Is your title deed invalid?

Is your title deed invalid?

Court rules on whether title deeds registered in terms of an invalid underlying agreement are also invalid.

Is a Title Deed registered in terms of an invalid underlying agreement also invalid? This question was raised (and answered) in the Supreme Court of Appeal's judgment in the case of Legator McKenna Inc and another v Shea and others 2010(1) SA 35 (SCA).

The relevant facts, simplified, were as follows:- Mr Mckenna was appointed as curator bonis for Ms Shea who was severely injured in a motor vehicle accident. After his appointment, but before letters of curatorship was issued to him, he received an offer to purchase Shea's house from a Mr and Mrs Erskine. He accepted the offer but inserted the words "subject to the consent of the Master". Thereafter the property was transferred to the Erskines. Shea, contrary to expectations, recovered from her injuries and claimed the house back against refund of the purchase price, on the basis that the sale was invalid in that it was concluded by Mckenna before the master had issued him with letters of Curatorship in terms of section 72(1)(d) of the Administration of Estates Act 66 of 1965.

The court a quo decided in Shea's favour and McKenna appealed.

In its judgment the Supreme court of Appeal found that by adding the words "subject to the consent of the Master" Mckenna made a counter offer to the Erskines, and although it can be argued that the offer was implicitly accepted by the Erskines when they signed transfer documents, it still did not comply with the formalities set out in section 2 of the Alienation of Land Act 68 0f 1981 and therefore it was invalid.

Consequently it was not necessary to decide whether a conditional agreement of sale, subject to the approval of the master would constitute a contravention of section 71 of the Administration of Estates Act.

The court then examined the abstract and causal theories of transfer. According to the abstract theory the validity of the transfer of ownership is not dependent upon the validity of the underlying transaction such as in this case, the sale agreement. The causal theory of transfer requires a valid underlying legal transaction as a prerequisite for the valid transfer of ownership.

After considering a number of cases and articles the court came to the conclusion that the abstract theory of ownership applies to moveable and immoveable property alike, and that in terms of this theory the requirements for the passing of ownership are twofold, namely delivery, which in the case of immoveable property is effected by registration in the Deeds Office, as well as a so-called real agreement, the essential elements of which are an intention on the part of the transferor to transfer ownership and the intention of the transferee to become owner of the property. It is important to note that both requirements must be complied with: ownership will not pass if there is a defect in the real agreement.

The court found in this instance that, although no valid underlying agreement exists, in terms of the abstract theory that there were no defects in the real agreement and therefore the house was validly transferred.

In so far as a possible claim for unjust enrichment is concerned, the court also confirmed the so-called "rule in Wilken v Kohler" (1913 AD 135) which provides that, if both parties to an invalid agreement had performed in full, neither party can recover his or her performance purely on the basis that the agreement was invalid. However, the rule cannot apply where the purpose of the transaction is prohibited by law. Therefore, this rule will not be available against a claim brought under the condictio ob turpem vel iniustam causam.

The court found that the abovementioned condictio is not applicable in this instance since McKennna did not enter into an illegal agreement. If it is argued that he did not enter into an agreement at all, the Wilken v Kohler rule would be applicable. On the other hand, if it is argued that he entered into an invalid agreement because the formalities prescribed by section 2(1) of the Alienation of Land Act 68 of 1981 were not complied with (as the court had found) the situation is governed by section 28(2) of the same act, which provides that an alienation which does not comply with the formalities set out in the act shall in all respects be valid ab initio if the alienee had performed in full and the land in question had been transferred to the alienee.

The appeal was upheld with costs.

In conclusion:- An invalid underlying agreement does not affect the validity of the Title Deed, provided that both parties performed in full and that the lawful purpose of the transaction, common to both, has been achieved.

*Len Kruger is a Director of Real Estate Practice, at Cliffe Dekker Hofmeyr

Lew Geffen clashes with property tycoons - Property | Moneyweb

Lew Geffen clashes with property tycoons - Property Moneyweb

An ugly battle is unfolding over the Atlantic seaboard.

The beautiful Atlantic seaboard has become the scene of an ugly battle between property tycoon Lew Geffen and the operators of the Lew Geffen Sotheby's International Realty franchise owned by Hugo Jankowitz and Rob Stefanutto.

Until last week they operated the Atlantic Seaboard franchise which, according to Stefanutto, extended from De Waterkant to Bakoven. This was virtually the only sector of the SA property market to retain some life through the recession, though sales have slumped this year.

Last week Stefanutto and Jankowitz effectively had their business seized. This was after the Cape High Court ruled in favour of Lew Geffen Sotheby's International Realty Franchises in its urgent application for a ‘rule nisi’ judgement against the two operators.

A rule nisi is not unusual, but one party must demonstrate beyond doubt that unless action is taken immediately the business will suffer irreparable harm. Lew Geffen successfully argued that this franchise was under threat.

Geffen argued that Stefanutto and Jankowitz, through their company Moonstone, had secretly acquired Dogon Group Properties, a direct competitor of Lew Geffen Sotheby's International Realty in the Atlantic Seaboard area. The rule nisi was obtained in order to protect the business from sabotage by taking control of the franchise before the franchise holders were aware that their franchise agreement had been cancelled.

The order gave Geffen the right to take over the business, including the books and accounting records, office equipment, bank accounts and physical premises. Stefanutto was also interdicted from communicating with any of his agents, clients and the conveyance attorneys.

However, a rule nisi is an interim order which requires that the parties return to court to settle the issue. The parties returned to court three days later, at which point the judgement was overturned. According to Stephen Thomson, the attorney acting on behalf of Lew Geffen, this was on a technicality.

In business a lot can happen in three days when bank accounts have been stopped, proprietary information seized and staff see their boss escorted off the premises.

“Yes we have our business back, but it’s a business in tatters with nine months left on a franchise agreement that no one wants,” says Jankowitz.

Geffen has not wasted any time. He has set up shop down the road and incorporated Gail Gavrill and Rob McKee of Gail Gavrill International Properties and Brendan Miller of Better Homes in Sea Point. All the sales agents employed by the previous owners of the Sotheby’s franchise have been retained.

As far as Jankowitz is concerned, this is a travesty of justice. “Geffen lied in his affidavit. He hoodwinked a judge to obtain the court order. This franchise cost me R8m and in three days I have lost everything. Geffen has manipulated the legal system to suit his own ends. The original decision was totally wrong and was overturned – but the consequences are severe. It is unthinkable that this could happen in this day and age.”

Lew Geffen retorts that the actions were necessary “because Jankowitz and Stefanutto had committed several specific breaches of the agreement, the most serious being the purchase of a direct competitor, the Dogon Group...they were also overtly doing joint Dogon / Lew Geffen Sotheby's International Realty branding, again in contravention of the franchise agreement."

There is a history of bad blood between the franchisor and the franchisees. This particular battle was the culmination of a relationship that had soured to the point that in June this year the parties agreed to part company. As it turned out, this did not happen in the orderly fashion envisaged at the time.

Jankowitz bought into the franchise in 2007. He bought it from Rod Hemphill, who says he was forced into selling the business. “Geffen brought a number of applications to close me down,” says Hemphill, who was a multiple franchise holder at the time. “The last application he brought against me was dismissed.”

At this point Hemphill agreed to sell out. He had little choice as his franchise contract would not be renewed. Jankowitz, he says, was introduced to him by Lew Geffen.

Jankowitz remained a passive investor, while Rob Stefanutto, who had been involved with Hemphill, was the operator. Along the way they acquired Sanderman Estates in Camps Bay.

By 2009 Geffen was voluble in his unhappiness with the performance of the franchise. “"The performance of the franchise was at best pedestrian, especially considering that the Atlantic Seaboard is SA's premier property sales area,” says Geffen.

“This is a lucrative business, but we have had extensive problems with Mr Geffen,” says Stefanutto. “We were paying 13.5% of our pre-tax income; we were meeting targets and opening stores in the midst of a recession, but he told us we were not spending enough on the business.”

In March 2010 Geffen cancelled the franchise agreement, but the franchisees contested it and obtained a written undertaking from Geffen’s lawyers that the franchisor would not interfere in the running of their agency and would not contact their agents.

But still the tension simmered. In June the parties met to resolve their differences.

By this time Jankowitz had acquired the business of the Dogon Group on behalf of investors in a holding company. “This is what I do. I buy, sell and invest in businesses.”

Geffen, he says, was aware of this. “He was also aware that when the licence expired we would do something with Dogon. We discussed this with him and it is within our rights to do so,” says Jankowitz. At this meeting it was agreed that the franchisees would try to find a buyer for the business.

This meeting was recorded.

Jankowitz drew up a memorandum of understanding which was contested by Lew Geffen Sotheby's CEO Jason Rohde. “We must have exchanged at least 20 e-mails,” says Jankowitz, “but he did not revise the MOU. Next thing we knew they had found a potential buyer. I insisted that we could not go forward until we had agreed the MOU.”

The next thing the partners knew, a sheriff was serving the rule nisi order on them.

Meanwhile the Dogon Group remains within Jankowitz’s portfolio of investments, however founder Denise Dogon says she has been retained to run this business for the next three years, with an option to renew for another two.

Jankowitz and Stefanutto are pursuing a damages claim against Geffen. He, in turn, is pursuing a R3.5m damages claim against them.

Houses on sheriff auction declining

Houses on sheriff auction declining

But bargain hunters can get them for half their value – FNB.

The variety of houses on sheriff auction at First National Bank (FNB) were declining compared to the past year or two because of products that avoid the costly auction process, but FNB’s head of home loans believes customers should look at these properties to find good deals.

A sheriff auction is a public auction held by the sheriff of the court, after a bank gets a court order to attach and sell a house to recover money not repaid on a home loan.

Jan Kleynhans, the CEO of FNB Home Loans, said although he could not advise people to buy property on auction there were bargains with houses now being sold for 20-50% below their initial value. But the variety of bargains were not as wide as they use to be and some of these properties are in a bad state.

“There are bargains but I can’t advise people to buy them .... I do think that the average customer should look at these properties because there are good deals to be had but it means they will have to fix the property up, but there are opportunities”, especially for people who are prepared to invest money to fix them, Kleynhans said.

“It also depends on the quality of the area, the condition of the property. Normally the properties are run-down. The people tend to think if they can’t pay for the property why should they continue maintaining it?”

Kleynhans said FNB probably sold about 100-150 houses a month. The value of the houses under-sheriff auction ranged from R100 000 to R5m. A lot of these properties are in the lower-middle end of the market. In the upper end clients tend to use private auction rather than sheriff auctions.

But sheriff auctions have fallen partly due to the introduction of FNB’s Quick Sell product. These properties, according to Kleynhans are normally snatched up by property syndicates who intend to fix and sell them at higher prices or rent them out.

“You don’t get many people on the street,” Kleynhans said.

With the introduction of Quick Sell FNB says if the client is struggling and cannot pay for the house, the bank agrees with the customer to sell the house normally before the property’s value is distressed by the auction process. The bank also saves money on Quick Sell as it is likely to recover more of its money owed compared to the house being sold on auction.

“We have sold properties of about R4bn on Quick Sell, saving R1bn –R1.5bn if it were sold under the sheriff auction... In the sale in execution in market there is now less property being bought there,” Kleynhans added.

FNB’s non-performing home loan book is valued at about R6bn. But not all of these properties go to sale in execution.

So how does one buy these properties? Kleynhans said the properties are advertised in the Government Gazette as well as in local newspapers. FNB’s website also shows the process to be followed and the properties that might be available.

Sandton under construction

Sandton under construction

There are 30 development proposals including the redevelopment of Southern Sun Hotel.

In less than a month the landmark Southern Sun Grayston Hotel will close its doors with an application having been lodged for redevelopment of the building.

This is just one of a number of developments mushrooming in the Sandton central business district. The Gautrain station is also set to house a mixed use development to be built on top of the existing structure. It’s not yet known when construction is set to begin.

Across the road from the Gautrain, work has begun on Alexander Forbes’ new head office. Old Mutual is also planning on erecting new offices in the business hub near the Gautrain while Standard Bank is building on Alice Lane.

A newly built retail space measuring 30 000m² will be unveiled on November 12 2011 offering luxury shopping in the form of Hugo, Tag Heuer, Canterbary, Bellagio and Lecoqsportif, to mention but a few. A carbon copy of the esteemed Paul & Sharks store in Milan on Via Montenapoleone will also be opening after being designed in Italy. This is part of a R1.77bn first phase of the Sandton City shopping centre development project.

Sandton City is also upping its game with the opening of a further 69 stores on the corners of Rivonia and Sandton Drive in November 2011.  This will bring the number of stores to 360.

Sandton City's entire retail space will total 143 690m² on completion of this phase taking the complex, which includes the Sandton hotel and office component to 215 000m².

Not far from Sandton City, work has already begun on luxury penthouse apartments on Katherine Street.

Also in Sandton, Village Walk will be completely demolished in 2012 to make way for a mixed use development which will include a new hotel. The Balalaika will also close down. A nearby temporary taxi rank has also been earmarked for development.

These are just a few of the many developments underway. According to looklocal Sandton, “there are 30 development proposals for the Sandton business district alone, which includes new zoning and renovations”.

Some of the construction companies involved are WBHO and Tiber Projects.

Further interest rate cut likely

Further interest rate cut likely

And it will help lower household debt.

The South African residential property marketing sector will benefit “perhaps far more than most people realise” from a further 0,5% drop in the interest rates – and I expect this to come after the next Monetary Policy Committee meeting.

What is more, on the figures now being discussed by SA’s economists, right now is very definitely the right time to introduce a further rate cut.

The average South African’s debt to income ratio has improved, but it is still too high – I would like to see it at 60%. With bond repayments now amounting to 25% to 30% of SA’s monthly serviced debt, a lower interest rate could also lower the debt to income levels.

The lesson of the last four years’ global economic problems is that keeping the debt levels of its citizens manageable should be a top priority goal for any government operating in a free market environment.

The timeous introduction of the National Credit Act and the responsible way the banks have implemented it have saved South Africa from the unhealthy over-borrowed positions of so many Americans and Europeans.

However, once debt is at acceptable levels (as it is in SA), loan finance is absolutely essential to achieve growth. Many people in the home marketing sector are inclined to think that the banks are not really distinguishing between responsible lending and excessive risk aversion. Almost every loan, of course, carries some risk but in a well managed financial system this can be kept at low levels, while still making a healthy contribution to growth through loan finance.

If, as seems likely, the 0,5% rate drop is approved at the next MPC meeting, bondholders should try hard not to take advantage of this but to maintain their current level of repayments, if possible also paying in an extra month’s repayments once or twice a year.

We have shown time and again how paying slightly above the minimal rate reduces your debt repayment period by years. At Rawsons we have many clients who, adopting this approach, pay off their loans in 10 to 15 years – that is the way to go. Homebuyers must be discouraged from increasing their debt simply because, with a lower interest, loans will be less expensive and, possibly, slightly easier to obtain.

I and others expect a further 0,5% drop in the rates after the one he is now predicting and this could happen before Christmas.

I foresees rates rising again, my “guesstimate” puts that in the third quarter of 2012 and, he says, he anticipates rates rising steadily from then on.

I must again advise those who are now enjoying the low rate scenario to take the long view and pay off as much as they can each month now, thereby making their financial position more manageable when rates do rise.

*Tony Clarke is the MD of Rawson Properties.