Tag Archives: Property

Increase in VAT: What rate should be charged in property transactions?

In the 2018 Budget Speech delivered by Finance Minister Malusi Gigaba on 21 February 2018, the standard rate of VAT was increased from 14% to 15%, effective from 1 April 2018.

However, tax is never that simple. Even after 1 April 2018, there are circumstances where the applicable VAT rate will still be 14%. The Value-Added Tax Act 89 of 1991 (“VAT Act”) contains certain specific rules with regard to a VAT rate change and the rate of VAT which will apply to goods or services supplied during the transitional period.

General fixed property transactions

The rate of VAT for fixed property transactions is the rate that applies on the date of registration of the transfer of the property in a Deeds Registry or the date that any payment of the purchase price is made to the seller (whichever occurs first).

Residential Property

Section 67A (4) of the VAT Act contains a rate specific rule that provides an exception applicable to residential property. In terms of this rule, liability for VAT will remain at 14% (the VAT rate before the increase) if the following three requirements are met:

  • the deed of sale was concluded before 1 April 2018; and
  • both the payment of the purchase price and the registration of the property will occur on / or after 1 April 2018; and
  • the VAT-inclusive purchase price was determined and stated as such in the deed of sale.

For purposes of this rule, “residential property” will include –

  • an existing dwelling together with the land on which it is erected;
  • any sectional title unit where such unit comprises a dwelling;
  • land bought together with a building package;
  • construction of a new dwelling by any vendor carrying on a construction business.

Commercial Property

There are no rate specific rules in relation to commercial property and therefor if the registration of the transfer of commercial property is effected in the Deeds Registry on/or after 1 April 2018 and payment is made to the Seller on/or after 1 April 2018, VAT at a rate of 15% will apply and be payable by the seller, irrespective of the date of conclusion of the agreement of sale.

We are currently in a transitional phase and the increase in VAT may cause uncertainty and practical difficulties, kindly contact us should you require assistance in this regard.

Planning your estate as newlyweds

For newlyweds, one of the most important tasks to attend to is estate planning. The estate planning will depend on what the couple wants and what form of marriage they are in. It is therefore important to keep the following in mind when planning the years ahead together.

Marriage in community of property

There is a joint estate, with each spouse having a 50 percent share in each and every asset in the estate (no matter in whose name it is registered);

  1. In the event of the death of one spouse, the surviving spouse will have a claim for 50 percent of the value of the combined estate. The estate is divided after all the debts have been settled in a deceased estate.
  1. When drafting a Last Will and Testament, spouses married in community of property need to be aware that it is only half of any asset that he or she is able to bequeath.
  1. Upon the death of one spouse, all banking accounts are frozen (even if they are in the name of one of the spouses), which could affect liquidity.

Marriage out of community of property without the accrual system

Each estate planner (spouse) retains possession of assets owned prior to the marriage. Each spouse’s estate is completely separated, even in the event of death. If you want your spouse to inherit something, you would need to outline this in your Will.

Marriage out of community of property with the accrual system

This is identical to a “marriage out of community of property” but the accrual system will be applicable. The accrual system is a formula that is used to calculate how much the larger estate must pay the smaller estate once the marriage comes to an end through death or divorce.

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)

Is the tenant or landlord responsible for the water leaks?

Questions, and sometimes disputes, often arise between landlords and tenants regarding where the responsibility lies with the maintenance of a property. The simple answer is that tenants can generally only be held responsible for repairs/replacement on the property if the damage was caused by the tenant’s actions, or items that have a short life span, such as light bulbs.

On the other hand, alarm systems, auto gates and doors, locks, fixtures and fittings, appliances, or anything provided to the tenant are generally the responsibility of the owner to repair, unless damaged by the tenant.

Fair wear and tear

Damage due to fair wear and tear is the owner’s responsibility to correct. This includes situations where the property has, over time, experienced wear due to its use or age.

Examples would include:

  1. Fireplace chimneys: The landlord should maintain the fireplace e.g. having the chimney cleaned at appropriate intervals. Gardens, however, would require the tenant to do general maintenance.
  1. Blocked drains: This is usually due to tenant usage making it the tenant’s responsibility, but if blockage is due to tree roots, it would be the landlord’s responsibility.

Regarding appliances, as with any fixture or fitting, the landlord is responsible for repairs to appliances provided under the tenancy agreement unless the damage was caused by the tenant’s deliberate actions or negligence.

Tenants should report any damage on the property. If they fail to do this, they could find themselves held liable for any further damage due to lack of immediate attention to the initial problem. Furthermore, tenants are obliged to provide access for contractors to effect repairs.

Conclusion

If there is a water leak on the property, it would most likely be the landlord’s responsibility to fix. It is advisable for tenants to read and understand the lease agreement fully and for landlords to list as much as possible that needs to be maintained by the tenant. For example, if the unit has a garden that the tenant is responsible for maintaining, this should be mentioned in the lease.

Reference:

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 do I cancel a lease?

What happens when a landlord or a tenant wants to cancel a lease? What rules and what legislation apply? What protection does the law provide?

If you want to end your lease early, this can be done in situations where:

  • the Consumer Protection Act or Rental Housing Act applies, or
  • there’s a clause in the contract that allows for early cancellation, or
  • if both parties agree to it.

If on the other hand, one of the parties wants to cancel because the other is in breach of the contract, then certain notice periods come into effect – the first of which being, of course, that the aggrieved party is required to give written notice for the breach to be remedied.

For tenants

  • If your landlord is in material breach of the lease, then cancelling your lease early will not be in breach of the contract.
  • If your landlord has met all the conditions of the lease and you decide to cancel your lease early, you will be in breach of contract unless the termination of the lease has been mutually agreed upon. Speak to your landlord before making any rushed decisions, chances are, you may be able to come to a mutual agreement whereby you are able to find a replacement tenant or sublet the property for the remainder of your lease.

For landlords

  • Firstly, look to the provisions of the lease itself. Most leases contain a breach clause, which indicates a period of a number of days that are necessary to be given as notice to the tenant of a breach. If there is no breach period specified, it will be a ‘reasonable period’ in terms of the common law.
  • If you give notice of the breach, and it is not remedied in the breach notice period, this means that you can take action to sue for whatever is owed or even issue summons and attach the tenant’s goods by evoking your landlord’s hypothec, but you cannot cancel the lease and evict.

When it comes to cancelling agreements, it is always best to consult a legal expert since doing something from your own understanding and experience could lead to a court case.

References:

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)

Owning property without a will

If you die without a will, an administrator will have to be appointed to administer your estate which will be distributed according to the laws of intestate succession. As such, your assets may not be distributed as you would have wished. It also means that the process will be delayed and that there will be additional expense and frustration which most people would not want to inflict on their loved ones during a time of loss.

Marriage and property

When drafting your will, it’s important to consider the nature of your relationship with your ‘significant other’. If you are married in community of property, you only own half of all assets registered in your name and that of your spouse. Your spouse therefore still remains a one half share owner of any fixed property you may want to bequeath to a third party which could potentially present difficulties.

If you are married in terms of the accrual regime, the calculation to determine which spouse has a claim against the other to equalise the growth of the respective estates only occurs at death. Your spouse may therefore have a substantial claim against your estate necessitating the sale of assets you had not intended to be sold.

Alongside your will, you should also prepare the following in relation to any immovable property you may own:

  1. State where your title deeds are kept and record any outstanding bonds and all insurance
  1. File up-to-date rates and taxes receipts
  1. Record details of the leases on any property you have
  1. State who collects your rent
  1. State who compiles your yearly accounts
  1. State where your water, lights and refuse deposit receipts are kept

If you die without a will

According to the according to Intestate Succession Act, 1987, your estate will be distributed as follows:

  1. Only spouse survives: Entire estate goes to spouse.
  1. Only descendants survive: Estate is divided between descendants.
  1. Spouse & descendants survive: The spouse gets R250 000 or a child’s share and the balance is divided equally between the spouse and descendants.
  1. Both parents survive: Total share is divided equally between both parents.
  1. One parent: Total Estate goes to the parent.
  1. One parent & descendants: Half the Estate goes to the parent; balance is divided equally amongst descendants.
  1. No spouse; No descendants; No parents; but descendants through mother & descendants through father: Estate divided into two parts: half to descendants through mother; half to descendants through father.
  1. No spouse; No descendants; No parents; No descendants through mother or father: Full Proceeds of the Estate has to be paid into the Guardians Fund in the event of no descendants whatsoever.

References:

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)

Important steps for the transfer of property

The transfer process can take up to three months, sometimes longer. There are different steps involved in the transfer of a property, these include:

1. Instruction.

A conveyancer receives the instruction to transfer the property.

  1. Communication.

The conveyancer communicates with the various role-players involved in the transfer process, such as the seller, purchaser, transfer and bond attorneys, municipality, bank, South African Revenue Service (SARS).

  1. Collection.

Certain information and documents are required, such as the agreement of sale, deeds office search, existing deed, bond cancellation figures from the bank and so on. The conveyancer should continuously report to the various role-players about the progress being made.

  1. Drafting and signing.

As soon as all the information and documents have been collected, the conveyancer will draft the transfer documents and request the seller and purchaser to sign them. These transfer documents will include a power of attorney and various affidavits.

  1. Finances.

Financial arrangements include requesting an advance payment for the conveyancer’s interim account for certain expenses, requesting the bank guarantee, collecting the purchase price or deposit and so on.

  1. Transfer duty.

Obtaining a transfer duty receipt from SARS, confirming that the tax relating to the transfer of the property has been paid by the purchaser.

  1. Clearance certificate.

Obtaining a clearance certificate from the municipality, confirming that all amounts in respect of property have been paid for the last two years.

  1. Prep.

The conveyancer prepares for lodgement (submission) of the deed of transfer and other documents necessary for registration at the deeds office.

  1. Registration.

Once the deed of transfer and other documents have been lodged it, takes the deeds office about 7 – 10 working days to examine these documents. If the deeds office is satisfied that the requirement for the transfer of property has been met, the deed of property is registered. The conveyancer will notify the various role-players of the registration.

  1. Accounts.

Once registered, the conveyancer makes the necessary calculations and payments relating to the sale, for example, the estate agent’s commission, purchase price and so on. The conveyancer’s final account is also drawn up and sent to the purchaser and the seller for payment.

Having an experienced and expert conveyancer is extremely important to ensure that the transfer of property takes place quickly and efficiently.

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)

Capital gains tax and the sale of a property

A1blCapital Gains Tax was introduced on 1 October 2001. Capital Gains Tax is payable on the profit a seller makes when disposing of his property.

What is meant by Capital Gain?

A person’s capital gain on an asset disposed of is the amount by which the proceeds exceed the base cost of that asset.

What is base cost?

The base cost of an asset is what you paid for it, plus the expenditure. The following can be included in calculating the base cost:

  1. The costs of acquiring the property, including the purchase price, transfer costs, transfer duty and professional fees e.g. attorney’s fees and fees paid to a surveyor and auctioneer. 
  1. The cost of improvements, alterations and renovations which can be proved by invoices and/or receipts. 
  1. The cost of disposing of the property, e.g. advertising costs, cost of obtaining a valuation for capital gains purposes, and estate agents’ commission. 

How was base cost of assets held calculated before 1 October 2001?

If the property was acquired before 1 October 2001 you may use one of the following methods to value the property:

  1. 20% x (proceeds less expenditure incurred on or after 1 October 2001). 
  1. The market value of the asset as at 1 October 2001, which valuation must have been obtained before 30 September 2004. 
  1. Time-apportionment  base cost method. Original cost + (proceeds – original cost) x number of years held before 1 October 2001 divided by the number of years held before 1 October 2001 + number of years held after 1 October 2001). 

How is Capital Gains Tax paid?

Capital Gains Tax is not a separate tax from income tax. Part of a person’s capital gain is included in his taxable income. It is then subject to normal tax. A portion of the total of the taxpayer’s capital gain less capital losses for the year is included in the taxpayer’s taxable income and taxed in terms of normal tax tables.

How is Capital Gain calculated?

If you are an individual, the first R30 000 of your total capital gain will be disregarded. Then 33.3% of the capital gain made on disposal of the property must be included in the taxable income for the year of assessment in which the property is sold. When the property is owned by a company, a close corporation or an ordinary trust, 66.6% of the capital gain must be included in their taxable income.

Primary residence and Capital Gains Tax

As from 1 March 2012 the first R2 million of any capital gain on the sale of a primary residence is exempted from Capital Gains Tax. This exemption only applies where the property is registered in the name of an individual or in the name of a special trust. The property should furthermore not exceed 2 hectares. If the property is used partially for residential and partially for business purposes, an apportionment must be done.

If more than one person holds an interest in a primary residence, the exclusion will be in proportion to the interest held by each party. For example, if you and your spouse have an equal interest in the primary residence, you will each qualify for a primary residence exclusion of R1 million. You will also be entitled to the annual exclusion, currently R30 000.

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.

Estate agents commission

A2blSelling a home is one of the biggest financial decisions a person can make and an estate agent, to whom commission will be payable, is usually involved in this process.

A problem that frequently occurs in practice and which is not easy to solve is whether an agent was in fact instrumental in bringing about the sale of the property. It could happen that an agent introduces a prospective buyer, that negotiations for the sale do not succeed and that another agent succeeds in concluding the agreement. It is common practice for more than one agent to be instructed to find a purchaser. It could even happen that a seller is held responsible for paying commission to two agents.

An estate agent is not an agent in the strict sense of the word.  His “mandate” is normally to find a suitable purchaser for the seller’s property and not to sell on behalf of the seller. This is, however, not a contract in the usual sense where parties undertake reciprocal obligations. In fact, the agent is not obliged to perform his mandate. An estate agent will only be entitled to commission if he has a mandate from the seller; without the mandate he is not entitled to commission, even though he might have been the effective cause of the transaction.

An estate agent will be considered to be the effective cause of the transaction when:

  • he has introduced a willing and financially able buyer to the seller;
  • a binding contract has been concluded between the parties; and
  • the transaction takes place at the stipulated price or at a price acceptable to the seller. 

When several estate agents are involved in introducing the buyer to the seller it might be difficult for the court to determine which agent was the effective cause. For instance, when estate agent A introduces the buyer to the seller but the buyer later purchases the property through estate agent B after B has persuaded the seller to drop the price. Or estate agent A may have a sole mandate, but estate agent B introduced a willing and able buyer. The seller could then be liable for both estate agents’ commission. A sole mandate usually stipulates that the agent is entitled to commission if the property is sold during the currency of the agreement, even if another agent introduced the buyer.

In another matter a prospective buyer was introduced and the house was inspected. The price was considered too high. A few months later the purchaser noticed that the house was still in the market. He then bought the property without intervention from the agent at a slightly lower price than the earlier rejected price. The estate agent was held to be entitled to his commission.

How much commission is an estate agent entitled to? The average commission ranges up to 7.5%, but there are no regulations as to how much commission an estate agent should be paid per sale. The commission should be discussed by the parties when negotiating the mandate.

Sole mandates that are given to estate agents are regulated by the Consumer Protection Act. The duration of the agreement may not exceed 24 months. The seller has the right to cancel the agreement by giving 20 business days’ notice in writing. If the mandate is not terminated by the seller on the expiry date it will automatically continue on a month-to-month basis.

Seller, be wary of these pitfalls when selling your property – they could be very costly.

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.

Fixtures and fittings

A1blMany transfer attorneys have heard the question from a seller: “May I remove the stove or the curtain rails or the shelves or the..?”

The most common dispute that arises between a seller and a purchaser is a dispute as to what is regarded as fixtures and  fittings. The simple answer is that this would be what the seller and purchaser agreed on in the offer to purchase, as the law leaves it to the seller and purchaser to make their own arrangements.

Usually the offer to purchase only states that the sale is “voetstoots and includes all improvements and all fixtures and fittings of a permanent nature”. It could also be that the offer to purchase does not refer to fixtures and fittings at all. If this is the case there are three factors that have to be  considered to determine whether a movable item is a fixture or a fitting.

1. The nature and the purpose of the item

The item should be of a permanent nature and intended to always serve the immovable property. In other words it must be attached to the land or the structure erected on the land. Examples of this are a carport, steel security gates welded to door frames, and an irrigation system. 

2. The manner and the degree of attachment

The question is whether the item loses its own identity and becomes an integral part of the immovable property or if the attachment is so secure that separation would involve substantial damage to either the immovable property or to the item itself. One must also take into account the method, time and costs involved in removing the item and whether the item could be used elsewhere. 

3. The intention of the owner

One should look at the intention of the owner at the time when the attachment was made.

It is therefore important to address this issue in the offer to purchase and draft a comprehensive list of what is included in the sale. This could save both parties a lot of time and frustration.

The following is a list of items that are usually considered to be permanent fixtures:

Built-in extractor fans; built-in kitchen cupboards; fitted bookshelves; fitted curtain rails; wall mirrors; stoves; existing garden, trees, shrubs, plants; pool filter, pool pump and pool cleaning equipment; fitted carpets; light fittings; towel racks; tap fittings; tennis court net; fireplace; awnings; post box;  alarm system; television aerial (but not satellite dishes) and door keys.

Some estate agents have amended their fixtures and fittings clause since the CPA came into operation, to read as follows: “The property is sold with all fixtures and fittings, including the following… which shall be in good working order on date of transfer.” The words “in good working order” are a very subjective assessment and opens the door to debate. The effect hereof is that the seller will be seen to have promised that all the fixtures and fittings will be in good working order, and to a large extent it will be eroding the protection of the voetstoots clause. Sellers should therefore take caution when signing the fixtures and fittings clause.

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.

Co-ownership of land

A2blThe word “co-ownership” in relation to land means that two or more persons own land simultaneously in undivided shares. A share in land does not represent, and may not be held to represent a defined portion of land.

A co-owner who holds a share in land does not hold title to a defined piece of land even if by arrangement with his co-owners they might have agreed to give him occupation of a specific portion of land.

The title he has is to an undivided share only, in the whole of the land, held in joint ownership. The portion he occupies is owned jointly by him and his co-owners in the whole thereof. If he should build a house on the portion he occupies, the house will be owned jointly.

When X, Y and Z are co-owners of a farm, they are not each entitled to a physical part of the farm but each of them has an undivided share in the whole of the farm. The shares will not always be equal. One person can have half a share while the other two can each have a twenty five percent share. However, co-ownership unfortunately often leads to disputes among the owners. 

Co-operation between the co-owners

It is advisable that co-owners enter into an agreement which regulates the relationship between them. Unfortunately this agreement will have no bearing against third parties. The consent of all the co-owners is required when administrative decisions have to be made. No owner is entitled to change or improve the property without the consent of the other owners. All the owners have to agree to the use of the property, e.g. they have to agree to the chopping down of trees, the erection of a storage facility/building, or to let cattle graze in the field. If co-owners are not consulted they may request an interdict from the court. The court may even order that buildings that have been erected, be removed. However, in instances where the aim is to preserve the property, it is not always necessary to obtain the consent of the co-owners. 

The profits and losses

All the co-owners must contribute proportionally to necessary and also useful expenses for the preservation of the property. Such expenses include taxes and expenses to maintain the property in good condition, but do not include luxury expenses. Losses and charges must be shared by the co-owners, except those attributable to negligence of one of the owners. As with expenses, fruits and profits must be divided amongst the co-owners according to each owner’s shareholding. 

Alienation of a share

A co-owner may alienate his share or even bequeath it to his heirs, without the consent of the other owners, even against their will. A co-owner’s share may also be attached by the sheriff. 

Use of the property

Each co-owner may use the property in accordance with his undivided share. He must, however, use it with due regard to the rights of the other co-owners. Each co-owner, his employees and guests are entitled to free entry to any part of the property, except if the co-owners have agreed that a portion of the property is reserved for the exclusive use of one co-owner. 

Partition

Co-owners may decide to partition the property, usually if they cannot agree on the utilisation of the property. The property will then be divided physically in accordance with the value of the property and each owner’s share in it. When this is uneconomic, which is usually the case with a farm, the property can be awarded to one co-owner, but he must then compensate the other co-owners. The court may also order that the property be sold by public auction and the proceeds divided amongst the co-owners. There is strict statutory control over the subdivision of land and also the actual physical division and use of land, so that partition may not always be possible.

Co-ownership is an excellent vehicle to becoming an owner of a property that one otherwise might not be able to afford. However, be aware of the pitfalls, choose your co-owners wisely, and draw up an agreement to regulate payment of the bond and rates, the day-to-day expenses and house rules.

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.