Estate Living Magazine Smart Moves - Issue 38 February 2019 | Page 13

BUILD NOW OR ….
SELLER MAY CLAIM RETRANSFER OF
THE PROPERTY OR RAISE A PENALTY
Remain alert to conditions in sale agreements in new developments.
Municipalities regularly sell vacant property
to developers for commercial and residential
development. Often a title deed condition is
imposed that the property must be improved
within a certain time period and, if this is not
done, then the municipality may claim re-transfer
of the property against payment of the initial
purchase price. It is also usual nowadays for
developers, when selling land in a proposed
development, to insert a clause in the agreement
requiring the purchaser to erect a house within a
stipulated period, failing which a homeowners’
association (that is often established in such
new developments because of a condition of the
municipal approval of the development),
becomes entitled to impose a penalty.
Such measures are effective tools to ensure that
the development activity is dynamically geared
towards completion, attains its anticipated
investment value within a certain time frame and
to limit owners’ exposure to the risks and
(negative) implications of continuous building in
the estate.
Usually the obligation to build is included in the
title deed given to the purchaser on registration
of transfer of ownership, thereby binding the
purchaser and usually also successors in title.
In an October 2018 Constitutional Court
judgment, that Court confi rmed that in the case
of a reversionary clause, allowing the
municipality to claim re-transfer of a property
if a building is not erected within a certain time,
the right constitutes a debt which the holder
thereof (in that case the municipality) must
exercise within three years, failing which it
prescribes. This is an important cautionary note
for owners, on the one hand, as well as for
developers and municipalities on the other.
In the case of a penalty provision imposed for
failing to build within the required time periods,
our courts have similarly confi rmed that such
contractually agreed penalties are valid, although
the amount thereof should not be unreasonable
in the relevant circumstances. This does not
mean, however, that such penalties will not reach
levels where they substantially dilute a seller’s
anticipated profi t, as a December 2016 Gauteng
High Court judgment illustrated. The owner there
was many years in arrears and failed to heed
notices to comply with the requirement. The
penalty was substantial.
Therefore, when buying land to build on in a
proposed development, make sure you
understand or negotiate all of the requirements
regarding the building time frames.
It is to your advantage to obtain the assistance of
your conveyancer in this regard, before binding
yourself thereto by your signature.
Contact STBB I Smith Tabata Buchanan Boyes on www.stbb.co.za
COMMERCIAL LAW | CONVEYANCING | CONSTRUCTION LAW | DEVELOPMENT LAW
LABOUR LAW | ESTATES | FAMILY LAW | LITIGATION | PERSONAL INJURIES & 3RD PARTY CLAIMS
www.stbb.co.za
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