News

CC property sales: Verbal agreements are binding

Sellers beware - new court judgment

Anton du Plessis, the Chairman of the Cape Peninsula area committee of the Institute of Estate Agents, draws attention to a recent Supreme Court of Appeal decision that could have far reaching implications for anyone involved in property dealing with close corporations.

The case has been fully described in Fairbridge's Law Letter, which gives an admirable summary of what in fact happened.
In this case a certain Mr Pillay signed a standard sales form agreement offering to buy a member's interest in a close corporation that owned a unit in a KZN sectional title development.

The member, a Mr Shaik, did not sign the sale agreement.  Nevertheless, he instructed his attorneys to take a deposit from Pillay and to get copies of his ID document and marriage certificate, all of which are required to complete a close corporation sale agreement.
Shaik then, however, changed his mind about the deal - and felt entitled to do so as he had not yet signed the agreement.  Pillay responded by saying that he had not only accepted his offer verbally but had taken the actions described above which in his view confirmed the sale. In its decision the Court of Appeal noted that the Close Corporation Act does not require the sale of a member's interest to be in writing, even where the corporation owns immovable property.

An unsigned agreement could, therefore, be enforceable.  In this case the seller was deemed to have shown by his actions that the sale was expected to go ahead - and he had given the buyer adequate reason for believing the deal to be a fait accompli.

This case should serve as a warning to those with fickle minds and an inability to make decisions finally one way or the other - as sometimes does happen in property transactions.  It is still highly unlikely that in a case where the seller is a natural person, not a cc, anything other than a signed document would be considered binding - but the doors are now open for debate on the validity of implied acceptance by behaviour.  It is absolutely essential, therefore, that both buyers and sellers get agreements comprehensively signed by both parties if they wish to feel completely safe.

Two banks make home loans easier to score

Bank mortgage figures in tatters, 100% home loans, and more, for some.

Estate agents have welcomed the decision by some banks to offer bonds to the emerging market and are holding out hope for further easing of banks' stringent lending policies. Mortgage volumes are roughly half of what they were this time last year, and last year's volumes were dramatically lower than the year before - which gives an indication of the dire conditions being experienced in the residential property market.
According to Ivan Neethling chairman of the Institute of Estate Agents in the Western Cape, FNB and Absa's move to offer bonds to families earning salaries of below R15 000 and R11 000 respectively shows a growing confidence in the affordable markert.

According to the FNB Residential Property Barometer Q2 2009, demand for residential property is still very low and there is an oversupply of properties in the market. Estate agents interviewed in the survey believe that strict lending criteria, in particular deposit requirements, are major constraints on demand for residential property.

The lower-income end of the market appears worst hit and this raises concerns over the performance of the so-called "affordable segment" of the market in the near term, says John Loos, FNB Home Loans property strategist.

He says while banks have been highly criticised for their conservative lending practices, it is difficult to ignore the fact that the weak economic situation is eroding the household sector's ability to service debt.
FNB recently announced it would grant loans of up to 100% in certain cases, relieving buyers of having to find deposits.
Jan Kleynhans, chief executive officer of FNB Home Loans, says the bank's loan to value criteria, an aspect of lending policy, have been reviewed from 85-90% to a maximum of 95% for new customers.

 As of June this year, FNB offers up to 100% bonds for properties in possessions and on Quick Sell Plan. The percentage varies with each home loan depending on factors including customer credit rating, area rating, outlook of the property and affordability and these factors have led to loan-to-values averaging 80% in the past six months on new home loans, explains Kleynhans.
For the maximum loan amount, a customer's credit rating needs to be of high rating and the area of the property needs to meet or support this rating, he says.
"FNB believes this move will make home loans more accessible for our customers and help stimulate the South African residential market," Kleynhans says.
Standard Bank's residential mortgage lending criteria remains unchanged and is constantly being reviewed, says Lasath Punyadeera, director of Standard Bank Home Loans Product.

He says Standard Bank adopted new lending criteria in November 2008 and has not changed these since. However, these loan-to-value criteria are constantly being reviewed and could be revised in the future, he says.
Currently, the bank grants up to 95% bonds for home loans of less than R300 000, 90% for loans of between R750 000 and R2.5m and 80% for loans of R2.7m to R4m and more.

Absa says it is not relaxing its lending criteria but is looking at the clients' affordability when assessing home loan applications. Absa clients are granted up to 85% loans and non-Absa clients 70%, says Luthando Vutula, Absa Home Loans managing executive. Absa customers, therefore, pay a deposit of 15% and non-Absa customers pay 30% deposit in order to secure a home loan.

Vutula says applicants who earn up to R11 000 per month are granted 110% bonds.
Clive van Horen, managing executive for retail secured lending at Nedbank Home Loans, says: "Nedbank is conscious of the interplay between banks' willingness to lend and property prices, and so we remain open for business but with a relatively cautious stance."
He says the bank tightened its lending criteria in the second half of 2008 in anticipation of the increased risk levels.
"We believe this was the only logical response to protect the bank's capital and depositors," says Van Horen.

Nedbank offers a higher loan in relation to a property's value for existing customers with good risk and credit profiles. There is less likelihood that the customer with a track record for repaying debts on time and in full will default.

Currently, Nedbank grants 90% of the finance for properties valued at up to R3m and 85% for homes worth R3m and more. Like FNB, Nedbank is keen to help property buyers take houses acquired from defaulting clients off its book. The bank offers 100% loans on "Nedbank Owned Properties" and properties sold at the Nedbank auction programmes.
Van Horen adds that the volume of new loan applications dropped by over 50% from the first half of 2008 to 2009, suggesting consumers' concerns about the broader economic environment are making them hold back on buying new houses.

Estate agents, meanwhile, are delighted that some banks are making things a little easier for property buyers. Lanice Steward, managing director of Anne Porter Knight Frank, says usually after one bank relaxes lending requirements, others follow suit.