A recent judgment of the Pretoria High Court could have significant implications for South African property law after the court found that an omission in section 2(1) of the Alienation of Land Act (‘the Act’) is unconstitutional for failing to cater for certain vulnerable purchasers who acquire residential property through verbal agreements.
In Dlomo v de Klerk, Nyathi J held that section 2(1) of the Act is constitutionally deficient to the extent that it does not offer protection for vulnerable purchasers of residential property who have paid the full purchase price, or a substantial portion thereof, and subsequently face the risk of homelessness because their agreement was not reduced to writing.
While the ruling must still be confirmed by the Constitutional Court before it can take effect, it has attracted notable attention for its potential impact on property transactions.
For STBB Sandton Director and real estate lawyer, Hopewell Sathekge, the ConCourt may ultimately refuse to confirm the declaration of invalidity. This view hinges on the central purpose of concluding agreements of sale in writing. ‘The underlying intention of section 2(1) of the Act is to provide certainty by recording the essential terms of the sale of immovable property. The essential terms are the parties, the property, and the purchase price,’ Sathekge says.
His comments highlight a key issue for consideration when the matter reaches the ConCourt, i.e. whether the written agreement requirement safeguards vulnerable purchasers or unfairly excludes them from legal protection.
The dispute before the court
The applicants are former spouses and parents of two minor children who have lived in the property at the centre of the dispute for several years.
According to the judgment, the parties initially concluded a written sale agreement. However, that contract was later cancelled and replaced with an oral agreement in terms of which the applicants agreed to purchase the property for R1 million. The applicants alleged that they paid almost the entire purchase price – mostly from pension benefits – directly to the seller(s).
Notwithstanding payment, transfer of the property was never effected. The respondents refused to proceed by relying on section 2(1) of the Act, which requires the sale of land to be contained in a written deed of alienation signed by the parties and/or their authorised representatives.
Consequently, the applicants argued that they and their children face the enduring risk of eviction and homelessness despite having paid for the property.
Sathekge notes that written agreements serve a critical function that extends beyond resolving disputes between purchasers and sellers. ‘The practical benefit of having a written sale agreement is that the essential terms are easily identified without the need to go to court to prove their existence in the event of a dispute,’ contends the real estate attorney.
In the context of property transactions, Sathekge adds that certainty is particularly important for banks, conveyancers, estate agents, and SARS, all of whom rely on documentary proof to ‘mitigate risk’ and process transactions efficiently.
The court’s reasoning
The applicants challenged section 2(1) on constitutional grounds, arguing that the provision fails to protect vulnerable purchasers who acquire residential property through oral agreements and who face homelessness if those agreements are not enforced.
Accepting this argument, the court found that the Act’s omission implicates several constitutional rights, including the right of access to adequate housing, dignity, and equality, as well as the constitutional principle that a child’s best interests are paramount.
Interestingly, the judgment relied on Constitutional Court authority dealing with housing rights, dignity and homelessness, including seminal cases such as Jaftha v Schoeman, Port Elizabeth Municipality v Various Occupiers, and Sarrahwitz v Maritz NO.
According to the court, the applicants were not seeking access to housing for the first time. Rather, they were already living in a home they had acquired through considerable personal sacrifice and subsequently faced losing that home solely because the agreement relied upon was not in writing.
The equality debate
A central pillar of the judgment is the court’s conclusion that section 2(1) is under-inclusive because it protects purchasers who conclude written sale agreements while excluding vulnerable purchasers who conclude oral agreements and face the same risk of homelessness.
The court held that both groups may have paid substantial amounts towards a property and face identical risks of homelessness, yet only one group receives legal protection under the current legislative framework.
On this point, Sathekge firmly disagrees. ‘I do not agree with the court’s assessment as to the distinction between vulnerable purchasers who enter into written agreements and those who conclude verbal agreements. Section 2(1) serves to protect everyone,’ notes the Sandton-based Director.
In Sathekge’s view, the vulnerability identified by the court does not emanate from the legislation itself. ‘Vulnerability arises only when an oral agreement is concluded despite the protection in place.’ To that end, he points out that the parties in Dlomo had originally concluded a written agreement before replacing it with a verbal arrangement.
The court’s remedy
Having found the omission constitutionally defective, the court ordered that section 2(1) should be read as including wording providing that verbal or oral agreements for the transfer of residential property are legally binding and enforceable. However, that remedy has been suspended and will only take effect if it is confirmed by the ConCourt, per section 172(2)(a) of the Constitution.
Potential consequences for property transactions
For Sathekge, an issue likely to arise during Constitutional Court proceedings is whether recognising oral agreements could create practical difficulties within the property market.
‘The legal and practical consequences of amending section 2(1) to include verbal agreements could, in fact, lead to unequal treatment of purchasers and threaten their right to access to adequate housing,’ he warns.
This is particularly applicable to mortgage financing. ‘It could be that when a purchaser who concluded an oral agreement applies for a home loan, a commercial bank would conclude that it is too risky to finance that transaction because of uncertainties with an oral agreement,’ the Johannesburg conveyancing attorney cautions.
According to this perspective, purchasers who conclude written sale agreements may invariably enjoy easier access to financing than those relying on verbal arrangements.
Will the ConCourt confirm the order?
The Constitutional Court must now decide whether the omission identified by the High Court unjustifiably limits constitutional rights or whether section 2(1) in its current form remains a legitimate mechanism for protecting parties involved in property transactions.
Critiquing the High Court’s ruling, Sathekge remains sceptical that the order will survive constitutional scrutiny. In his view, the provision itself operates neutrally and is intended to secure legal rights rather than limit them. ‘To arrive at the conclusion of unconstitutionality, the court’s reasoning seems to be grounded in the conclusion that section 2(1) treats vulnerable purchasers who concluded an oral agreement unequally compared to purchasers who concluded a written agreement,’ he suggests. To the contrary, ‘[t]he section is intended to secure and protect legal rights. It is only when an oral agreement is concluded that rights are not secured, resulting in vulnerability,’ Sathekge emphasises.
‘In light of this, I do not foresee the Constitutional Court confirming the order of invalidity, primarily because section 2(1) is intended to protect vulnerable purchasers,’ he concludes.
A practical reminder for purchasers, sellers, and real estate agents
Irrespective of the ruling, Sathekge stresses the importance of creating a clear written record of property transactions to minimise complications and ensure legal certainty. ‘Regardless of the outcome of the Constitutional Court’s ruling, purchasers, sellers, and agents should always keep written records of all discussions with the parties so that those records are available should there be a dispute,’ the STBB Director notes.
Conclusion
Ultimately, the ConCourt’s eventual decision will determine whether one of the most fundamental prerequisites of South African property law – reducing a sale agreement to writing – remains intact or is altered to legalise the conclusion of verbal agreements in respect of the transfer of residential property.
For now, the long-standing statutory requirement that agreements for the sale of land be recorded in writing remains law.
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