“There is no sound more peaceful than rain on the roof, if you’re safe asleep in someone else’s house.” (Anne Tyler)
You move into your new dream home, excited and happy. Until it rains, and the roof leaks. As the repair teams tramp around on your roof and the bills start piling up whilst you weave around buckets and tarpaulins and sodden carpets, you go back to the seller and demand recompense.
“Sorry”, says the seller, “read the sale agreement. I sold the property “voetstoots” and without liability for any defects. I sympathise, but it’s actually your problem not mine. Good luck, and goodbye.”
Can that be correct? Let’s address that question with reference to a recent Supreme Court of Appeal (SCA) decision over a flooded-out guest house.
A leaking roof puts a real damper on a guest house dream
- A couple bought a guest house for R1.3m to fulfil their dream of running one.
- Barely three months after they moved in, heavy rain caused extensive leaking of the entire roof. The guesthouse was flooded and furniture, carpets, linen and luggage soaked. Guests were, unsurprisingly, unhappy.
- The buyers had to take out a loan to cover the repair costs, plus they lost 2 months’ income during the repairs.
- They successfully sued the seller for a total of R240k in damages (a combination of repair costs and lost income), an award confirmed by the High Court and then by the SCA on appeal.
To understand that outcome, let’s take a look at our law’s requirements for such a claim to succeed.
Fraudulent non-disclosure of latent defects – 3 things you must prove
As a buyer claiming damages on the basis of “fraudulent non-disclosure in respect of latent defects” (we deal with the alternative of an “implied warranty” claim below), you will, as the Court set it out, have to prove that –
- The seller was, at the time of the sale, aware of the “latent” defects (defects that “would not have been visible or discoverable upon inspection by the ordinary purchaser”), and
- The seller deliberately failed to disclose those defects to you, and
- The seller’s aim was to induce you to conclude the sale.
The buyers in this case had, before buying, noticed water staining in several places. The seller had assured them that although he knew of one roof leak, it had been fixed by his handyman and that he didn’t believe leaks would reoccur.
The Court however preferred the conclusion by an expert witness (a civil engineer) that “any claim by the previous owner that no problems with roof leaks were experienced in the past [would] simply be impossible and untruthful”. The roof, said the engineer, was defective both in respect of inferior design (“the entire roof speaks of negligent design, inferior workmanship and bad maintenance”) and inferior workmanship (“it is evident that [the builder] of the roof was not a skilled artisan … the roof under investigation was prone to leak from the day that it was built.” The engineer also found evidence of past efforts to seal the roof and believed that the problem had escalated over time.
The Court’s conclusion – the seller had fraudulently misrepresented the true condition of the roof and had failed to disclose it to the buyers. “On the probabilities, the only reasonable inference to be drawn …. is that the non-disclosures and misrepresentation were made deliberately in order to induce the sale of the guesthouse, and this constituted fraud.” Hence its confirmation of the damages award to the buyers.
Another way to claim: Breach of the “implied warranty”
The buyer in this case sued on the basis of “delictual liability” which requires you to prove a list of factors, including both wrongfulness and fault. Fortunately, you also have an alternative avenue available to you. Our law is that a seller (of anything) automatically gives the buyer an “implied warranty” that the thing sold has no latent defects. Prove that the seller has breached that warranty and you have the basis of a claim.
You are very likely, however, to come up against the seller protections in a voetstoots clause (common in sale agreements). That clause transfers the risk of latent defects to the buyer by providing that the property is sold “as is” and without any warranty.
To defeat the seller’s protection under voetstoots you can either –
- Prove fraud by the seller. To be protected, the seller must have been genuinely unaware of the latent defect in question at the date of sale; or
- You can show that the protections in the CPA (Consumer Protection Act) apply to your sale. The CPA, where it applies, protects buyers from defective or not-fit-for-purpose goods, regardless of what the sale agreement says. There are grey areas here, so specific legal advice is indispensable, but in broad terms the CPA does not protect larger “juristic person” buyers (those with an annual turnover of R2m or more), nor will it generally cover one-off “private” sales between individuals – normally it is developers, estate agents and others acting “in the ordinary course of business” who will be bound by the CPA.
Sellers: Disclose all possible defects of which you are aware in the “mandatory disclosure form” which, since February 2022, must be attached to and form part of the sale agreement.
Buyers: Inspect the property thoroughly before putting pen to paper – you cannot complain about any patent (“obvious on reasonable inspection”) defects that you should have seen yourself. To cover yourself against any latent defects, get expert reports in any doubt.
“… had the respondent imposed more moderate penalties, it would likely not have had the desired effect, or put differently, the same persuasive sting for individuals of substantial means.” (Extract from judgment below)
Buying “plot and plan” in a residential complex allows you the freedom to build your own dream house in a secure environment, quite apart from providing what is likely to be sound long-term investment. Just make sure that you will actually be ready to build within the time frame required by the HOA (homeowners’ association). If you don’t, you risk having to transfer the plot back to the developer (a costly exercise), or you could be lumbered with penalty levies many times higher than normal levies.
You can ask a court to reduce the penalty, but…
Our law gives us general protection from excessive “out of proportion” penalties by means of the Conventional Penalties Act, which in the section headed “Reduction of excessive penalty” provides that –
“If upon the hearing of a claim for a penalty, it appears to the court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of the act or omission in respect of which the penalty was stipulated, the court may reduce the penalty to such extent as it may consider equitable in the circumstances: Provided that in determining the extent of such prejudice the court shall take into consideration not only the creditor’s proprietary interest, but every other rightful interest which may be affected by the act or omission in question.”
However, as a recent High Court decision illustrates, you will have your work cut out for you if you want the court to exercise that discretion in regard to penalty levies.
The ‘persuasive sting’ of 5x normal penalties
- The HOA of a “luxury/ultra-luxury” residential estate required in its constitution that –
- Each owner must start construction within one year of transfer,
- Should construction not commence timeously the developer had the option to require re-transfer of the erf to it,
- If the developer did not exercise this option, the HOA could “impose whatever penalties it deems appropriate in its sole discretion” on the owner.
- When several erf owners failed to build within the one-year deadline, the HOA passed resolutions imposing penalty levies on them until they started construction.
- These levies started off at 2x the normal levies, and over an eight-year period were increased in stages to 5x the normal.
- The HOA sued the defaulting owners in the Regional Court to recover these levies, winning both in that Court and on appeal to the High Court.
- It was, held the High Court, up to the owners challenging the amount of the penalty to prove –
- What prejudice the HOA suffered,
- That the penalty was disproportionate to that prejudice, and
- The extent to which the penalty should be reduced.
- In addition to the actual monetary prejudice (damages) suffered by the HOA, it was said the Court necessary to consider the HOA’s other “rightful interests” that might be affected by the failure to build, such as problems with security, nuisance, aesthetics, damage, and value loss caused by extended building activities. In this case, one of the additional reasons for the penalty provision was to discourage speculation in the erven by buyers intending to re-sell the plots for profit rather than build and live in the estate.
- There was prejudice to the HOA even though the penalty provision was intended to create a deterrent rather than compensation for default – the prejudice was to the HOA’s “right to enforce concerted action for the common good, and to its interest in obtaining concerted action”.
- Whether the penalty was “out of proportion” to the prejudice could be assessed in three ways:
- By looking at comparable situations where the desired result was achieved (the Court compared another similar matter in which a 10x normal penalty was reduced by the Court to 8x normal, much more than the 5x imposed here),
- By looking at the size of this penalty and the penalties in general in relation to the income and expenditure of the HOA, and
- “By exercising one’s sense of fairness and justice.”
- The HOA had been fair and reasonable in phasing in the increases over an eight-year period.
- Imposing more “moderate” penalties “would likely not have had the desired effect, or put differently, the same persuasive sting for individuals of substantial means.”
In the end result, the owners must pay the full penalty levies, interest, and costs on an attorney and client scale.
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)
This article originally appeared in LawDotNews and is reproduced with the permission of DTS Attorneys, Port Elizabeth, 041 374 0852, www.dtslaw.co.za and DotNews”.