The Supreme Court of Appeal (‘the SCA’) was recently tasked with determining whether a group of purchasers of life rights in a retirement scheme could claim repayment of the purchase price from the developer’s conveyancers, who disbursed the funds to the developer before the latter was declared insolvent.
In Herold Gie and Broadhead Inc v Harris NO and Others, which consisted of six consolidated actions, six retirees purchased life rights in the St Leger Retirement Hotel in Muizenberg, Cape Town in 2009. In accordance with section 1 of the Housing Development Schemes for Retired Persons Act (‘the HDSRPA’), the facility was established as a ‘development scheme’.
In mid-2009, the purchasers authorised the developer’s conveyancers (‘the Appellant’), to pay the developer the monies entrusted to it in respect of the purchase of the life rights. Upon instruction, the Appellant immediately released the monies to the developer, and the Respondents took occupation of their respective units between mid-2009 and November 2011.
In 2014, the Respondents sought to cancel their life rights and each demanded repayment of the purchase price following the developer’s alleged failure to furnish them with occupancy certificates and compliance certificates pursuant to section 6(1)(a) of the HDSRPA and section 14(1)(a) of the National Building Regulations and Building Standards Act. Further, the Respondents contended that, prior to concluding the sale, the developer neglected to inform them that the use and occupation of the development was not ‘legally possible’.
In March 2016, the developer was declared insolvent. The Respondents subsequently lodged their claims for repayment of the purchase price with the trustees of the insolvent developer’s estate and received concurrent dividends.
In October 2017, the Respondents instituted proceedings against the Appellant for the recovery of the purchase prices, which were paid into the firm’s trust account. The purchasers relied on section 6(4) of the HDSRPA, which entitles a purchaser in a retirement scheme to a refund of the purchase price held in an attorney’s trust account in instances where the developer is declared insolvent. They further argued that they weren’t bound by their written authorisations, which the Appellant relied on to release the funds.
In addition to filing a special plea contending that the Respondents’ claims had prescribed, the Appellant contested the application of section 6(4) of the HDSRPA to the facts of the case. Specifically, the Appellant averred that at the time the developer was declared insolvent, all the funds entrusted to it were already disbursed. Consequently, no monies were held in trust at that stage.
In a careful analysis of section 6(4) of the Act, the SCA recognised that the provision operates as a ‘protective measure’ designed to safeguard elderly purchasers’ interests when a developer becomes insolvent prior to confirmation of the suitability of a unit in a retirement scheme. Triggered by a developer’s insolvency, section 6(4) requires the conveyancer (or property practitioner) to immediately release the purchase price held in trust to the elderly purchaser to protect them from having to compete against other creditors.
Importantly, however, the SCA emphasised that not all claims for refunds of monies entrusted to legal practitioners under the HDSRPA fall within the ambit of section 6(4). Instead, the application of the provision is limited to circumstances where a developer becomes insolvent while the purchase price or a portion thereof is still held in trust – for the developer’s benefit – by the legal practitioner.
On the facts of the case, the SCA thus held that there is no legal basis for a purchaser of a housing interest in a retirement development to claim a refund of the purchase price entrusted to a conveyancer in instances where the funds were released prior to the developer’s insolvency.
To gain a full understanding of the parameters of a life right, and the security it offers, it is prudent to consult with an experienced conveyancer specialising in retirement schemes.
Contact us at info@stbb.co.za to speak to a property law specialist today.
Read the full judgment.
