Cliffe Dekker Hofmeyr has won the Legal Week Africa Real Estate Team of the Year for the work the team did on leasehold property ownership for the Waterfall development just outside Johannesburg. In addition, the National Practice Head of the Real Estate practice, Attie Pretorius, was awarded the Lifetime Achievement Award for Excellence in Real Estate Law at the Inaugural SA Professional Services Awards late last week.
According to Pretorius, who is also the Chairman and a Director in the Real Estate practice at Cliffe Dekker Hofmeyr, “Leasehold property ownership is common around the world, but South African property developers have avoided it. The brave few who've tried it are finding the headway difficult. The Waterfall development is one of the first developments in South Africa to be successful in using leasehold property ownership.”
The Waterfall development is located on land owned by Witwatersrand Estates Limited (which is owned by the Waterval Islamic Institute). In 1934, the farm was sold to Moosa Ismail Mia, who registered the land in the name of Witwatersrand Estates Limited. The Waterval Islamic Institute is a charitable organisation dedicated to providing resources for the education of underprivileged children. A large portion of the income generated from the leasing of this land goes towards feeding and educating children across Southern Africa. By making portions of the farm available for development on a lease basis, they continue to generate income which is utilised for charitable purposes.
“When the decision was taken to develop the land, it had to be done within the framework of their religious requirement not to sell the land. Thus, the owners used various special purpose vehicles to establish and manage the development on a 99-year leasehold basis,” Pretorius explains.
John Webber, Director in the Real Estate practice, explains that all of the properties in the Waterfall development are leased for a period of 99 years. The differentiating factor of this 99-year lease product from previous market offerings is that, in the event of a resale of the lease, the new lessee acquires the rights under the lease for a full 99 years. With previous 99-year lease mortgage products, the new lessee would have assumed the rights only for the remaining number of years. The Waterfall Development is further unique in the sense that the leaseholders of the development land are responsible for the management of the income, assets and infrastructure in respect of their individual portions.
“This lease is the first of its kind in South Africa and has the legal status of a lease, while retaining the nature of a lease, the agreement as close to ownership as possible,” Webber notes.
“Waterfall Development is also the first property development project in South Africa where the developers have used a method of creating bankable leased land. As a result, the land has been broken into portions and for the first time ever, major banks are financing the property development as well as end-user residential property purchases on a leasehold basis,” he says.
Waterfall Development is currently the largest property development project of its kind in Africa, with approximately 8 000 to 10 000 residential units planned, and eventually housing an estimated 35 000 to 40 000 people. This development has been further expanded to include mixed-use residential units, schools, a shopping centre, a hospital, a five-star hotel and an office park. The commercial portion of the development, Waterfall City, will be roughly the same size as the Sandton CBD when complete.
Pretorius was on the panel of experts who attended to the drafting of the initial agreements pertaining to the structure of this development. Webber was involved in the drafting of the end-user lease agreements relating to the commercial and residential properties which form part of the Waterfall development and was further involved in approaching all of the major banks/ financial institutions so to obtain their approval in respect of the lease structure and standard terms of the lease. This was a crucial step in creating bankable leased land.
“Our Real Estate practice has been instructed to exclusively attend to the co-ordination, execution, and registration of all the initial (and often the subsequent) residential and commercial leases in the Waterfall Development. To date, we have registered approximately 2300 leases,” Webber explains.
“The team also provides legal advice in respect of the development and any ancillary matters. Examples of this include advising on the memorandums of incorporation of the various estates and any issues arising thereof; consolidations and subdivisions of various properties; and the drafting and registration of servitudes relating to the development.
The team was also instrumental in setting up the Waterfall Trust Fund. The purpose of trust fund is to acquire a portion of the consideration paid when a lease is sold, and to use such monies to the benefit of its beneficiaries being, the Home Owners Associations within the development. This will provide them with funding for the upkeep and maintenance of roads, parks, common areas and the like. Our role in this includes the drafting of the trust deed and managing of the funds,” Webber adds.