The decision of the Supreme Court of Appeal in Banda v Van der Spuy [2013] ZASCA 23, handed down on 22 March 2013, does not make new law, but it will be a wake-up call to all sellers of property, particularly in the residential property market.
A seller's liability for latent defects and the effect of a voetstoots clause
It is trite that the seller of property incurs a legal liability toward the purchaser if the res vendita (the property being sold) had a latent defect at the time of sale, that is to say a non-obvious defect that rendered the property unfit or partially unfit for its intended purpose.
The purchaser's remedy in these circumstances is the actio quanti minoris for a reduction in the purchase price. The judgment in this case noted (at para [25]) that the cost of repairs may be used to quantify that amount where the actual value of the property cannot be determined, or is difficult to determine.
It is also trite that a seller can contract out of liability for latent defects by ensuring that the contract of sale contains a provision stipulating that the sale is voetstoots, but it has never been doubted that the seller forfeits the protection of a voetstoots clause if he was aware of the latent defect at the time of the sale but failed to disclose it to the purchaser prior to the conclusion of the agreement, and instead "designedly, craftily or fraudulently" concealed the existence of the defect.
Background facts
This particular case involved the sale of a house, the roof of which leaked prior to the sale and continued to leak after the sale.
It was not in dispute that, prior to the sale, the seller had effected repairs to the leaking roof, but in issue before the court was whether he knew, at the time of the sale, that the repairs had not fixed the cause of the leaks. The trial court (the Johannesburg High Court) had earlier held that, on a balance of probability, the purchaser had failed to prove that the seller had possessed such knowledge at the time of the sale, and dismissed the purchaser's claim.
At the trial, the seller had called an expert witness whose testimony established that the cause of the leaks in the roof was two-fold. Firstly, certain wooden roof poles were inadequate to support the weight of the thatch roof as a result of which the roof was gradually collapsing and, due to the movement of the roof, an opening had appeared between the flashing and the thatch through which rain water gained ingress and ran down the internal walls of the roof.
Secondly, the pitch of the roof was inadequate (that is to say, the roof was not steeply enough inclined) with the result that rain water was not running off the roof, but was being absorbed into the thatch, causing it to rot, which resulted in leaks.
The expert witness testified that the only way to fix the cause of the leaks was to demolish and reconstruct the roof with a proper design and the correct pitch.
The court concluded that these deficiencies in the roof constituted latent defects which rendered the house "unfit for habitation".
Was the seller aware that the cause of the leaking roof had not been remedied?
The question before the court was whether, at the time of the sale, the seller knew of these latent defects in the roof and whether he also knew that the repairs that had been done were inadequate to address the cause of the leaks. He of course denied such knowledge, but the court quoted decisions of the Appellate Division to the effect that – ‘...absence of reasonable grounds for belief in the truth of what is stated may provide cogent evidence that there was in fact no such belief’
and that – ‘The fact that a belief is held to be not well-founded may, of course, point to the absence of an honest belief, but this fact must be weighed with all the relevant evidence in order to determine the existence or absence of an honest belief.’ The seller had fraudulently promised to transfer to the purchaser a guarantee on the roof
A further factor in the case was that the contract of sale stated that the seller would transfer to the purchaser the guarantee on the thatch roof, given by the contractor who had effected repairs to the roof. In fact, at the time of the sale, the guarantee period had expired and no guarantee existed. The seller conceded that he knew this at the time of the sale.
The Supreme Court of Appeal affirmed the trial court's conclusion on this point that – ‘To have undertaken in these circumstances to provide a guarantee was thoroughly misleading and ... fraudulent’ Adverse credibility findings regarding the plaintiff's testimony
The trial court had concluded, having heard the testimony of witnesses, that the seller had been untruthful regarding the guarantee, and had in effect undertaken to deliver a guarantee to the purchaser, knowing that it had already lapsed because he did not want to sabotage the sale and he hoped that the purchasers would not have to invoke the guarantee.
On appeal, the Supreme Court of Appeal picked up on a point that the trial court had not sufficiently emphasised, namely why the seller had been reluctant to reveal that the guarantee had lapsed if he believed that the roof repairs were adequate.
The Supreme Court of Appeal held that, on the evidence, the seller did not have reasonable grounds to believe that the earlier repairs to the roof were adequate. The insurance assessor had told the seller, prior to the sale, that the repairs that had been done would merely delay further movement of the roof, and he had not said (as the seller claimed) that the leaks had been permanently cured.
The Supreme Court of Appeal asked, rhetorically, why, on his version of events, the seller had not revealed to the purchaser that the guarantee had lapsed and invited the purchaser to ask the assessor for confirmation that the cause of the leaks in the roof had been remedied.
A genuine belief is negated where there was fraudulent diligence in ignorance
The Supreme Court of Appeal quoted a judgment of the Appellate Division which held that a belief is not honest where that belief – ‘though in fact entertained by the representor may have been itself the outcome of a fraudulent diligence in ignorance – that is, of a wilful abstention from all sources of information which might lead to suspicion, and a sedulous avoidance of all possible avenues to the truth, for the express purpose of not having any doubt thrown on what he desires, and is determined to, and afterwards does (in a sense) believe.' The court pointed out (at paras [20] – [22])that the seller had testified that the insurance assessor had told him that the roof repairs had not been executed as he would have liked, but the seller had then avoided asking the insurance assessor what he meant by this or what his reservations were. The court said that the seller's conduct in failing to press this source of information amounted to a "wilful abstention" and that he had embarked on – "an avoidance of all possible avenues to the truth, for the express purpose of not having any doubt thrown upon what he desired and was determined to believe." The court concluded (at para [22]) that the seller had not had an honest belief in the adequacy of the repairs that had been done to the roof or that the leaks had been permanently fixed. The court concluded that the seller was, at the least, conscious of the inadequate nature of the repairs to the defects in the roof and that he was therefore obliged to disclose this knowledge to the purchaser.
The court accepted, however, that the seller had not been aware that an additional cause of the leaks was the inadequate pitch of the roof.
The conclusions drawn by the court
The court concluded (at para [24]) that the sellers had been aware of, and had concealed, one of the causes of the leaks in the roof, namely an inadequate roof design that had resulted in a sagging of the roof that had not been permanently repaired. The seller's fraudulent conduct in concealing the existence of the defective and leaking roof resulted in a forfeiture of the protection of the voetstoots clause in the contract.
Consequently, said the court, the purchaser was entitled to be paid the difference between the purchase price of the house and its value, once the defective roof was taken into consideration.
The court also (at paras [28] – [30]) upheld the purchaser's claim for fraudulent, alternatively negligent misrepresentation, based on the seller's statements, prior to the sale, that the thatched roof was sound, that the leaks had been rectified, and held that the sellers were also aware that the contractor's guarantee on the roof had expired.
In the result, the purchaser was held to be entitled to delictual damages in the amount by which his patrimony had been diminished, namely the R450 000 that it would cost to repair the roof, and the court gave judgment in favour of the purchaser for this amount, plus interest and costs.
WHAT DOES VOETSTOOTS MEAN? Undisclosed defects
Every sale agreement of a normal residential property (house and its usual outbuildings) will contain a voetstoots clause.
The word voetstoots is the action of buying something ‘as is’, that is ‘just as it stands’ in whatever condition it is, warts and all.
An example of the wording of a voetstoots clause is as follows:
The Property is sold voetstoots in the condition in which it stands and the Seller gives no warranty with regard thereto, whether express or implied.
The voetstoots clause is essential to the purchase of all second hand residential property which may well have deteriorated through normal wear and tear or which may be defective to some extent as a result of its constant use or through natural decay over a period of time. Its basic purpose is to shield the Seller from any action by the Buyer (on discovering any defects he was not aware of when purchasing the property) from doing anything to jeopardize the actual sale contract. It is important to know what the effect of such a clause is and to what extent it protects the Seller.
Voetstoots is not designed to shield Sellers who engage in fraud or bad faith dealing by making false or misleading representations about the quality or condition of a particular property. It merely summarizes the concept that a purchaser must examine, judge, and inspect a property considered to purchase. Whilst this clause will protect a Seller, the protection is limited.
THE SELLER’S RESPONSIBILITIES: THE DUTY TO DISCLOSE
The Seller has the “duty to disclose” any defects which are latent, in other words any defects which are not obvious. If the Seller hides defects in the property on purpose, the Seller will not be protected. Therefore the voetstoots clause will not protect a Seller who knows of a defect in the property but does not tell the Purchaser about the defect. Sellers should also be aware that the law goes even further than a simple failure to tell the Purchaser about a defect in that the voetsoots clause it will also not protect a Seller who tells a half truth. SELLERS REMEMBER: Disclose any defects to avoid problems after the sale
THE PURCHASER’S RESPONSIBILITIES: THE DUTY TO INSPECT
The Purchaser also has certain responsibilities when buying property. This responsibility is the “duty to inspect”. The Purchaser must inspect the property and must be aware of the condition of the property that he is about to buy. If the Purchaser sees defects that are not acceptable, the Purchaser must write into the offer to purchase that the problem is to be fixed by the Seller prior to registration of transfer. If the Seller accepts the offer to purchase with this condition, that Seller has then agreed to fix the problem.
BUYERS REMEMBER: Make a thorough inspection and acquaint yourself with the general condition of the property.
PATENT AND LATENT DEFECTS
A voetstoots clause at face value discharges a Seller from liability for all patent and latent defects. Before looking at how far this protection goes, it is important to explain the distinction between these two different types of defects. Patent Defects are flaws that will be clearly visible on a normal inspection of a property. They include wall cracks, sagging gutters, broken windows, missing tiles and the like. It is a Buyer’s duty to acquaint himself with the general condition of a property on purchasing it and he cannot later claim he did not see such defects. The test is an objective one, namely what could have been seen on the original inspection of the property. Latent Defects are faults that are not immediately obvious and are hidden from view. These include faulty pool pumps and geysers, rusted internal pipes, leaking roofs (except where stain marks make the leak obvious) and defects that have been concealed such as dampness behind a cabinet. The test is what could not normally be seen on inspection
UNDISCLOSED LATENT DEFECTS
While the voetstoots clause liberates a Seller from any liability for patent defects, this exemption is however not so in the case of latent defects. THE SELLER’S RESPONSIBILITY In terms of numerous South African court cases a Seller is only excused from liability for latent defects where he himself was not aware of the problem at the time of the sale. If a Seller knowingly conceals a latent defect he will be liable to the Buyer for the cost of its repair. In such a case he cannot rely on any clause in the original contract making no warranties as to the condition of the property. A Seller will thus be liable for all cracks or dampness and other similar faults deliberately hidden from view. He is also responsible for latent defects which he is presumed to have been aware of, such as any appliance, which is not functioning properly. Examples are geysers delivering only lukewarm water, defective electrical points, and the like.
THE BUYER’S RECOURSE
It is very important for a Buyer to know what his rights are in such cases. By law he cannot do any of the following: • He cannot obtain a quotation and deduct the cost of repairs from the purchase price and tender a lesser amount (or reduce his deposit); • He cannot refuse to pay occupational rental or any portion thereof unless the defective article seriously restricts occupation of the property; • He cannot repudiate or cancel the sale contract. It is he, and not the Seller, who will be in breach of contract if he takes any of these actions. By law his proper recourse is to institute an action for damages and sue the Seller. This will obviously not appeal to the Buyer and the best way to resolve the problem is to ask the Conveyancer doing the transfer to settle the matter amicably with the Seller. Ideally he should arrange a refund of the costs of repair to the Buyer on registration of transfer. It is in the best interests of both parties to agree to this.
WARRANTIES AND MISREPRESENTATIONS THE ISSUE OF FRAUD
It would be opportune at this stage to introduce a very important issue, and that is that the “voetstoots” clause does not protect the Seller against fraud. For example, if the Seller knows about a particular problem, is aware of a latent defect, and fails to disclose details of that defect to the purchaser while knowing of its existence, this is pure misrepresentation; and misrepresentation is the essence of fraud. Such misrepresentation can occur in one of two ways 1. EXPRESS MISREPRESENTATION OR 2. NON-DISCLOSURE. Here are the two scenarios: • You, as the Purchaser, address a specific and direct question to the Seller on a particular issue – “is the swimming pool leaking, or are there any problems?” The Seller knows there is a problem, but answers “no.” This denial of the existence of a defect of which the Seller is aware when asked is an express misrepresentation on the part of the Seller. • You do not direct a specific question to the Seller about a potential problem, and the Seller knows there is a problem. The Seller has a duty to inform you, as the purchaser, about any latent defect of which he/she is aware, even if you have not raised the subject. If the Seller fails to do so, this is a case of non-disclosure. In both of the above cases the Seller has defaulted – by either denying the presence of a latent defect of which he/she is aware when asked, or by failing in his/her obligation to disclose such a defect, although not questioned specifically on that issue. In both cases there has been misrepresentation by the Seller to either the Purchaser or Agent by being aware of the defect and fraudulently not disclosing it or concealing the defect from the Purchaser or Agent. His/her expressed declaration of silence constitutes blatant dishonesty
OTHER ISSUES AFFECTING DEFECTS
There are two other important issues that also need to be covered as they often affect sales of immovable property.
DEFECTS CAUSED AFTER A SALE
Who is responsible for damage done to a property after a sale contract has been signed but before registration of transfer takes place? For example, a negligent motorist might smash the front wall of the property or a geyser might suddenly burst, flooding the house and damaging its fitted carpets. Responsibility will lie as follows: • On the Seller if the contract makes him liable for the risk in the property until registration of transfer (as is the case in most contracts); • On the Buyer if the risk falls on him from date of sale or occupation (as in terms-sale contracts where transfer is delayed for more than a year); • On the Buyer if he causes the damage while in occupation. He will be liable even if he only uncovers a latent defect, such as causing a rusted pipe under a sink to break when trying to fit his washing-machine connection to it.
LATE DISCOVERY OF DEFECTS
Buyers who only complain of defects some months after registration of transfer has taken place occasionally exasperate Sellers and Estate Agents. There are two issues here. Firstly the discovery of defects that only appear later. For example, a Buyer may only experience a major roof leak when the first summer rains appear long after registration. If it can be shown that the Seller knew or must have known about the leak and consciously failed to disclose it, the Buyer can sue him for his repair costs.
The second issue concerns a delayed discovery of defects by the Buyer. For example he may only first complain about a wall crack six months after taking occupation. It will be very hard to prove that the Seller knew about a defect which the Buyer himself took so long to discover or that the defect existed at the time of the sale. In such cases the Buyer will have no recourse against the Seller.