RELATIVE RISKS: THE DANGER IN CONCLUDING PROPERTY TRANSACTIONS WITH FAMILY MEMBERS

It may seem like a good idea to sell your house to a family member but what happens when the relationship sours and the terms of the agreement become the sands of the arena in which a “he said/she said” conflict then has to be waged?  

A recent Supreme Court of Appeal (SCA) judgment saw an elderly couple, who sold their property to their son-in-law, evicted after a years-long dispute about the terms of an oral loan agreement.  

Read the judgment here: 

https://www.saflii.org/za/cases/ZASCA/2024/117.html 

De Kock v Du Plessis and Others (2024) ZASCA 117 

Mr and Mrs du Plessis, a retired couple, were the owners of the immovable property in which they resided. They agreed to sell the property to their son-in-law, Mr de Kock, with whom they had a loving relationship.  

The property was sold in 2016 for a purchase price of R4 500 000. Mr de Kock secured a loan of R3 375 000 and paid an amount of R3 500 000 to Mrs du Plessis. The transfer was registered, and Mr de Kock became the lawful and registered owner of the property. 

Mrs du Plessis used a portion of the proceeds from the sale to settle an existing mortgage bond over the property and she paid the remaining amount of R2 500 000 to Mr de Kock as a loan. Importantly, this loan agreement was not reduced to writing and the terms thereof became a bone of contention between the parties. 

It was common cause between the parties that Mr de Kock would repay the loan by paying 48 monthly instalments of R52 085 to Mrs du Plessis. Mr de Kock also agreed to pay 48 monthly instalments of R25 000 which he understood to be at a fixed interest of 10% per month on the loan capital, but which Mr and Mrs du Plessis understood to be a contribution to their living expenses since Mr de Kock enjoyed the benefit of the proceeds of their property. On Mrs du Plessis’ version, Mr de Kock was to pay the remaining            R1 000 000 to her after settling the loan.  

It was further agreed that Mr and Mrs du Plessis would remain in occupation of the property, rent-free, until such time as the loan amount had been repaid.  

Unfortunately, the relationship between the parties deteriorated due to the passing of the du Plessis’ daughter in 2018. Mr de Kock consulted with an attorney, who advised him that the loan agreement concluded between him, and Mrs du Plessis was a credit transaction subject to the National Credit Act 34 of 2005 (NCA) and since Mrs du Plessis was not registered as a credit provider, the agreement was unlawful.  

Mr de Kock immediately ceased repaying the loan and informed Mr and Mrs du Plessis that they would be required to vacate the property as he intended to sell it. When Mr and Mrs du Plessis refused to move, Mr de Kock launched an eviction application in terms of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (“PIE Act”). 

High Court judgment  

In the high court, Mr de Kock alleged that the parties had concluded two separate oral agreements – the loan agreement and the occupation agreement, which was not a lease agreement and could therefore be terminated with reasonable notice.  

Mr and Mrs du Plessis argued, contrarily, that the parties had entered into one single oral agreement with two parts: firstly, that Mr de Kock would repay the loan amount and the balance of the purchase price and, secondly, until which time Mr and Mrs du Plessis would remain in occupation of the property rent-free. Mrs du Plessis argued that the full payment of the loan and the restoration of the property were reciprocal, and so Mr and Mrs du Plessis remained entitled to occupy the property for so long as Mr de Kock was repaying the loan.  

Eviction of his erstwhile parents in law  

Further, Mrs du Plessis regarded Mr de Kock’s attempt to evict her and her husband as repudiation of the loan agreement (as Mr de Kock’s cessation of monthly payments indicated that he no longer wished to fulfil his obligations in terms of the agreement). Contract law dictates that where the defaulting party repudiates a contract, the ‘innocent’ party may elect to accept the repudiation, cancel the agreement and claim damages, or reject the repudiation and enforce the terms of the agreement. Mrs du Plessis elected to do the latter.  

At the hearing of the eviction application, counsel for Mr de Kock attempted to bring an affidavit to the court’s attention which, according to his counsel, had erroneously been omitted from the record. The affidavit set out that Mrs du Plessis had instituted a separate action in which she alleged that she had cancelled the oral agreement. The high court refused to allow the affidavit to be introduced into the record as Mr and Mrs du Plessis were not given an opportunity to deal with it and it would add a ‘new cause of action’ with no amendment procedure followed, which cause of action was unsustainable on the facts and the law.  

Dismissed eviction application  

The high court dismissed the eviction application, finding that the sale agreement, loan agreement and occupation agreement were inseverable and fraudulent as the purchase price was inflated by R1 000 000 and the loan agreement was in breach of section 89(2) read with section 90 of the NCA, as it was not an arm’s length transaction.  

The court’s reasoning is debatable, seeing as the NCA only applies to transactions concluded at arm’s length (i.e. between persons who have no personal or familial connection). Since the parties had a familial relationship, and did not necessarily strive to obtain the utmost possible advantage out of the transaction, it can be argued that the agreement was not concluded at arm’s length and was subsequently not subject to the NCA. As such, it could not be invalid for non-compliance with the NCA.  

High Court appeal   

Mr de Kock was granted leave to appeal to the full court of the high court, which dismissed the appeal. The full court also refused the application to introduce the affidavit, remarking that it is bound by the four corners of the record as a court of appeal, and that Mr de Kock’s request to introduce the affidavit is “tantamount to an application to receive further evidence without meeting the requirements for such an application”.  The full court accepted Mrs du Plessis’ version and further found that the loan agreement was valid and would endure. 

SCA decision 

On appeal to the SCA, Mabindla-Boqwana JA set out the three issues to be determined by the court: firstly, whether the court of first instance and the full court erred in failing to admit the affidavit; secondly, the impact the affidavit would have had on Mr and Mrs du Plessis’ defence in the eviction application, if admitted; and thirdly, if the right to occupy was indeed terminated, whether it would be just and equitable to evict Mr and Mrs du Plessis in terms of the PIE Act.  

• Should the affidavit have been admitted? 

The SCA considered whether the further affidavit should have been admitted by the high court sitting as a court of first instance or the full bench of the high court and held that the determining factor is whether the other party would suffer prejudice if the affidavit were to be admitted, and how that prejudice may be ameliorated.  

The SCA found that the high court should have considered the allegations in the affidavit and its relevance to the issues before it to determine the potential prejudice to Mr and Mrs du Plessis, and how that prejudice could be cured. It held that the affidavit merely sought to place facts before the court which could not have been included in the founding affidavit as they occurred after the filing thereof, which facts were central to the dispute before it. Further, it found that no prejudice would be suffered by Mr and Mrs du Plessis if the affidavit were to be admitted, since the affidavit merely brings existing facts to the court’s attention and does not introduce a new cause of action as held by the court of first instance. As such, the affidavit should have been admitted.  

• The impact of the affidavit on the eviction proceedings 

The affidavit sought to inform the court that Mrs du Plessis had elected to cancel the loan agreement. As discussed earlier, an innocent party may elect to cancel or abide by the agreement in the face of a breach thereof by the defaulting party. A party cannot elect to both cancel and abide by the agreement, and once the innocent party elects to cancel the agreement, it cannot unilaterally revive the agreement.  

From the facts, Mrs du Plessis had elected to abide by the agreement in the eviction application but had later elected to cancel the agreement in her high court action as was recorded in the affidavit. As such, her reciprocal right to receive payments in terms of the loan agreement and the right to occupy the property were extinguished. Mrs du Plessis could no longer rely on the loan agreement as a defence to the eviction application, as she had cancelled that agreement and now only had a claim for damages (and could no longer enforce her right to occupy the property).  

Had the court of first instance or the full court admitted the affidavit, the outcome would most likely have been different.  

• Is it just and equitable to order the eviction of Mr and Mrs du Plessis? 

In terms of section 4(7) of the PIE Act, a court may grant an eviction order if it is just and equitable to do so, and a court is bound to consider all relevant circumstances, including whether land has been made available for the relocation of the unlawful occupier and the rights of the elderly (amongst others).  

Mr and Mr du Plessis argued that it would not be just and equitable to order their eviction as they were retired and financially distressed after Mr de Kock ceased the monthly repayments, and due to their ailing health.  

Mr de Kock made various offers to settle the matter, including an offer to finance alternative accommodation for the couple at a retirement home which provides frail-care facilities or medical services. In a previous newsletter issue 29/2023 titled “Should I stay or should I go? – understanding evictions in South Africa“, we discussed the constitutional court judgment of Grobler v Phillips and Others, in which the apex court held that in the context of eviction applications and to determine what is just and equitable in the circumstances, both parties have to make compromises. The SCA relied on this judgment and balanced Mr de Kock’s right to sell his property with Mr and Mrs du Plessis’ constitutional right to access to adequate housing. The fact that Mr de Kock was willing to pay for alternative accommodation (despite having no legal duty to do so) ultimately tipped the scales in his favour, as was the case in Grobler v Phillips and Others.  

The SCA accordingly upheld the appeal and granted the eviction order, finding that it would be just and equitable to order the eviction of Mr and Mrs du Plessis as they would not be rendered homeless due to Mr de Kock’s willingness to secure and finance alternative accommodation.  

Conclusion 

Let this judgment serve as a cautionary tale to all those who might consider transacting with family members – you may face serious legal risks if you do not ensure that your agreements are compliant with the relevant legislation, and the protection you thought you were giving your loved one could be held by a court to fall short of the legal standard, and at great cost to you. The laws which govern sale of land agreements in South Africa, and our consumer protection laws, are incredibly stringent. As one of the most highly litigated statutes on our books, the NCA demands strict compliance and agreements which fail to align with its provisions are at risk of being declared invalid and unenforceable. It is thus always advisable to consult with an attorney when entering into such an agreement, particularly with a family member, to ensure that you do not find yourself faced with a similar judgment against you.