 Hi everyone, welcome to the first ever virtual property show. My name is Bruna Simao I'm a specialist property attorney at Bruna Simao attorneys and Intigent Wealth and today we here to demystify the law Especially with relation to property investments I've been in this industry for about 15 years. My primary focus has always been around property The fields of law I practice in specifically were commercial litigation Which pretty much spent it meant that I spent a lot of time in court Dealing over disputes relating to commercial matters and properties I'm also one third of the property law alliance Which is which is a group of three firms of attorneys in Johannesburg That's specialized in property and that offer insights to our clients every once in a while Just relating to legal matters that interest property investors with respect to investment strategies rental collections evictions you name it so one of the primary issues that I tend to find when When my clients approach me is how the law tends to hamper or hinder property investments It's it's needs us to say I have found in general that a lot of my clients Don't appreciate some of the restrictions That the law imposes when it comes to Acquiring properties or selling properties or even dealing with properties on on a daily basis Now what and and this is a common misconception because what people don't realize is our country actually has one of the best systems For example with respect to deeds registries where we've actually got Proper register of ownership so that we know where the property is to whom the properties belong And we know to whom they're being transferred So there's a lot of pluses and upsides when it comes to our law and it's property investors It's not really a matter of challenging and confronting the law to the degree where it hampers you but rather Finding useful mechanisms to use the law to your advantage and as a tool To take you forward and advance you in your property journey, and this is what we're going to be discussing today It's not about confronting. It's about using to your advantage So one of the first aspects that we tend to deal with Is is the offer to purchase? Why do I bring this first? Why do I bring this up first rather? This is one of the primary contracts that we're exposed to when entering into a property transaction Now a lot of the season investors out there because remember this talk is for both entry level and season investors because there's just so much that can be export so much to learn when it comes to property acquisitions and I I challenge a season investor if there's anything in this talk that I speak about that For some reason if this if you know absolutely everything That I'm speaking about in this talk Please approach me later because that actually means that I've got so much to learn from you because the reality is I've been doing this Every day for years I've looked at thousands of contracts and you will still find contracts out there that will surprise me with Innovative clauses that clients put in that we need to test that we need to take to a court run through the system See how judges interpret it. So there's always something to learn. So this is intended for all levels of investors We're just going to discuss it. We're going to go through it in the Q&A section You're always welcome to throw some questions at me and we can see what what we can come up with now the offer to purchase It it it seems to be a very simple document and most of the season investors out there would say Well, you know, we've dealt with a few we've submitted plenty of offers. Why do we need to now learn about offers to purchase? the offer to purchase sets up the transaction and Effectively causes transfer to be taken into your name So we need to make sure that everything in relation to this contract is done correctly now Don't get me wrong. No one's saying that this contract is so difficult to interpret or so complex that people should Spend a lot of money trying to take it to to attorneys to study it and give legal opinions it does It is generally a simplistic document what I'm trying to teach you what I'm trying to Equip you with other tools to be able to pick up certain rate flags. What does not Conform with industry norms. What would one expect to find in a contract and what seems peculiar? What are the implications of certain provisions in the contract that we should actually consider and that's the type of conversation that I want to Have today because it's very important to realize that the more offers you submit the more you get used to it So after one, it's going to be great because you can be able to recognize the offers and keep submitting them But there are always certain things and even the season investors Can't deny that they have a certain checklist mental checklist with that they go down as They are about to sign an offer to purchase so even if they don't read every single word There's certain red flags that they look out for just to make sure that the right person's paying the right amounts that the right liabilities Are being held or vest vest in the correct people there's a whole range of clauses And I feel that is just important that we we look at these and we do an assessment every time We submit an offer just to make sure that we comfortable with these clauses so Before before I carry on I just want to give a basic history or Understanding of what a contract that she entails so in in South African law We enter into agreements on a daily basis any sort of agreement even when you walk into the shop and you buy something from from a retailer You're entering into a form of agreement And so keep in mind that Agreements come in all shapes and sizes. They can be oral. They can be in writing some are signed some aren't signed So to enter into an agreement There's certain very basic requirements and all contracts or all the agreements require these to be fulfilled But when dealing with sale, we take it one step further. So we've already got an agreement in place It's where two parties had consensus over something But now we're looking to create a specific form of this agreement So for example a lease agreement would require that a person merely use something For a certain limited period of time in exchange for which they're going to pay consideration Where for example a sale agreement is where a person takes transfer and delivery of something in exchange for consideration So these very specific elements define the specific type of contract that you enter into So once once you're comfortable for example that you have a sale agreement And remember sale can can relate to anything can relate to chairs can relate to cars can relate to houses However, when it relates to your moveable property, you then take it one step further There's some legislation out there that defines and regulates how these contracts need to be entered into So the alienation of land act to certain very basic requirements the contract must be in writing Which means that you cannot sell a property unless the contract is in writing It needs to be reduced to writing and signed by the parties. And so again It's a specific requirement that the contract actually be printed out and signed by hand and clients Unfortunately digital signatures don't fly when it comes to a to sell of the moveable property You'll see for example that the Consumer Protection Act also carries certain implications when it comes to the sale of properties because if a person sells properties for a living and a property can be considered as Part of their business they still need to comply with the Consumer Protection Act They need to make the right warranties with respect to things like defects and the the properties condition and All the rest of the amounts told you on the property. All of these are warranties That that the CPA at the Consumer Protection Act would cover the alienation of land act also has very specific requirements when it comes to Instalments sell agreements instalments sell agreements are specifically defined as We're not going to go into a lot of detail regarding instalments sell agreements today but they have a number of requirements that are necessary in order to be able to Properly register these instalments sell agreements against the deed of transfer in the deeds office and certain basic requirements a lot of Protection rights for purchases so before a person enters into a contract We need to be mindful of the fact that there are certain intricacies that we need we need to comply with Which which for the most part your attorneys would help with that's that's the nice thing Most most attorneys would be able to get to take you through this journey and assist you with the the provisions of these contracts But what I normally advice persons is Please remember there's certain red flags that you need to be aware of because when you go out there You're the one negotiating the contract not us. We're the ones implementing and executing on the contract and making sure that whatever transfer Needs to needs to take place is executed properly But the bottom line is you need to understand the nature of these contracts if you're going to negotiate their terms With a seller for example if your property investor buying property or with the purchaser if you just happen to be selling property So there's a couple of clauses that I There's a couple of clauses that I tend to focus on so these are This comprises a list of the most common clauses and you'll see the ones that are marked in red are the ones that we're going to have A better time to discuss today Unfortunately, the other ones we can save for maybe one of the property alliance webinars, which we do every Wednesday If you post some questions, I'd be happy to answer it in the coming Wednesdays Otherwise, we do consultations where we assist clients with this sort of thing Or another another avenue to follow it for example is the SA property investors network We do do a lot of talks there where we do discuss some of these concepts So you're having access to this information should not be difficult so the ones marked in red are the ones that I do want to focus on today and We'll then take it will then take it from there So when it comes to parties, you'll see the diagram in front of you Speaks about a number of different entities and then right in the middle We're we're looking at certain basic principles that most of us as property investors strive towards now First thing about parties that we need to be very careful of is the alienation of land act requires That the parties be Properly defined and shown in the contract Which means that all their details need to be very clear in the contract So that's the first thing that you now need to bear in mind because as a seller What I sometimes find is if you sell the property To a buyer that happens to be a company for example that has no assets inside And that was simply created for the purchase of this property There is a lot less accountability in this transaction and in this sale So a big warning when it comes to the definition at defining the parties in the agreement is that if you are dealing with juristic persons companies Make sure that you have a resolution that shows every single director in that company Make sure that all the directors have authorized the purchase or seller that property same applies to trusts all the trustees Should authorize that transaction So you as a seller or a buyer should make a hundred percent sure that this is the case because there's been ample case law where sales have been set aside or Interdicted merely because there was a lack of authority on the part of the seller or the purchaser So the defining the parties is quite important when it comes to aspects like this another important element when it comes to defining the parties is Your selection of the entity in which you're going to contract with so now I'm referring more to property investors And what entity they intend to use so you'll see for example here examples of a natural person trusts companies and A combination of these it is very important because remember years a property investor are now binding yourself into a contract You're going to take transfer of this property Into your selected entity or into your own personal name Now the downside to this is there is a level of commitment when it comes to this because To move this property out of your name at a later stage will necessitate the incurring of costs There might be capital gains tax that you might it may be liable for you will probably have to pay transfer Again depending on the value of the property So your selection of the entity that you buy it in now is actually very important and again This isn't to complicate the scenario make it difficult for people to make offers Remember you only need to do this once you set up your investment structures correctly You know exactly how to move forward with them But my suggestion is always set up these investment structures first before moving forward because Ideal is a property investor. You're looking for the perfect balance of asset protection tax efficiency and financing efficiency and Effectively asset protection speaks for itself tax efficiency. Everyone wants to pay as little tax as possible We did a calculation the other day when somebody passes away There's certain very conservative calculations with 42 percent of their state Gets used up either in the payment of taxes and costs and the like it is a real thing So investment structuring when it comes to building a property portfolio is paramount because trying to fix it later Is sometimes problematic on its own and lands up costing you more money. So please be careful with this also when it comes to investment structures a very interesting concept and this is where the Seasoned investors may be interested is it's not just about picking a purchase It's also about the relationship of this property investor and this property So for example, you'll see You'll see again, obviously the natural person trust and company But there's different ways that these can actually be combined to suit commercial needs So a lot of people speak in the industry about joint ventures. They speak about stockfiles They speak about partnerships and they speak about angel investors But what are these and what do these parties have to do with these type of relationships? Remember at the end of the day when you buying a property These are the different type of relationships that you're possibly using in order to acquire the property a joint venture For example is a relationship with another third party where together you guys decide to buy it by the property together There's different ways of doing it. I've seen people do it in trust I've seen people most of the time do it in companies the things like stockfiles for instance It's very important that people realize when setting up a stock fell Setting up a stock fell without actually setting up a company that controls the stock fell is sometimes a problem Especially when it comes to obtaining financing from banks So these are considerations that everyone should have when investing in properties because these will impact on How you move forward and again it does form part of the structuring journey and it is something that you should consider when making the offer but again Remember only once this is not a question of every single time You need to go through this exercise of trying to figure out what the best thing to do is just make sure that you get Educated beforehand make sure that you've got your structure set up beforehand so that your life is easy and moving forward So now moving on to the next course that I like to discuss is regarding the deposit The reason I mention this again It seems very simple because everyone everyone tells me hold on but it's just a deposit Why is the payment of the deposit complicated in the least you're right? It shouldn't be complicated the problem is as we go forward and as we advance as investors certain little tricks are getting Implemented by purchases then little tricks like any implemented by sellers and then you tend to find that the game has changed the norms of all of a sudden shifted and We now need to try to determine what the industry actually expects when it comes to the payments of the deposit So keep in mind that a deposit is there is no legal requirement So you never need to pay a deposit when making offers and that is a question that I get all the time Where there's an expectation that a 10% or 20% deposit must be paid with every transaction This is not the case. We have a lot of deals out there going forward with sellers are not taking in deposits But then why? What would the purpose of the deposit be please bear in mind that a deposit is skin in the game? It's a commitment because if you're putting money down a seller is more likely to be interested to take your deal It's also a level of security because there are certain circumstances where for deal cancels at a very late stage There's some wasted costs and possible agents commission that needs to be paid So seller finds that the payment of the deposit also serves as security for any of these liabilities Financing is also quite important because the reality is that some banks aren't going to give a hundred percent loans So the deposit is actually essential if a person wants to buy the property And these are some of the considerations to keep in mind and so as a buyer Is there any expectation to pay a deposit they might be depending on the seller that you're approaching But if you are going to pay a deposit, please be careful And these are some of the tricks that I've noticed occasionally when it comes to who actually receives the deposit We've seen a lot of transactions with the sellers try appropriate their deposit right from the beginning This should not be the case. You're looking to pay this deposit to an estate agent You're looking to pay this deposit to an attorney. Please don't pay directly to the seller In fact, I've seen some contracts where even if it does get paid to an agent or an attorney There's a specific term in the contract that allows the seller to use the deposit in order to defray some of the Costs in the transaction this is very risky because if the seller makes use of the money the money is gone for you to try and Acquire that money or retrieve that money is virtually impossible So guys be careful make sure that the the deposit sits in an attorney's trust account and Stays in that trust account until registration takes place You also need to make an you also need to look at what the fate of the deposit if the sale does not proceed That's also very important But we'll briefly touch on that when it comes to the next clause which is penalties As a seller is there an expectation to pay a deposit look, I'm not gonna lie to you as a seller I always expect there to be a deposit because I want to make sure that there is skin in the game Again as a seller now you want to protect yourself So you also want to make very specific provisions in the contract for what the fate or what the fate of the deposit is If the sale doesn't proceed So now it comes to penalties and this is where we tie in with the deposit The deposit is a form of commitment, but it's also a form of security So what you want to try and make happen is that the penalty clause, especially if you're a seller You want the penalty clause to be clear and unambiguous Because if you need to access these funds for the payment of the state agents or for the payment of some wasted costs You need to make sure that your clause is very specific to say that you will be entitled to access those funds and use it To pay these costs. There's a lot of clauses out there for example dealing with rogue quirk and and the like But unfortunately these clauses aren't always Apologies these clauses aren't always Inforcible in our law because sometimes for example, let's say a deposit is 200,000 and You know, there's a mere maybe 10,000 rand in waste of costs or 50,000 rand in the state agents commission in cases like that We tend to The courts tend to favor the purchaser trying to get the deposit back because the purchase at the seller did not suffer that much and there's a level of objectivity and prejudice the court will consider what prejudice the seller suffered and will compensate the seller appropriately and Retaining a 200,000 rand deposit possibly for 50,000 rand damages is not something that the courts easily allow So please bear in mind that when drafting these type of provisions you want to make sure that a certain Amounts are catered for that, you know when you can access those funds and generally speaking You you you access those funds in a specific way And if if there is a clause where the entire amount is retained Please just bear in mind that in those instances there might be a case to be made out where the purchaser can At least obtain a refund of a portion of these amounts The next the next clause that's also Merits consideration and is actually very very important in the in the the property investors journey is the conditions Now when I say conditions, I refer to Suspensive conditions now why are these so important and a lot of you through education would have heard that exit provisions are normally Set out as suspense of conditions now Why is that because a suspense of condition all that means is that a suspense of condition is a clause That is based on an uncertain future event. So to give you an example right If you want to buy a property, but you're uncertain whether you're going to get a loan from a bank You want to suspend the operation of the contract until you know whether you will obtain that loan or not and what this effectively means if you don't obtain the loan the contract lapses and falls away and Neither parties bound to the other so you've got a contract. That's not enforceable amongst the parties and that is very Important for property invested because remember you as a buyer don't always necessarily know how much of a loan a Bank will give you for example if you buy a property I always suggest considering things like due diligence for instance because if you buy a property and commit but you need a little bit more time to go through the property and you haven't been able to do this prior to making the offer nothing stops you from making the offer and and Basically showing your commitment. However, you still want to create a scenario that gives you Fords you the opportunity of doing an assessment and pulling out if it turns out that this property isn't fit for purpose Or isn't fit at your size or these defects that Required a bit more of an investigation. I mean once you start getting into bigger deals. This is when you start looking at Rental roles for example Where you buy a building and there's a couple of tenants in the building You want to have due diligence done regarding the payment of rent by all these tenants? So these are very very very important things to consider when making offer These are your exit clauses because these clauses allow you to make provision for situations that you're uncertain of and Want to make a hundred percent sure will work out prior to Overcommitting yourself in terms of the sale the one thing that I need to warn persons about please is There's a concept on our law that's called fictional fulfillment Now what fictional fulfillment means is that if there is a suspensive condition in the contract that requires fulfillment? But the person normally the purchaser does nothing to Attempt to fulfill this condition our law deems them to have fulfilled it So if take for example a loan to the bank you make a contract subject to you applying to the bank for a loan But say you don't apply it to the bank for the loan or you drag your feet in applying for the bank You don't do everything in good faith to obtain that loan in a situation like this The law the courts will not consider you to have acted bona fide and because of this the courts may consider this to be a Fictional fulfillment meaning that the suspense of condition has been fulfilled as a result of which you are now bound by the contract So guys Suspensive conditions do not mean that we can put lies in the contract that we never intend to comply with and we put it Then the hope that 14 days goes by. Oh, there is no loan. I can get out of this transaction That's not the intention of suspense of conditions The intention is to put in clauses there that lead up to a certain position That allow you to feel certain to yes to whether you want to go ahead with the sale or not So be honest in these conditions. Yes, you can use them strategically. They're there for a reason You have to use them, but don't lie in the contract put conditions there that you never have any intention of fulfilling So guys that is that is it from me. I really hope that this was This was helpful and informative Please come visit me in my booth We have a lot of downloadable material for you that that you guys can get a hold of and we'll be there To answer your questions. Have a great one