31 March 2009

Protection provided by the voetstoots clause

The recent SCA decision in Odendaal v Ferraris [2008] JOL 22304 (SCA) offers clarity on the protection that the voetstoots clause provides a seller of immovable property in the event of non-compliance with statutory or building regulations.

The SCA was presented with the following facts:

  • The seller appointed an estate agent to sell the property.
  • The purchaser inspected the property in the presence of the agent, however, access to certain areas was not possible.
  • The estate agent assured the purchaser that the property was in faultless condition.
  • Acting on this assurance, the purchaser concluded a written offer to purchase.
  • The seller subsequently accepted the offer.

After taking occupation, the purchaser identified defects in the property. In his opinion, the seller and her agent fraudulently concealed the defects. On discovering the defects, the purchase approached the municipality to investigate whether or not the building conformed to statutory requirements. It was found that certain portions of the building had been constructed without complying with town planning regulations. In addition, the purchaser found other physical defects that were not apparent at the time of inspection.

Acting on this information, the purchaser requested his bank not to allow registration of the mortgage bond to proceed until the matter had been resolved. This had the effect of delaying the transfer of the property and the seller therefore considered the purchaser's action as a repudiation of the contract. She believed that the voetstoots clause protected her against liability for the defects. Application was therefore instituted for the purchaser to be evicted from the property.

The purchaser relied on the case of Van Nieuwerk v McCrae 2007(5) SA21 (W) in which it was held that a voetstoots clause does not protect a seller from failure to obtain statutory approval for construction. In Van Nieuwerk the court held that this exclusionary clause merely protected a seller against latent defects of a physical nature. This reasoning is based on the assumption that there is an implied warranty that a residential building on a property is erected in compliance with all statutory requirements.

The SCA, in the Odendaal case, distinguished Van Nieuwerk from a similar matter, Ornelas v Andrew's Café and another 1980 (1) SA 378 (W). In the Ornelas case the subject property was sold as a going concern for the purpose of conducting a restaurant business. The restaurant was, however, being run without a licence and the court viewed this as a breach of an implied warranty, as it was a material term of the contract to receive a property upon which a lawful business could be conducted. The court held that the voetstoots clause only protects the seller against physical or visible qualities.

The SCA in Odendaal drew a distinction between the cases above, stating that the Ornelas case was a clear example of an instance when the property could not be used for the express purpose for which it was purchased. With Van Nieuwerk, however, the SCA believed that the lack of statutory approval did not render the property unfit for the purpose for which it was purchased.

Reaffirming that each case should be assessed on its own merits, the SCA stated that the contravention of building regulations constituted a latent defect in that, should alteration or demolition be required, the ordinary use of the property would be affected. Given this classification, the defects were covered by the voetstoots clause.

The SCA reiterated that the protection of the voetstoots clause falls away if a purchaser is able to show that the seller had been fraudulent in that she had actual knowledge of the defect but deliberately concealed its existence.

As this case was adjudicated on an application basis, the SCA was limited to the allegations contained in the parties' papers. It accordingly held that the purchaser had not established a clear case of fraud against the seller.

The SCA therefore upheld the appeal and ordered that the purchaser vacate the property. Some important lessons can be learnt from the decision:

  • Purchasers should insist on a full inspection of the premises; and
  • purchasers should request a warranty from the seller that the improvements on the property comply with all statutory and building regulations.

Andrew Heiberg
Regional Practice Head: Real Estate

Pranisha Maharaj
Candidate Attorney

Sahndya Naidoo
Candidate Attorney

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