Investors beware the voetstoots clause

Investors beware the voetstoots clause

Private Property South Africa
Michael Hands

If you are contemplating investing in property, it is worth thinking twice before buying it in a company name. And if you want to hold the asset in a company, it is worth considering the acquisition of a brand new company with no other assets through which to conclude the transaction.

This is because the Consumer Protection Act of 2008 (CPA) has, since its commencement date of 31 March 2011, brought about major changes to the voetstoots clause that previously protected sellers.

But there are certain circumstances in which the CPA does not apply to a transaction of sale. These are where the seller or any intermediary, such as a broker or agent, is not regarded as a dealer or trader in the goods sold; and also where the purchaser is a body corporate, such as a company or close corporation, a partnership or trust, having assets of R2-million or more or a turnover of more than R2-million annually. So, the buyer, be this a natural person or a corporate entity of modest means, enjoys the protection of the CPA against the seller’s voetstoots clause.

For more than a century, the voetstoots clause proved a solid bulwark for a seller of property. In essence, this clause recorded that the subject of the sale is sold "as is” and without any warranties as to its condition or suitability. This meant that the purchaser had to accept the goods with all defects, whether latent (hidden) or patent (obvious).

The only exception was if the seller knew of the existence of a latent defect and failed to disclose it. This was referred to as “fraudulent non-disclosure” and the courts have consistently ruled that fraudulent non-disclosure cancels out the voetstoots protection that the seller would otherwise have enjoyed. As a result, if the purchaser could prove fraudulent non-disclosure, which is not always as easy as one might think, then the seller would be obliged to give restitution, ie, to take back the goods and refund the purchase price.

But now, sections 51, 55 and 56 of the CPA provide (in summary) that goods sold, including land and buildings, must be sold with an implied warranty that the goods are free of latent defects.

This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of commercial law.

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