Category Archives: Property

Engineering contribution figures

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B1Sections 20(2)(c)(i), 48, 63 and Chapter 5 of the Town Planning and Townships Ordinance 15 of 1986 (“the Ordinance”) deal with the levying and payment of engineering contribution figures. These are essentially amounts payable by a person who has applied for rights to change the use of a property, in order to facilitate the upgrading of necessary engineering services (such as roads, sewers, pavements, parks, and any other upgrades necessary to facilitate the proposed use of the property). Engineering contribution figures may also become payable when a property is subdivided. This article explores what they are, how they arise, and the legalities surrounding levying and payment of engineering contribution figures.

Brief explanation – amending land use rights*

A property’s ‘default’ land use rights are contained in the applicable town planning scheme. Each municipality has one (or more) and they only apply to a certain area. These town plainning schemes essentially dictate what uses a piece of land can lawfully be put to. If an owner wants additional rights or different rights to use the land in a manner other than prescribed by the scheme, an application can be lodged to obtain these rights. If this application is granted it will result in an amendment to the ‘master’ town planning scheme, which we refer to as an amendment scheme. Every property that acquires different land use rights by way of an application, thus has its own amendment scheme approved for it, giving it different rights to those prescribed in the applicable town planning scheme.

Application can be made by an owner or a person acting on behalf of an owner to amend land use rights. This would be necessary where the existing land use rights do not cater for the future intended land use. An application can be made for consent use (this is where the existing land rights provide that the land can be used in the manner proposed, if consent is granted) or for rezoning (where the existing land use rights provide that the land cannot be used for the proposed use, and it is necessary to apply to put the land into a completely different ‘zoning’, in order to ensure that the future use of the land for the intended purpose, is lawful). Both of these applications are made on prescribed forms against payment of a prescribed fee and with certain prescribed supporting documentation.

The municipality’s Land Use and Management (also known as Town Planning) department decides on the applications after having circulated them for comment to the relevant internal departments that provide services within the municipality’s jurisdiction. A decision is then made to deny or grant the application in whole or in part, sometimes on certain conditions, which may (and often) include the payment of amounts for engineering contributions, or to deny it. An appeal can be lodged if a person is dissatisfied with the initial decision.

When the applicant is happy with the decision, he submits documents called “MAP3’s” which depict what the amendment to the town planning scheme will look like – this is the draft amendment scheme. When the municipality is satisfied that all conditions prescribed by it and by law have been complied with, it publishes a notice advertising to the public that the land use rights applicable to the property have been amended. This is called ‘promulgation’. It is only on promulgation (and in certain instances referred to below only thereafter) that an amendment scheme comes into effect and the additional/different land use rights might be used.

At what point in the process are engineering contribution figures calculated? Ideally this should happen before the applicant is advised of approval, when the municipality advises the application of the conditions upon which the land must be rezoned (which usually includes payment of engineering contribution figures) so that the applicant can appreciate and budget for the financial consequences of going through with the rezoning application. In practice, however, this is not the case, and engineering contribution figures are usually only calculated after approval. However, municipalities are aware that their window to demand payment is small, and so they usually ensure that the figures are ready before promulgation.

Who must pay?

  • The Ordinance provides in respect of engineering contribution figures payable as a result of the approval of consent use, that the person to whom the consent is granted (who might not be the owner) must pay.
  • When a rezoning occurs, the owner must pay.
  • In practice, if a person who is not the owner wants to make an application for amended land use rights, the municipality requires the owner to authorize such person, so where a developer has asked an owner for permission to apply for a rezoning pursuant to an offer to purchase concluded for the property on the condition that it is granted amended land use rights, it is usually the developer who pays, by agreement with the owner.

Who can make a demand for amounts payable?

  • An amount for engineering contribution figures may be levied either in agreement with the applicant or (in the absence of agreement) the amount will be determined by a committee called the Services Appeal Board of the municipality upon the making of an application for same.
  • Where the proposed land use will bring about a higher density of dwellings, then the municipality will determine the amounts payable.

How much can be demanded?

Any amount necessary (as determined by the municipality or Services Appeal Board) to upgrade any/all engineering services to the property, in order to facilitate the upgrading for the proposed land use, can be demanded.

What if the amount demanded is unreasonable?

An appeal can be lodged if the owner/applicant/any interest party is not satisfied with the initial decision.

Who can lodge the appeal, in which circumstances, and to whom the appeal lies, varies depending on what type of application is brought and by whom. The Ordinance provides that any person who is aggrieved by a decision as to the amount of engineering contributions payable in a consent application, or an owner in a rezoning application, can lodge an appeal for reconsideration of the matter. However, an appeal must be lodged within relatively truncated time frames and thus this would not be available to a person who finds out some years after the engineering contribution figures have been levied, that there are amounts owing.

What if the engineering contribution figures make the development too expensive?

  • An owner can apply to the municipality to repeal the amendment of the town planning scheme, in terms of which additional rights for the proposed use the property were approved. This will allow the owner to avoid payment of all amounts claimed for engineering contribution figures.
  • Alternatively the owner can apply again to change the land use rights, by lodging another rezoning/consent application for different land use rights, that will require less upgrades of engineering services, and will thus attract a much lower engineering contribution.
  • Strictly speaking, however, these options are only open for a limited time after the municipality has told the owner what amounts are payable, and so it would not usually be open to an owner who has purchased from someone else and has now discovered that there are unpaid engineering contributions registered against his/her land, to make use of these options.

When and how can payment of engineering contribution figures be demanded?

The municipality can only demand payment of engineering contribution figures in a narrow ‘strip’ of time – within 30 days of commencement of the amendment scheme. In terms of the Ordinance, an amendment scheme commences when the notice is promulgated.

This is subject to the proviso that if there were objections or the approved scheme was subject to amendments, that the amendment scheme will only come into operation on a date not less than 56 days from the publication of the notice. The amounts must be demanded by way of registered post.

When do engineering contribution figures become payable?

This is a different question to when the amounts payable can be demanded. The Ordinance expressly state that engineering contribution figures are payable before a clearance certificate is issued, or before building plans are approved that would facilitate the amended land use, or the additional or altered land use rights are used. This is significant because this means that the person who applies for those additional rights, should be called upon to pay them by the municipality before the property is transferred to a new owner. In the view of the authors, this is a clear indication that the legislature intended that the person who originally applies for those rights should be called upon to pay them, unless that person makes an agreement with a third party (for example a developer or a purchaser) to take over that responsibility.

Can payment arrangements be made or security be given for payment?

A municipality is empowered to allow payment in instalments for a period up to three years, or to postpone payment for a period up to three years, and in making alternative payment arrangements to impose any other reasonable condition on such arrangement, including the levying of interest on amounts outstanding. Provision is also made for a municipality to accept an undertaking from a purchaser that it will pay the contributions at a later date in certain circumstances, allowing transfer to go through and the rates clearance certificate to be issued before the contributions have been paid.

What are the consequences of non-payment?

If the amounts demanded are not paid, or arrangements for payment/security made, the additional land rights may not legally be used (even if approved and even if promulgated) until the engineering contributions are paid. In addition, building plans should not be approved nor should any clearance certificate to pass transfer be issued. Any person who uses land in contravention of a town planning scheme is guilty of a criminal offence and may be liable to a fine or imprisonment. For every day that a person remains in contravention of the Ordinance, the fine can increase by R 100 and/or the period of imprisonment by 10 days. The municipality can also enforce the provisions of the scheme if the responsible person refuses to, by demolishing buildings if necessary.

Can rezoning be finalized without payment of the engineering contribution figures?

Yes, in fact it must. The last step in rezoning is promulgation, and only after promulgation can a municipality legally demand engineering contributions. This means that the municipality must ‘give’ the landowner the amended rights before demanding payment for them. However, as above, the additional land use rights are not meat to be utilized before the engineering contribution figures levied in connection with same have been paid.

Can transfer be passed without payment of the engineering contribution figures?

Yes, transfer can pass before engineering contributions have been paid. This happens often. There are two typical scenarios. The first is where an owner applies for additional rights, they are approved, but they are never promulgated and so the additional rights never actually ‘kick in’. If this happens and an owner applies for a rates clearance certificate to transfer the property, the municipality will provide the certificate without demanding payment of the engineering contributions applicable, because the time has not yet come at which the municipality is even legally allowed to claim those contributions (this is only permissible on promulgation). If the new owner then wants to use those additional rights, he will have to promulgate the amendment scheme and then pay any engineering contribution figures called for.

Problems arise here if the purchaser bought the land thinking that the seller had already paid all amounts necessary for the additional rights to ‘kick in’. If the seller has represented that this is the case to the purchaser, then the purchaser will have a claim against the seller for a refund of amounts paid for engineering contributions, but if the seller sold the property with the additional rights approved but not promulgated and did not represent to the purchaser that the property carried the additional rights, the purchaser is then able to, at his own cost and in his own time, and if he wants to, promulgate and then use the additional rights. If the purchaser never wants to use the additional rights, he does not have to, in which case he will not attract any liability in the form of engineering contributions for the additional rights because they will never be promulgated and the municipality will never be entitled to demand payment of the engineering contributions.

The other scenario is where a seller has rezoned a property and promulgation has occurred, meaning that the additional rights applied for have already come into force legally. In this case the municipality should require payment of the engineering contributions before transfer can pass to the purchaser, at the stage when the seller applies for the rates clearance certificate to facilitate transfer. If the municipality fails to do this, however, the property will pass to the purchaser and the municipality may then look to the purchaser for payment of these contributions either when the purchaser wants to use those additional rights, or have building plans approved, or wants to re-sell the property. This is where problems really arise because the purchaser is then held liable for amounts that the seller should have paid when the property was originally transferred. In such a case, if the purchaser is forced to pay these amounts, he will have a claim against the seller for a refund.

Do engineering contribution figures prescribe?

There is no law on the issue, but in our view, engineering contributions prescribe after three years, because they are more akin to ’fees’ charged by a municipality for the supply of services or upgrade of infrastructure in order to supply services to a property, than they are to ‘rates’, which are monthly charges billed to all properties of a certain type, based on a cent-in-the-rand ratio. However, this argument has not yet been brought before a court and so we would caution buyers to check whether they will become liable for engineering contribution figures at some stage in the future before they purchase a property to avoid the inconvenience and potential loss that could arise from having to pursue a claim (successfully or unsuccessfully) against a seller for a refund of amounts paid for engineering contributions.

 * For the purposes of this article only the general principles are referred to, so there may be slight variations to what is described above depending on which type of application you make and the internal requirements of the municipality to which the application is made.

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)

What does the Deeds Office do?

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A4BThe Deeds Office is responsible for the registration, management and maintenance of the property registry of South Africa. If you are planning on buying a house, it can be useful knowing about the Deeds Office. However, you would use the services of a conveyancer when buying or selling a house. Your estate agent should be able to recommend a conveyancing attorney to register your home loan and transfer a property into your name.

What is conveyancing?

Conveyancing is the legal term for the process whereby a person, company, close corporation or trust becomes the registered and legal owner of immovable property and ensures that this ownership cannot be challenged. It also covers the process of the registration of mortgages.

Steps taken by the conveyancer:

  1. The conveyancer lodges your title deed and other documents in the Deeds Office for registration. These documents will be individually captured on the system. If there is a bond, the conveyancer dealing with the bond will lodge the bond documents with the Deeds Office at the same time as the transfer documents. The transfer, bond and cancellation documents must be lodged in the Deeds Office at the same time to ensure simultaneous registration. If different conveyancers are dealing with registering the purchaser’s bond and cancelling the seller’s bond, then they will need to collaborate.
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  2. The Deeds Office examiners go through the documentation that has been submitted, and make sure that it complies with the relevant laws and legislations.
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  3. The examiners then inform the conveyancer that the deeds are ready to be registered.
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  4. Registration takes place with the conveyancer and Registrar of Deeds present. The transfer of the property is then registered in the purchaser’s name. If there is a bond, it is registered at the same time.
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  5. Upon registration, the purchaser becomes the lawful owner of the property. The title deed that reflects this ownership is given to the conveyancer by the deeds office after the registration. Unless a bond has been registered as well, in which case the title deed is given to the bond holder.

The time taken to register a property at the Deeds Office depends on various factors and a number of parties. On average, registering a property transfer takes six to eight weeks, although unforeseen difficulties can cause the period to be extended.

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)

Co-owning property with someone else: The ups and downs

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A3BWhat is co-ownership?

Co-ownership is when one or more people jointly own the same property. In essence, it is when they legally share ownership without dividing the property into physical portions for their exclusive use. It is thus commonly referred to as co-ownership in undivided shares.

It is possible to agree that owners acquire the property in different shares; for instance, one person owns 70 percent and the other 30 percent of the single property. The different shares can be recorded and registered in the title deeds by the Deeds Office.

The benefits

On paper, it’s a great idea. For starters, the bond repayments and costs of maintaining the home are halved. However, there can be problems and although not every friendship or relationship is destined to disintegrate, there does often come a time when one of the parties involved wants to sell up and move on to bigger and better things.

The risks

If ownership is given to one or more purchasers, without stipulating in what shares they acquire the property, it is legally presumed that they acquired the property in equal shares.

The risks, the benefits and the obligations that flow from the property are shared in proportion to each person’s share of ownership in the property. For instance, one of the co-owners fails to contribute his share of the finances as initially agreed, resulting in creditors such as the bank or Body Corporate taking action to recover the shortfall.

Having an agreement

If two people own property together in undivided shares it is advisable to enter into an agreement which will regulate their rights and obligations if they should decide to go their own separate ways.

The practical difficulties that flow from the rights and duties of co-ownership are captured by the expression communio est mater rixarum or “co-ownership is the mother of disputes”. It is therefore important that, when the agreement the co-owners entered into does not help them solve disputes, certain remedies are available to them.

The agreement should address the following issues:

  1. In what proportion will the property be shared?
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  2. Who has the sole right to occupy the property?
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  3. Who will contribute what initial payments to acquire the property.
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  4. Who will contribute what amounts to the ongoing future costs and finances.
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  5. How the profits or losses will be split, should the property or a share be sold?
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  6. The sale of one party’s share must be restricted or regulated.
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  7. The right to draw funds out of the access bond must be regulated.
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  8. A breakdown of the relationship between the parties.
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  9. Death or incapacity of one of the parties.
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  10. Dispute resolution options before issuing summons.
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  11. Termination of the agreement.

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

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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
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  2. File up-to-date rates and taxes receipts
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  3. Record details of the leases on any property you have
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  4. State who collects your rent
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  5. State who compiles your yearly accounts
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  6. 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.
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  2. Only descendants survive: Estate is divided between descendants.
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  3. Spouse & descendants survive: The spouse gets R250 000 or a child’s share and the balance is divided equally between the spouse and descendants.
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  4. Both parents survive: Total share is divided equally between both parents.
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  5. One parent: Total Estate goes to the parent.
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  6. One parent & descendants: Half the Estate goes to the parent; balance is divided equally amongst descendants.
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  7. 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.
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  8. 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)

My brother’s keeper: The unfortunate building contractor and the enriched owner

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A4BA building contractor entered a binding and legal, written building contract with a closed corporation to erect a residential house on land registered to the sole member of the corporation and a third party.

Occupation was taken and the builder released the property (and thus his builder’s lien) to the owners of the land, in spite of the final certificate still outstanding, due, owing and payable.

The building contractor has issued summons in terms of the written building contract against the corporation, which has no assets. The question arose whether the building contractor has an alternative claim against the co-owners of the land for enrichment as the land has been improved with the residence.

The development of the law of enrichment in South African was dealt a severe blow in the judgement of Couws vs Jester Pools (Pty) Limited 1968 (3) SA 563 (T) when Justice Jansen took quite a narrow view on enrichment and claims in terms thereof.

Jester Pools erected a swimming pool on a property under the impression that it was contracted by the owner, whilst in fact they contracted with a third person. The court ruled that the building contractor had no claim against the actual owner of the property based on enrichment either calculated on the increase in value of the property or the actual expense of the swimming pool. Jester Pools had to accept the loss and pay the legal cost of the owner as well.

The keeper of his “brother’s” goods, a person or entity thus acting on behalf or in the interest of another, in certain circumstances, could incur costs or expenses in the process. The recovery of these costs or expenses can be problematic.

Depending on the facts, a claim can be instituted either on enrichment (conditio indebiti or condition sine causa) or based on unauthorised administration (negotiorum gestio).

Any claim based on enrichment, whether conditio indebiti or condition sine causa conditio indebiti or condition sine causa each has four, almost similar essential elements a claimant must fulfil to be successful.

In short, the elements entail enrichment of the other party at the expense of the keeper, impoverishment of the keeper and absence of justification thereof.

A claim in terms of the negotiorum gestio also has four essential elements.

Firstly, the affairs managed by the keeper must be those of another. The keeper can be a company, trust or a natural person and the affairs that of a company, trust or a natural person.

Secondly, the other must be oblivious of the fact that his affairs are being managed.

Thirdly, and a very important element, is that the keeper must have had the intention to manage the affairs of another.

Fourthly, the management of the affairs should be conducted in a reasonable manner. Even if the management was unsuccessful, the caretaker shall have a claim against the other. However, if the management was unreasonable, the caretaker will have no claim.

To succeed in a claim based on the negotiorum gestio, our builder will have to fulfil all of the above essential requirements. The contractual obligations between the builder and the corporation negate the intention to manage and the reasonableness thereof. In terms of the Couws vs Jester Pools judgement the builder will be limited to a claim in terms of the contract, with the risk of an empty judgement with little if any hope to recover any of the outstanding amount.

Luckily for our builder, thirty years after the Couws vs Jester Pools matter, two judgments have paved the way for an extension of the negotiorum gestio or unauthorised administration on behalf of a third party by the “extended” actio negotiorum gestorum or the actio negotiorum utilis. This development will specifically assist the building contractor as he had no intention to manage the affairs of another and it could assist where the reasonableness of his actions is questioned.

In ABSA Bank Limited t/a Bankfin vs Stander t/a CAW Paneelkloppers 1998 (1) SA 939 (C) J Van Zyl detailed the development of South African enrichment law. The judgement will provide any reader thereof with a cursory yet detailed background knowledge of this specific area in our law.

This judgement extends the reach of the enrichment law in that, although a general enrichment action is still not accepted or proposed, the holes caused by Couws vs Jester Pools are at least plugged.

In the second judgement, McCarthy Retail Limited vs Shortdistance Carriers CC, delivered by JA Schutz on 16 March 2001 under case number 110/1990, the Supreme Court of Appeal again carefully considered the position. The judgement refers to the predicament of our builder, but does not make a ruling which would constitute applicable case law. The comments do take the position further and clarify the case law noted.

The perceived injustice of the Couws vs Jester Pools-judgement has been rectified.

The last two cases combined does open an alternative claim to our building contractor against the actual registered owners of the stand on which the residence has been erected. In the event of the corporation not being able to fulfil its payment obligations towards our building contractor, the owners of the stand might just find themselves indebted to their keeper.

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 is a deceased’s estate administered?

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A2BThe administering of a deceased estate is regulated by the Administration of Estates Act No 66 of 1965 (as amended) and divided according to a valid will or the Intestate Succession Act No 81 of 1987 (as amended) or a combination of both acts.

Various other acts and regulations may, however, also be applicable, like those applicable to income tax (with due allowance for VAT and CGT), Estate duty and Donations tax, and support of surviving spouse.

After a death

When someone dies, his/her estate must be reported to the Master of the High Court as soon as possible, and certain report documents, together with the original will, where applicable, should be delivered to the Master.

In the case of estates with a gross value of less than R250 000 the Master may dispense with an official appointment of an Executor to execute the required administering process. In all other cases, an Executor will be appointed by the Master, who will issue an Executor’s letter to the appointed Executor.

The Executor

As soon as the Executor’s letter has been issued the formal administering of the estate, which the Executor has to follow, will commence. One of the Executor’s first tasks would be to announce to the creditors, acquire details regarding estate assets and have it valued if necessary, and recover certain assets. Known and filed liabilities should be investigated and attention must be paid to income tax.

The Executor is now compelled to submit a liquidation and distribution account (statement of assets and liabilities) to the Master of the High Court within six months after being issued with the Executor’s letter, or ask for a formal postponement. This estate account will indicate all assets and liabilities, distribution of heirs and details of assets outside the estate which are directly payable to beneficiaries.

The Master will check the estate account and then issue a questionnaire to the Executor. As soon as the Master has granted approval the Executor may proceed to announce the account as being open for inspection for 21 days at the Master and the nearest Magistrate’s Office.

Should any written challenges be submitted, it should be dealt with according to the regulations in the Administration of Estates Act. Should there be no challenges, or when the Executor has disposed of all challenges, the Executor may proceed to make payments to heirs and carry over any other assets to the beneficiaries.

Administering obstacles

In most cases the administering process should not be complicated, therefore it would be possible to finalise within a fair period of time (approximately six to nine months). There are, however, many obstacles which may slow down this process and even bring the administering process to a virtual standstill. Some of the most well-known and general obstacles are poor service from government and private institutions, invalid and unpractical wills, shortage of cash, quarrels and disputes among family members and beneficiaries, lack of information, disorder in the tax and other affairs of the deceased, lawsuits before and after death, and legal post-mortems in case of an unnatural death, which may sometimes be required before policies can be paid out.

Conclusion

The administering of an estate is a specialised environment which should be left to capable people with knowledge of the Administration of Estates Act and years of experience. Ignorance regarding the run of events as well as errors of judgement may eventually cost you dearly if you don’t make use of the available expertise.

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)

Implications of estate duty

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Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  • Which property is to be included.
  • Which property constitutes “deemed property”.
  • Allowable deductions: the possible deductions that are allowed when calculating estate duty.

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.

Deemed property

Insurance policies

  • Includes proceeds of domestic insurance policies (payable in South Africa in South African currency [ZAR]), taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.
  • The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy. Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.
  • If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered with the Deeds Office) the policy will be totally exempt from estate duty.
  • Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.

Donations at date of death

Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.

Claims in terms of the Matrimonial Property Act (accrual claim)

An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.

Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act), like donating an asset to a trust, may be included as deemed property.

Deductions

Some of the most important allowable deductions are:

  • The cost of funeral, tombstone and deathbed expenses.
  • Debts due at date of death to persons who have their ordinary residence in South Africa.
  • The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.

Foreign assets and rights: 

  • The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.
  • However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.

Debts and liabilities due to non-residents: 

  • Debts and liabilities due to non-residents are deductible but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate.

Bequests to certain public benefit organisations:

  • Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes.

Property accruing to a surviving spouse [Section 4(q)]:

  • This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.
  • Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).
  • Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.
  • Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust). Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

Portable R3.5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death.

Life assurance for estate duty

Estate duty will also normally be leviable on these assurance proceeds.

Reference:

  • Source: Moore Stephens’ Estate Planning Guide.

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

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cm_10_a1The 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.

2. 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).

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. Prep.

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

9. 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.

10. 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)

What should a conveyancer do?

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cm_10_a2Conveyancing (or conveyance) is the legal term for the process whereby a person, company, close corporation or trust becomes the registered and legal owner of immovable property and ensures that this ownership cannot be challenged. It also covers the process of the registration of mortgages.

Conveyancing in South Africa can only be carried out by a licensed conveyancer, i.e. a lawyer who has passed the National Conveyancing Examination.

After an agreement of sale has been made, a conveyancer is appointed (normally by the seller, although the buyer will pay the fees) and instructions are sent to him by the estate agent. These include the names of both the buyer and the seller, a copy of the agreement of sale, and the passport numbers and marital status of the buyer and seller.

The conveyancer should:

1. protect the interest of his client, the Seller, at all times and these interests should outweigh all other considerations except of course issues of legality;

2. inform the seller of the conveyancing procedure and keep the seller informed of the progress of the transaction;

3. advise the seller on the content of the Offer to Purchase, especially regarding suspensive conditions;

4. advise the seller on the cancellation of his bond, any penalties, notice periods and other administrative charges which may affect the settlement figure;

5. obtain the seller’s instruction before issuing any guarantees in respect of the transaction;

6. do everything in his power to register the transaction on or as close as possible to the date agreed to in the offer to purchase;

7. advise the seller on his obligations in terms of the offer to purchase, so as to ensure that the transfer is not delayed;

8. meet with the seller to explain, as well as sign the necessary documentation in order to conclude the transaction;

9. prepare the deeds for lodgement with care, so as to minimise the risk of rejection of the documentation by the Deeds Office;

10. inform the seller of the transfer on the day of registration;

The process of selling and transferring your valued property can have many pitfalls if the correct advice is not received. This is why it is imperative to be cautious and maintain a serious regard for your own interests when choosing the right attorney to take responsibility for the transfer of ownership.

When looking for a conveyancer one must examine the following pre-requisites:

1. Is the conveyancer known?

2. Is the conveyancing firm well established?

3. Does the conveyancer have experience? Is the firm of appointed attorneys outsourcing the transaction to a conveyancing firm unknown to the seller? Not all firms have conveyancers.

4. Does the conveyancer have experience in what you require to be done?

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)

Transfer of a property: Is VAT or transfer duty payable?

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cm_09_a1A purchaser is responsible for payment of transfer cost when acquiring an immovable property, but it should further be established if the transaction is subject to the payment of VAT or transfer duty to SARS.

When an immovable property is transferred, either VAT or transfer duty is payable. To determine whether VAT or transfer duty is payable one should look at the status of the seller and the type of transaction.

VAT

If the seller is registered for VAT (Vendor) and he sells the property in the course of his business, VAT will be payable to SARS. A vendor is a person who runs a business and whose total taxable earnings per year exceed R1 000 000. He will then have to be registered for VAT. A further stipulation is that the property that is being sold must be related to his business from which he derives an income.

The Offer to Purchase should stipulate whether the purchase price includes or excludes VAT. If the Offer to Purchase makes no mention of the payment of VAT and the seller is a VAT vendor, it is then deemed that VAT is included and the seller will have to pay 14% of the purchase price to SARS. It is the seller’s responsibility to pay the VAT to SARS, except if the contract stipulates otherwise.

When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will still pay transfer duty but can claim the transfer duty back from SARS after registration of the property.

Transfer duty

When the seller is not a registered VAT vendor it is almost certain that transfer duty will be payable on the transaction. A purchaser is responsible for payment of the transfer duty. Transfer duty is currently payable on the following scale:

  1. The first R750 000 of the value of the property is exempted from transfer duty.
  2. Thereafter transfer duty is levied at 3% of the value of the property between R750 000 and R1 250 000.
  3. Where the value of the property is from R1 250 001 up to R1 750 000, transfer duty will be R15 000 plus 6% on the value of the property above R1 250 000.
  4. If the value of the property falls between R1 750 001 and R2 250 000, transfer duty will be R45 000 plus 8% of the value of the property above R1750 000.
  5. On a property with a value of R2 250 001 and above transfer duty is R85 000 plus 11% on the value of the property above R2 250 000.

Transfer duty payable by an individual or a legal entity (trust, company or close corporation) is currently charged at the same rate.

Transfer duty is levied on the reasonable value of the property, which will normally be the purchase price, but should the market value be higher than the purchase price, transfer duty will be payable on the highest amount. Transfer duty is payable within six months from the date that the Offer to Purchase was signed.

In instances where a party obtains a property as an inheritance or as the beneficiary of a divorce settlement, the transaction will be exempted from payment of transfer duty.

Where shares in a company or a members’ interest in a close corporation or rights in a trust are transferred, the transaction will be subject to payment of transfer duty if the legal entity is the owner of a residential property.

Zero-rated transactions

This means that VAT will be payable on the transaction but at a zero rate. If both the seller and the purchaser are registered for VAT and the property is sold as a going concern, VAT will be charged at a zero rate, for instance when a farmer sells his farm as well as the cattle and the implements.

Exemption

Transfer duty, and not VAT, will be payable when a seller who is registered for VAT sells a property that was leased for residential purposes.

It is thus important for a purchaser to establish the status of the seller when buying a property. The seller who is registered for VAT should carefully peruse the purchase price clause in a contract before signing, to establish if VAT is included or excluded.

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)