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PROPERTY BUYERS: A R25m CAUTIONARY TALE

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Property can be a great investment. Just be sure to do your homework, and seek professional advice, before you buy.

The R25 million damages claim

Take for example a recent High Court case in which the auction buyer of a prime Camps Bay property claimed damages of R25m both from the seller and from the auctioneer. Its R25m loss was, said the buyer (a company), caused by misrepresentations and non-disclosure which induced it to buy the property for a price of R44 million (R40m plus R4m auctioneer’s commission) – R25m more than the R19m it would otherwise have paid.

The nub of the buyer’s case was its allegation that the auctioneer and seller had misrepresented to its director, both verbally and in the auction brochure, that there were “approved building plans” in place suitable for the fulfilment of the director’s dream to develop a restaurant and boutique hotel on the property.

Only 6 months after the sale, said the director, did she learn for the first time that no building plans had in fact been passed. Her subsequent attempts to have plans approved failed, and two years later there were still unresolved issues around zoning scheme height restrictions, heritage demolition permits and environmental authorisations - her dream was shattered, and her company was down R25m.


The auctioneer’s “patter” – do your own homework!

It wasn’t disputed that the auctioneer had in his pre-auction “patter” said that “development plans” had been approved and that a buyer could “go right ahead”, and could “start developing here as soon as possible”.

Clear as that sort of statement may seem, the Court’s decision – which was to find against the buyer and dismiss its claim - is a stark reminder to do your own homework when it comes to the technicalities of buying property. The Court found that -

• No express representations as to the passing of building plans had been made, nor was it a misrepresentation to suggest that “development approvals” had been given - no doubt a very fine distinction to the average buyer, but critical in this case.

• SDP or “site development plan” drawings had in fact been approved, but they were not “building plans”, they merely showed the extent to which the City Council had removed and amended title deed restrictions and granted departures so that a building of the kind described in the brochure could be built – another fine technical distinction no doubt to any lay buyer, but again critical in this case.

• The agent appointed by the buyer to bid for it at the auction was aware that no building plans had actually been passed (although everyone it seems expected plan approval to be “a mere formality”).

• The buyer had on the facts failed to prove its damages.

• The final nail in the buyer’s coffin was the Court’s finding that the auctioneer and the seller were, in the absence of any proof of fraud on their part, protected by (respectively) a disclaimer in the auction brochure and an exemption clause in the conditions of sale.
The bottom line: Buyer Beware!

The director’s main mistake seems to have been that she had, in the Court’s words, “paid very little attention to matters of detail”. Don’t make the same mistake. Before you buy, have your lawyer vet the sale agreement (“conditions of sale” if it is an auction) and check for title deed and zoning restrictions, planning requirements, indeed for anything that might negatively impact on the property’s value to you.

29 Jan 2014 / Ian Wyles

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