A reader who bought a piece of land from his municipality has written to say his circumstances have changed and he needs to know how stipulations in the contract could affect him.
He says he acquired the land for a specific purpose, but his current situation may prevent him from doing what he originally intended.
The sale was subject to certain stipulations in respect of building as well as resale, and he is concerned about some possibilities.
See the reader’s question here.
He fears he may be forced to continue with the development or return the land to the municipality, or he may be prevented from selling the land to raise money.
It is fairly standard that municipalities include provisions with the conditions the reader has described in their contracts.
The two provisions are generally that of a reversionary clause and a pre-emptive right clause.
A reversionary clause provides for the property in question to revert to the seller if the purchaser does not comply with a certain condition, usually within a specified period.
A pre-emptive right clause allows for the seller to have a right that trumps the sale of the land by the purchaser to a third party.
This means the purchaser must offer the land to the seller if he wants to sell the property.
As a result of a recent judgment – eThekwini Municipality v Mounthaven (2017) – the timing of the deal may be of particular importance.
In the judgment referred to above, the sale was subject to the reversionary clause as well as the pre-emptive right clause.
In that particular matter the municipality was obliged to exercise its rights within certain stipulated periods. It failed to do so and the matter went to dispute.
The purchaser of the property alleged that the municipality’s rights had lapsed due to prescription.
The municipality, meanwhile, held that the nature of its rights did not constitute debt or a claim that could prescribe.
The court held that the municipal right, in this case for the owner having to transfer the property back to the municipality in the event of it not being developed according to the provisions of the contract, did in fact constitute a debt and that it could prescribe after a three-year period.
This is in accordance with the provisions of the Prescription Act.
Interestingly the court held that the right to enforce the retransfer of the property constituted a personal right and not a real right.
The court compared the relationship in that case to that of the relationship between a creditor and a debtor, again with prescription, thus extinguishing the municipality’s contractual right to claim retransfer of the property.
The reader should take formal legal advice and provide his adviser with a copy of the contract to determine the full extent of his rights and obligations, particularly in light of the Mounthaven judgment.
He may well be obliged to continue with the originally intended and agreed development or offer the property back to the municipality for the same price he paid.
Ask the YourProperty experts a question here.