Our courts have determined that an occupant who has made improvements — whether useful, necessary, or luxurious — could in certain circumstances have a claim to retain possession until those improvements are properly acknowledged or compensated. This right of retention resembles the rights of a bona fide possessor, who can retain possession of property they possess in good faith until proper compensation for their contributions is realized.
Understanding the rights of occupants who build on land owned by another person
In a notable judgment from the Supreme Court of Appeal (SCA)1960 (3) SA 642 (A), significant legal principles regarding the rights of occupants, particularly their right of retention for improvements made to the property of another, were addressed. This case brings critical insights for those involved in property transactions, especially in understanding the implications of improvements on fixed property and the associated financial responsibilities concerning transfer duty.
The court set out that this right exists to safeguard the interests of those who have genuinely enhanced the utility and quality of a property in good faith. Such a position is aligned with broader principles of equity, allowing a bona fide possessor — someone who occupies property in good faith — to benefit from their investment and protect themselves from unjust enrichment of the property owner.
The property developer, the builder buyer and SARS
In this SCA judgment between SARS [the Commissioner of Inland Revenue / Kommissaris van Binnelandse Inkomste as it was then known] and a property developer, namely Anglo American Housing Co Ltd (“OFS”), Judge Ramsbottom held that the rights of a bona fide possessor, who has effected useful improvements, to retain possession of the property or to remove the materials, are real rights created by operation of law which, while they exist, prevail against all the world. They constitute a diminution from the dominium (ownership and control of property) in the same way as does a servitude which is limited in point of time.
The Facts of the Case
OFS owned land for which the extension of the village Allanridge was laid out. In 1950 and 1951, as the result of an oral agreement OFS put Anglo American, the respondent, in possession of 329 erven of the proposed extension, granting it also the right to erect buildings thereon and with the undertaking that whenever the plans for the village was approved by the village council it would sell the erven to it at a price which would not include the price of the buildings erected by the respondent.
Before the promised sale was concluded, the respondent had erected buildings to the value of approximately £900,000 on the erven and had right throughout remained in possession of the buildings.
In May and July, 1952, five separate agreements of sale in respect of the erven were entered into, in which the total purchase price amounted to £129,555. In all the agreements the purchase price was stipulated exclusive of the value of the buildings. The transfer costs in respect of the contractual liability of £129,555 was paid.
The SARS Commissioner as appellant was however dissatisfied and claimed that the respondent should pay transfer duty on the fair value of the erven including the buildings as and from the date of acquisition.
The additional amount was consequently paid under protest, and the respondent applied for a declaratory order to the effect that the appellant in fixing a fair value was bound to take into consideration that prior to the sale the respondent as a bona fide possessor had effected useful improvements on the erven which had increased their values and accordingly the amount of the transfer duty had to be determined.
The SCA’s decision
The court granted the order in favour of the respondent and the Commissioner appellant appealed.
Judge Steyn held that the respondent enjoyed a right of retention in respect of the improvements and further, that the right of retention had diminished the dominium of the owner and thus the owner could sell no more than such diminished dominium. It was held, further, that what the Commissioner as appellant had to take into consideration in making such calculation was the fair market value of the erven and the buildings subject to the right of retention by the respondent and the consequent diminution in the dominium which accompanied it; In such calculation the respondent could not imagine a purchaser who would obtain full rights of ownership in the buildings.
Given the right to posses and build
Judge Ramsbottom found that as between the seller and the respondent, the respondent was given the right to possess the ground, to build thereon and to occupy the houses and to remain thereon unless it was paid the amount spent on erecting the houses.
As such, it was held that the respondent had the right to buy the ground subject to the rights which it already possessed for the price of the ground unimproved.
The court considered that an imaginary buyer would buy exactly what had been sold to the respondent, viz., the dominium in the ground subject to all the rights that the respondent had against the seller. In determining the fair value of the property allowance would have to be made for the respondent’s rights and if the respondent’s rights were threatened it would be entitled to claim the rights of a bona fide possessor.
An owner of land who sold ground in the possession of a bona fide possessor sold it burdened with the rights of such possessor and the fair market price which an imaginary buyer would pay would be affected by the existence of the rights of such bona fide possessor.
The right of retention for improvements
This case illustrates the recognition in our law of a right of retention, which offers a protective mechanism for occupants who have made valuable improvements to the property they occupy, even if they are not the owners. In instances where an occupant enhances a property — be it through renovations or other significant upgrades, they may assert a right of retention against the owner. This means they can refuse to vacate the property until they receive compensation for the value added through these improvements.
While the SCA judgment with SARS and a builder buyer as the parties in litigation (and the buyer’s right of retention as against the land owner was not in dispute as against the land owner, but rather relevant for purposes of determining the fair value of the property sold for purposes of calculating transfer duty due on the acquisition of the property sold) dispute often arises in practice between the land owner and the occupant.
Hold onto property until compensated
A key principle of our South African common law is the recognition of the occupant’s right of retention. The right of retention, in general terms, allows a person who has made improvements to a property to hold onto that property until they are compensated for the enhancements made, even if they do not own the property. This principle underscores the balance between the rights of property owners and the legitimate interests of those who occupy the property.
Both scenarios highlight the balance of rights and obligations in property relationships, underscoring the necessity for property developers, landlords and property owners to be aware of the potential consequences when entering contracts that may involve improvements made by another party.
Before you hand over the keys to your property, or start building, ensure you take legal advice and have an appropriate agreement drafted and put in place to protect your interests.
LLB
LLB
BA LLB
LLB
LLB LLM
B Com LLB
LLB
LLB
B Com LLB
B Com LLB
