Should I own my primary residence in my name, a trust, or a company?

Your primary residence is where you and your family live all or most of the year. You can only own one primary residence at a time. 

SARS states that to qualify as a primary residence, a residence:

 

• Must be a structure, including a boat, caravan, or mobile home, which is used as a place of residence by an individual.
• An individual or special trust must own an interest in the residence.
• The individual with interest in the residence, beneficiary of the special trust, or spouse of that person or beneficiary must ordinarily reside in the home and use it mainly for domestic purposes as their ordinary residence. 

The pros of owning my primary residence in my name

 

If you own your home (or own it jointly with your partner), when you sell it, you enjoy a Capital Gains Tax (CGT) benefit – known as the primary residence exclusion. SARS gives an abatement on the first R2 million of a capital gain or loss on disposal of a primary residence. For example, if the gain is R2,5m, R2m must be disregarded, while R500 000 will comprise a capital gain.

 

CGT is a tax levied on profits made from assets purchased at a lower price and sold at a higher price. In South Africa, the current CGT rate is 18 percent for individuals.

 

So, if you own your primary residence in your name, you will enjoy the primary residence exclusion of R2m.

 

The cons of owning your primary residence in your name

 

A property worth R2m today will be worth much more in 20 years.

 

Say your home is worth R20m when you die, the estate duty your estate must pay will far outweigh any CGT benefit.

 

SARS levies Estate duty in terms of the Estate Duty Act 1955 on the dutiable amount of a deceased person's estate. Estate duty taxes the transfer of wealth or assets from the deceased's estate to the beneficiaries. From March 1, 2018, estate duty is 20% on the dutiable amount of an estate that does not exceed R30m and at 25% on the dutiable amount of the estate value exceeding R30m.

 

So, in this example, the Estate Duty would be R20m – R3.5m x 20% = R3.3m.

 

Your estate would also be liable for executors' remuneration of 3.5% plus VAT of the value of the estate – R700,000 plus VAT.

 

If a company or trust owns your primary residence, any growth in the property's value will have no impact on your estate. It will also be protected from attack by your personal creditors.

 

If you own your primary residence your executor may have to sell it to generate enough cash to pay the Estate Duty.

 

If a company or trust owns the property, it does not form part of your estate if you are declared insolvent.

 

Buying property in a company makes sense if a trust owns the shares in the company.

The Children’s Act discriminates against unmarried parents

 

Section 40 of the Children's Act, 38 of 2005 (the Act) does not afford parental and other rights to both unmarried parties in permanent life-long partnerships.   

According to the Act, when a married couple has a child through artificial insemination, both partners are automatically recognised as the legal parents of their child. This applies even in cases when only one spouse donated a gamete to conceive the child, such as their sperm or an ovum.

When an unmarried couple, or a couple in a permanent life partnership, have a child through artificial insemination, only the person who donated the sperm or ovum will be recognised as the legal parent. Their partner will only be recognised if they submit a formal application to a high court.

The section does not provide for 1. the reality of unmarried couples who want to undergo artificial fertilisation; 2. the terminology as to when it would apply to unmarried couples; 3. a formulation to avoid denial of acquisition of parental responsibilities and rights; 4. what would be required for a valid process of artificial fertilisation to be embarked upon by an unmarried couple, particularly when both parties agree that they have established a permanent life partnership.

An unmarried lesbian couple instituted proceedings in the High Court, against the Minister of Social Development, to declare these provisions of the Act unconstitutional. The Minister did not oppose the case.

They cited examples such as any children they have would not have a right to inherit from their estate if they died without a will. This also violated the rights of children and their parents to a family life because one parent would not have a legal right to participate in important decisions affecting their children, such as their removal from the country by the other partner and a right of access to the children should the couple decide to separate, or the other partner dies.

In a ruling on 24 February 2022, Acting Judge Carla van Veenendaal, declared Section 40 unconstitutional and must be referred to the parliament for reconsideration. As a temporary solution to the plight of the applicants, the court inserted words into section 40 of the Act to remain in effect until the Act is amended. The court held that:

• there was no legitimate reason to treat unmarried couples in a committed permanent life partnership differently from married couples. 
• both partners in a permanent relationship that conceives a child through artificial insemination should have parental rights.
• both people in the partnership should be recognised as the legal parents of the child.
• Section 40 of the Act unfairly discriminated against children born out of wedlock and violated the rights of unmarried couples and their children.
• Section 40 must now include the words “or permanent life partner” whenever it refers to a “spouse”.

This would ensure that the unmarried parents who have children through artificial insemination both be recognised as the legal parents in the same way as married couples.

When can you ask the court to make a settlement agreement an order of court?

In Avnet South Africa (Pty) Limited v Lesira Manufacturing (Pty) Limited and Another the Supreme Court of Appeal had to decide if a settlement agreement may be made an order of court when the agreement was reached without litigation having commenced between the parties.

Settlement agreements usually contain a standard clause providing that either party to the agreement may approach the court for an order incorporating the terms of the settlement agreement.

The court found that it does not have the power to make a settlement agreement an order of court where litigation has not commenced by the time that the settlement agreement is concluded.

The court relied on a dictum in Eke v Parsons  that “parties contracting outside the context of litigation may not approach a court and ask that their agreement be made an order of court”.

The salient points of the judgment are as follows:

• “The primary function of the courts is to determine disputes between parties. The basis upon which a court makes a settlement agreement an order of court is therefore that there is a dispute between the parties which is already before the court. Absent the settlement agreement, the court would have to adjudicate that dispute”.
• “When the parties resolve the dispute that is before the court, the court may then (after satisfying itself that the settlement agreement is a permissible one) make the settlement agreement an order of court”.

Accordingly, the courts will not make agreements orders of court merely by consent.

 

The new Property Practitioners Act

 

The Property Practitioners Act came into effect on 1 February 2022. The Act provides, amongst other things, for the regulation of property practitioners, transformation of the property sector and continuation of the Estate Agents Fidelity Fund as the Property Practitioners Fidelity Fund. It aims to protect consumers in the property industry and to strengthen the regulatory aspect of the human settlements sector.

It entails these elements:

• Capacitation and enterprise support for historically disadvantaged property practitioners.
• Support of existing SMME’s owned by historically disadvantaged property practitioners.
• Promotion of the standard of training and development of historically disadvantaged property practitioners.
• Supporting existing historically disadvantaged property practitioners to become principal property practitioners and owners of business property practitioners.
• Facilitation of ownership of and participation in property investment enterprises.
• Enabling the transformation of property ownership in South Africa by providing grant support (through the Transformation Fund) to historically disadvantaged property practitioners who are in the business of developing residential properties in the affordable and secondary housing markets. 

The Act Is far stricter and more far-reaching than its predecessor, the Estate Agency Affairs Act 112 of 1976. The definition of "property practitioners" includes persons previously known as estate agents, a person who directly or indirectly sells or leases properties including sales and rental agents, auctioneers, business brokers that deal with the sale and letting of immovable property, managing agents who receive remuneration for managing property on behalf of another, and trusts that do the work of a property practitioner).

Their obligations, among other things, are as follows:

• Property Practitioners must display their Fidelity Fund Certificate (FFC) unless their turnover is below R2,5 million.
• No property practitioner may operate a trust account unless the account fully complies with the Act.
• They must provide a warranty concerning the validity of the property practitioner’s FFC in any agreement relating to property transactions.
• Property practitioners would forfeit remuneration if they received compensation without having a valid FFC.
• They must ensure that all the parties to a sale or lease transaction sign a disclosure form attached to the relevant agreement, dealing with any defects or deficiencies in the property.
• They may not oblige or encourage a consumer to use a particular service provider, including an attorney or conveyancer, to render any service or ancillary services regarding any transaction of which that property practitioner was the effective cause.
• They must maintain mandatory indemnity insurance.
• They must comply with a prescribed code of conduct and the Property Sector Transformation Charter Code.
• They must include certain prescribed minimum information on all written communication and marketing material and certain additional information in respect of the franchisee.
• No property practitioner may use any marketing technique or method "harmful or misleading". Practitioners may not use any underhanded way to persuade a property owner to give them the mandate to sell or lease out their property.
• No property practitioner can show a client any property they have already seen with another real estate agent. This is to avoid competing commission claims.
• No mandate or contract may include any clause stating that the seller or lessor must directly pay a property practitioner any remuneration or commission related to the sale or rental of any property. Similarly, there may be no clause in any contract of sale or lease that entitles a property practitioner to deduct any amount from monies entrusted to them during the selling or leasing of a property.
• The seller, the purchaser and the property practitioner must all sign every contract of sale of immovable property.

 

 

 

When can a landlord evict a tenant?

 

Under the lockdown provisions (contemplated by the Disaster Management Act) “A person may not be evicted from his or her land or home or have his or her place of residence demolished for the duration of the national state of disaster unless a competent court has granted an order authorising the eviction or demolition.”

Landlords may apply for an eviction order, considering:

• The need for everyone to have a place of residence and services to protect their health and the health of others and to avoid unnecessary movement and gathering with other persons.
• The impact of the disaster on the parties.
• Whether affected persons will have immediate access to an alternative place of residence and basic services.
• Whether adequate measures are in place to protect the health of any person in the process of a relocation.
• The occupier’s behaviour, e.g., if they are causing harm to others.
• The steps the landlord has taken to make alternative arrangements of payment of rent to preclude the need for relocation.
• Other considerations as described in the gazette. 

In Grobler v Phillips and Others (446/20) [2021] ZASCA 100 (14 July 2021) the Supreme Court of Appeal (SCA) set aside an order evicting an 84-year-old widow and her disabled son on the basis that such eviction was not just and equitable.

In good faith, Grobler purchased a property at a public auction. He knew that the widow and her son had lived on the property since 1947 and that the previous owners had granted her a lifelong right of occupation of this property. 

Grobler gave them notice to vacate the property. When she failed to do so, he launched an application in the Magistrates’ Court for their eviction in terms of the Prevention of Illegal Eviction and Unlawful Occupation of Land Act 19 of 1998. The court had to balance the rights of an 84-year-old widow and her disabled son against the rights of the owner to an eviction order. The magistrate granted an order for eviction. 

The widow successfully appealed to the High Court, that set aside the eviction order, inter alia, considering the age of the first respondent and the fact that she was living with her disabled son, an eviction order was not just and equitable. 

Grobler appealed to the SCA and lost. Amongst other reasons, the Court found that the Constitution provides protection against arbitrary evictions and for evictions to only be granted when it was just and equitable to do so. Therefore, considering all the facts before it, the court was of the opinion that it was not just and equitable to grant an eviction and made the order to dismiss the appeal against the High Court decision. 

Conclusion

In conclusion, although legislation provides for clearly set out requirements for the eviction of an unlawful occupant, it has to be just and equitable to do so.