that means dealing with builders and other contractors – especially in the case of busy young couples and empty-nesters who don’t have the time or inclination to tackle DIY projects.

“However, it’s very important to hire the right contractor – and that means knowing what questions to ask before you let someone start stripping out your kitchen or replumbing the bathrooms. After all, the outcome is something you are going to have to live with and look at every day, and something that could have a significant effect on the value of your home whenever you do decide to sell.”

Writing in the latest Property Signposts newsletter, he says it is unfortunate that most homeowners only ask how much the job will cost, how long it will take and when the contractor can start, whereas they should be focusing on the company’s track record.

Everitt suggests that the most important questions to ask any contractor you are thinking of hiring are the following:

How long have you been in this business?

Will you have a full time supervisor on this project and who will it be?

Will the people working on this project be employees or subcontractors?

Are you insured against injury to anyone working on the project?

What is your plan for handling this project?

How many similar projects have you completed?

Can you give references from previous customers?

“Then before you sign any contract, you really should make a point of calling some of the previous customers and asking them if they found it easy to communicate with the contractor, whether their project was started and finished on time, whether they were happy with the results and whether they would use this contractor again.”

And finally, he says, you should never, ever be persuaded to give any contractor any money in advance.

“If building materials are needed to start your project and the contractor says he can’t finance them, find another contractor or at least arrange to buy the materials yourself and have them delivered to your home. If you have agreed to a schedule of payments as the contract progresses, make sure that the correct amount of work has been done to your satisfaction before you part with your money.

“Then when the job is finished, be sure to have it independently inspected (especially if it involves electrical or plumbing work) before handing over the final amount.”