Where a property is bought, which forms part of a new development and subject to the developer completing the extras, is there an obligation on the developer to complete the extras within a specified time frame, where no time frame has been specified in the agreement? In the event of the developer not completing the extras on time or within a reasonable time frame, does this entitle the purchaser to cancel the sale agreement?
A case in point: Myburgh v Equestrian Valley (Pty) Ltd (15986/2012) [2016] ZAWCHC 6 (4 February 2016)
The situation was as follows: the purchaser, disenchanted with the rate of completion of extras in the equestrian estate in which he invested, sought to cancel the agreement as a result. The court was asked to determine, almost six years after signing the sale agreement, whether he could do so when no date was stipulated by when the extras in the development should be completed.
In 2006, Myburgh bought three properties in the Hunters Valley Equestrian Residential Estate (‘Hunters Valley’). According to the brochure prepared by estate agents, additional facilities to be provided included a new stable block to be built in the near future, livery services and restoration of the original homestead and adjoining barn for conversion into a restaurant and clubhouse facility.
The sale agreement provided, amongst other things, that:
- The developer would give transfer of the plots to Myburgh which entailed attending to the subdivision of the plots and compliance with local authority requirements;
- The developer would ensure that all the infrastructural services were installed;
- A Homeowners’ Association (HOA) will be established and Myburgh would be obliged to become a member; and
- Myburgh and his successors in title were granted a perpetual right for equestrian purposes over certain farm land.
Transfer was passed in August 2009. Prior to this and also subsequent thereto, Myburgh raised issues regarding completion of the development, specifically the dressage and show jumping facilities, in various e-mail communications to Bryant. Bryant, a trustee of the HOA and also a director of the developer company, communicated to Myburgh that completion “falls within the 10% ruling”, i.e. that finalization of the additional facilities is planned in the phase after 90% of the erven were sold.
The dispute was not resolved. Despite the constitution of the HOA providing for mediation, this option was never exercised by Myburgh. Neither was the suggestion from the side of Bryant that Myburgh should meet with the directors to discuss the issues.
Discussion regarding completion of the development and facilities were raised at meetings of the HOA of which Myburgh was notified. He however never attended or sent a representative, nor asked that his issues be raised as points on the agenda of the meetings. After each meeting he received minutes.
Myburgh remained concerned about his investment and took the stance that he would refuse paying levies until such time as the developer had complied with its obligations in terms of the agreement. Later he instituted summons alleging that the developer had breached the agreement, as:
- in terms of the sale agreement, the developer had to erect equestrian facilities on a permanent basis. This was a material term of the agreement and the developer did not comply. This constituted a breach which entitled Myburgh to cancel the sale;
- or, should the court find that he was not entitled to cancel the agreement, that the developer be ordered to complete the additional facilities within six months.
Certain facilities and improvements were in existence at the time when Myburgh decided to cancel the sale and issue summons, including:
- extensive out-riding trails;
- the existing stables;
- the development of a cross-country course;
- the levelling of veld for an arena;
- the planting of beef-wood trees to demarcate the arenas; and
- the obtaining of equipment for use in dressage and show jumping.
The crucial issues to be determined were thus:
Was Myburgh entitled to cancel the sale agreement? In particular, did the developer breach the agreement by failing to perform? To succeed and have the right to cancel, Myburgh would have to show that:
- The obligation was due;
- The developer had been placed in mora;
- There was notice of the intention to cancel if the breach is not rectified.
The developer argued, amongst other things, that due to the principle of reciprocity, Myburgh could not claim performance where he himself did not perform in terms of the agreement, having failed to build on his properties within the time period agreed to in the sale.
Held by Court:
Was the obligation due?
- It was common cause that the sale agreements did not stipulate a time for performance of the obligation to develop the equestrian facilities.
- The agreements provided that ‘the seller warrants on acceptance of this agreement that the equestrian facilities proposed, viz stables, dressage, cross-country and show jumping area will be developed according to a site Development Plan’, but no evidence was presented by Myburgh about what the Site Development Plan entailed, nor was it presented to the court.
- The facts showed that at all times when Myburgh queried when the facilities would be developed, the developer advised that it was busy putting in facilities regarding the residential services and, once that was completed, they would go over ‘and finish the project as marked’. This was also what was understood and accepted by the parties – that the developer was obliged to ‘complete’ the development of the stables and arenas after 90% of the plots have been sold.
- The evidence showed that all the other home owners were aware and accepting of this. Myburgh acknowledged that he knew this, although he argued that to his understanding it did not apply to the development of the stables or other equestrian facilities, despite Bryant’s emails to him to the contrary.
- The overwhelming probabilities favoured the developer’s version on the issue of when the facilities would be developed and/or completed.
- In the absence of a fixed date in the agreements for the completion of the ‘equestrian facilities’, it made commercial sense, considering the particular circumstances of this case, that the logical date or time for the completion of the proposed equestrian facilities would be no later than when the developer had sold and transferred 90% of the sub-divided properties on the estate. On the evidence, this would be the time when the development would be virtually fully occupied and the developer would be in a financial position to complete these facilities.
Myburgh in any event presented no evidence regarding what would be considered a reasonable time for completion. His version that the obligation contained in the contract had to be fulfilled by May 2008 was highly unlikely and improbable and thus had to be rejected.
Notice
- Where no time for performance is given, the obligation must be performed within a reasonable time. It is clear from the authorities that where no time has been set for performance, as in the present matter, the party claiming cancellation is required among other things to place the other party in mora (in breach) by making demand for performance within a reasonable time.
Myburgh’s emails did not contain a demand for performance by the developer by a fixed date, nor did they make mention of an intention to cancel the agreements. A demand should have required performance of the other party within a time which was reasonable in the circumstances and at the same time contain an offer by Myburgh to perform his reciprocal obligations. - In any event, the authorities are clear that placing a party in mora by way of a valid demand and subsequent non-fulfilment of the demand, is not sufficient to entitle an innocent party to cancel the contract. Something more is required i.e. the failure to perform must be material and this is the case when ‘time is of the essence’. The reason for this is apparent. It is only when time is of the essence that such a breach goes to the root of the contract.
- As such it was not shown that the developer was placed in mora. Myburgh in any event failed to discharge the onus to show what a reasonable time is and also that he allowed the developer a reasonable time for completion of the development of the proposed equestrian facilities.
There was therefore no notice of demand as required in law and Myburgh was not entitled to cancel the agreement.
Reciprocity
- In a bilateral contract, i.e. one in which each party undertakes obligations towards the other; the common intention is that neither should be entitled to enforce the contract unless he has performed or is ready to perform his own obligation.
- In the present matter it is common cause that Myburgh did not comply with his obligation to complete the building within the time period stipulated. On the other hand, the developer has fulfilled virtually all its obligations, in that transfer of the portions sold to Myburgh have taken place, services have been installed, servitudes to protect the rights of the members of the development have been registered and a home owners association has been established. Interim cross-country track, arenas and stables have been provided and the homestead renovated.
- Considering the facts and circumstances, and even if it were found that the developer was in breach of its obligations, the court was not persuaded that Myburgh has shown that the developer’s breach of its obligations was so material as to warrant cancellation of the agreements. Weighing-up and balancing the competing interest between the parties, Myburgh’s cancellation considering the circumstances of the matter, was radical and could not be permitted. It was disproportionate to the alleged breach.
In the premises, Myburgh’s claim was dismissed.
Wietz Viljoen, WVA INC.
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