Amendments of rules in line with constitutional rights to adequate housing

May 1st, 2018
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By Michael Lombard

The development of the new rules was initiated by jurisprudence when the right to adequate housing (s 26 of the Constitution) was acknowledged in the Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others 2005 (2) SA 140 (CC) case. The dicta of this ground breaking case was then developed and applied in 2011, in the Gundwana v Steko Development and Others 2011 (3) SA 608 (CC) case, which formed the precedent of the then amended r 46 of the Supreme Court Act 59 of 1959. In that case the Constitutional Court (CC) confirmed that the former court process had been unconstitutional, the amended rules affected peremptory judicial oversight in all sale-in-executions of property.he right to adequate housing and the protection thereof as set out in ss 25 and 26 of the Constitution, is in my view the stepping stone to all the other fundamental rights available to South African citizens. The problem, however, is that the noble intention of these fundamental rights are subject to the development and acceptance thereof by our jurisprudence. The promulgation of the Amendment of the Rules Regulating the Conduct of the Proceedings of the Several Provincial and Local Divisions of the High Court of South Africa (GN R1272 GG41257/17-11-2017) (the new rules), is an illustration of how well the designed machinery of jurisprudence works, in order to give effect to our fundamental rights.

On 17 November 2017, jurisprudence furthermore developed the process of execution of immovable residential property by introducing rr 46, 46A, 43 and 43A of the Uniform Rules of Court and the Rules regulating the conduct of the proceedings of the magistrates’ courts of South Africa. For purposes of this article the discussion regarding the new rules will be limited to r 46A and r 43A, with its identical subss 2(a) – (c), 5(a) – (f), 8(a) – (i) and 9(a) – (e).

Summary of the subsections

The following is of utmost importance:

  • The court must establish whether the property subject to execution is the primary residence of the execution debtor.
  • The court has to consider alternative means and all relevant factors applicable to the judgment debtor, prior to the authorising of the execution of the subject primary residence.
  • The Registrar shall not authorise execution against the immovable property, which is the primary residence of the execution debtor unless the court has warranted it.
  • Every application must be supported by documents indicating –
    • the market value of the property;
    • the local authority valuation;
    • the amount owing to mortgage bonds;
    • the amount owing to local authority for rates and taxes; and/or
    • the amounts owing to the body corporate for levies.
  • The court may on its own accord or on application by any affected party set a reserve price as a condition of sale for the subject primary residence.
  • The court, in deciding whether to set a reserve price and the amount thereof, has to take into account all the factors mentioned in point four above, as well as whether any equity may realise between the reserve price and the market value at the auction sale.
  • The likelihood of the reserve price not being realised and the property not being sold at the auction sale.
  • The procedures, should the reserve price not be realised at the auction sale.

Rule 46A and r 43A – calibrate with s 25(1) of the Constitution

The above summary of the new rules are indicative of the judgment in the Jafta case, (paras 20 and 22) thereof, which formed the foundation of the Gundwana case, the CC held: ‘The structure of s 25(1) and its protection of ownership, as well as the uncertainty about the scope of the negative obligation in terms of s 26, mean that s 25(1) could add a new dimension to this case.’

Section 25 of the Constitution states:

‘(1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

(2) Property may be expropriated only in terms of law of general application –

(3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including –

(a) the current use of the property;

(b) the history of the acquisition and use of the property;

(c) the market value of the property;

(d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and

(e) the purpose of the expropriation.’

Deprivation of one’s property can be defined as any uncompensated, regulatory restriction on the use, enjoyment and exploitation of the property (AJ van der Walt Constitutional Property Law (Cape Town: Juta 2011) at 196). It is, therefore, clear and logical that a sale in execution will qualify as a deprivation, since an execution of one’s property does in fact result in a total loss of such property that includes a sale to which the owner has not agreed and the subsequent transfer of the property.

It is currently trite law, as set out in First National Bank of SA Ltd t/a Wesbank v Commissioner, South African Revenue Service and Another; First National Bank of SA Ltd t/a Westbank v Minister of Finance 2002 (4) SA 768 (CC), that as soon as it is established that there is a material interference with property (in this case the execution thereof) the requirements as set out in s 25(1) of the Constitution are applicable. The property is thus sold not by the will of the mortgagee, but in accordance with the strict provisions set by the Rules of Court, hence the ‘law of general application allows the deprivation of the property’.

I submit that when the sale in execution leaves the owner with a shortfall, the shortfall per se amounts to an infringement of property in that the property was not sold for value. The new rules will, in these instances, now become the law of general application, which – in my opinion – provides the cure for the shortfall issue as far as s 25 provides for such a remedy.

When one compares the contents of the new rules with s 25(3)(a), (b), (c) and (e) of the Constitution, it reflects how the machinery of jurisprudence so spontaneously and scientifically calibrate all the relevant factors with each other. The new rules, inter alia, adhere to the limitation clause of the Constitution s 36, s 25(3), as well as with s 3(a)-(i) of the National Credit Act 34 of 2005 (the NCA), which are to promote and enhance the welfare of South African citizens.

The new rules further conform to the new dispensation within the definition of property, ownership and the protection thereof. Ownership of property is the most complete right in a thing. Broadly speaking, it entitles the owner to use this right in any way they wish, contrary to what the rest of the world may wish, but subject to limitations imposed by public and private law (CG van der Merwe Sakereg 2ed (Durban: Butterworths 1989) at 108 – 120). Section 25 protects these rights, and provides that these rights are not limited to land (s 25(4)(b)). Section 25 of the Constitution must, however, be interpreted with due consideration of the values of individuals, which includes objective and subjective factors. The definition and interpretation of property became more advanced due to the increased need among citizens to voice their fundamental rights. It is now accepted that property includes rights based on social, economic and moral rights, as set out in the Constitution. The interpretation of property is, therefore, not limited to the previously accepted norm of a real right, but s 25 led to the emergence of other rights relating to property.

The reformed property dispensation must thus include all individuals’ property rights by both the state and private persons, see Port Elizabeth Municipality v Various Occupiers 2005 (1) SA 217 (CC). The jurisprudence supports the view that the core purpose of the constitutional protection of property is not only ‘economic, but is personal and moral’ (GS Alexander ‘Property as a Fundamental Constitutional Right – The German Example’ 2003 Cornell Law Review 733 at 746). Property rights also include other rights, categorised as corporeal and incorporeal rights (MD Southwood The Compulsory Acquisition of Rights: By expropriation, ways of necessity, prescription, labour tenancy and restitution (Cape Town: Juta 2002) at 1).

According to Van der Merwe ((op cit) at 175 ff), the right of ownership is the most important right in respect of property. This right was known as a real right and its application was unlimited in the broadest sense. It is currently trite law and it is accepted by the jurisprudence that the existence, nature and scope of property rights depend on social, political and legal rules (Van der Walt (op cit) at 147).

Richard Zwitser in S Scott and J van Wyk (eds) Property Law Under Scrutiny (Cape Town: Juta 2015) at 94 maintains that in Europe the evolution of property law is referred to as the ‘social dimension of ownership’. Property rights can no longer be interpreted without taking cognisance of the constitutionality of fundamental rights. The existence of ‘new property interests are recognised and protected when and insofar as it is necessary to establish and uphold an equitable balance between individual property interests and the public interest, with due regard for the historical context within which property holdings were established and the constitutional context within which they are protected’ (Van der Walt (op cit) at 189).

I submit that property – as we know it – contains a bouquet of rights, which as seen above, includes, inter alia, various categories of rights. It is, therefore, a logical conclusion that value in property per se constitutes property. That said, jurisprudence is once again faced with the task of interpreting and developing the new rules and, inter alia, the term ‘market value’. Section 25 provides for the market value remedy in the environment of deprivation, which is the pivotal factor for the execution debtor to achieve in the execution sale, when faced with the deprivation of their property.

Market value

The property industry accepts the following definition of ‘market value’, as provided by the International Valuation Standards Council:

‘Market value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing where the parties had each acted knowledgeable, prudently and without compulsion.’

Market value is directly dependent on existing factors and the element of supply and demand, applies to all commodities in the free and open market. The credit system supports this free and open market and even though it is regulated by the NCA, the credit system assists consumers in achieving the demand factor, which is stimulated by the desire for a particular commodity (s 3 of the NCA).

The residential property industry in South Africa is the largest of most commodities and banks hold approximately R 923 billion of residential mortgage loans and approximately R 274 billion of commercial mortgage loans (SA Reserve Bank ‘Selected South African banking sector trends’ January 2017).

The banks apply the loan to value (restricting the loan to value percentage) method, a barometer tool to determine the value of a property and the extent to which a property may be discounted at a sale in execution. Despite these strict assessment and valuation methods that banks use, the outcome will not suffice when a mortgage debt is not speedily and sufficiently converted to cash. (A Wight and V Ghyoot The Property Finance Business in South Africa (Unisa Press: 2005) at 133 – 160, 145 – 146, 176). The dilemma for banks is that the new rules inevitably prolong the execution process.

Conclusion

The new rules amplify the voice of our citizens in reflecting an equitable balance of the rights applicable to all role players in the execution process of residential properties. The long term effect of the new rules will be that a mortgagor in a mortgage loan agreement, will in future be ensured that their right as contemplated in ss 25 and 26 of the Constitution, will be sustained.

Michael Lombard BProc (NWU) MSc Real Estate (UP) is a legal practitioner at MJ Lombard Inc in Pretoria. Mr Lombard is also a lecturer in Property Valuation at the University of Pretoria.

This article was first published in De Rebus in 2018 (May) DR 30.

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