KORPORATIEWE BEHEER – PBO’S NPO’S EN NPC’s

Daar bestaan baie verwarring rondom die onderskeid tussen ’n ‘Public Benefit Organisation (“PBO”)’, ‘Nonprofit Organisation (“NPO”)’ en ’n ‘Nonprofit Company (“NPC”)’. Alhoewel daar soortgelyke karaktereienskappe tussen hierdie liefdadigheidsentiteite bestaan en alhoewel hulle in ’n sekere mate met mekaar verband hou, is elkeen van hierdie tipes entiteite verskillend van die ander entiteite en elkeen dien ’n ander doel.

Elkeen van voornoemde entiteite word ook by verskillende regeringsorganisasies en departemente geregistreer, wat die onderskeid verder beklemtoon.

’n NPO word gedefinieer deur die Nonprofit Organisations Act No 71 of 1997 as ’n trust, maatskappy of enige ander assosiasie van individue wat gestig word vir:

  1. ’n publieke doel; en
  2. waarvoor die inkomste en eiendom nie verdeel word onder die direkteure of lede andersins as vir die verkryging van redelike vergoeding vir dienste gelewer aan die entiteit nie.

Die doel rondom die registrasie van ’n organisasie as ’n NPO is om toelaes te ontvang vanaf die regering, soos byvoorbeeld fondse wat verkry word vanaf die Nasionale Lotery Raad. ’n NPO word geregistreer by die Departement van Sosiale Ontwikkeling.

’n NPC word gedefinieer deur die Maatskappywet No 71 van 2008 (“die Wet”) as “’n maatskappy wat:

  1. geïnkorporeer word vir openbare voordeel soos vereis word deur item 1(1) van Skedule 1 van die Wet; en
  2. waarvan die inkomste en eiendom nie verdeel word onder die direkteure, beamptes of persone wat verbind is enigsins tot die maatskappy nie.” ’n Organisasie moet aansoek doen om geregistreer te word as ’n NPC by die Companies and Intellectual Property Commission (“CIPC”). Die organisasie sal dan dieselfde eienskappe en voordele hê van ’n privaat of openbare maatskappy. ’n NPC kan met of sonder lede geregistreer word.

Die Inkomstebelastingwet 58 van 1962 (“die Inkomstebelastingwet”) definieer ’n PBO as enige organisasie wat:

  1. ’n nie-winsgewende maatskappy, trust of assosiasie van persone is soos gedefinieer in artikel 1 van die wet wat geïnkorporeer of gevorm is in terme van wetgewing; of
  2. enige tak van ’n maatskappy, assosiasie of trust wat geïnkorporeer of gevorm is en wat vrygestel is van inkomstebelasting waarvan die hoofdoelwit is om een of meer openbare belang aktiwiteite te dryf waar –
  1. sulke aktiwiteite uitgevoer word op ’n nie-winsgewende manier met ’n filantropiese bedoeling; en
  2. hierdie aktiwiteite nie bedoel is om direk of indirek enige belanghebbende of werknemer van die organisasie ekonomies te bevoordeel nie, andersins as vir betaling van redelike vergoeding vir die werknemer of belanghebbende se diens aan die maatskappy; en
  3. die aktiwiteite wat deur die organisasie uitgevoer word vir die voordeel is van die wyer publiek.

Wanneer daar verwys word na ’n PBO, word daar nie verwys na ’n organisasie wat geregistreer of geïnkorporeer moet word as ’n liefdadigheidsentiteit soos by ’n NPC of NPO nie. Die doel van PBO-status is om die organisasie die geleentheid te bied om vrygestel te word vir belastingdoeleindes.

Vir ’n organisasie om te kwalifiseer vir PBO-status, moet ’n organisasie onder andere een of meer van die verskeie ‘openbare belange aktiwiteite’ beoefen in terme van die Inkomstebelastingwet. ’n Aansoek vir PBO-status word aan die Suid-Afrikaanse Inkomstediens (“SAID”) gerig.

Dit is belangrik om daarop te let dat alhoewel ’n NPO, NPC en ’n entiteit met PBO-status verskillende karaktereienskappe het, sluit die werking van een van hierdie tipes organisasies nie die werking van ’n ander een uit nie. ’n Organisasie kan dus registreer as ’n NPO, NPC en PBO solank as wat al die kriteria en vereistes vir die tipe registrasie aan voldoen word.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies. (E&OE)

MAINTENANCE OF SURVIVING SPOUSE

The idea of freedom of testation is a core value of South African law and enjoys wide protection. The Maintenance of Surviving Spouses Act, 27 of 1990, was drafted to give a spouse legal recourse if disinherited or negatively affected by the wishes of the testator, or in the case of intestate succession. The goal of this piece of legislation is to ensure a person is not left destitute after the death of their spouse.

Who can claim?

The definition of the Act describes a surviving spouse as follows:

survivor means the surviving spouse in a marriage dissolved by death.”

What can be claimed?

Section 2(1) of the Act determines as follows:

“If a marriage is dissolved by death after the commencement of this Act the survivor shall have a claim against the estate of the deceased spouse for the provision of her reasonable maintenance needs until her death or remarriage in so far as she is not able to provide therefor from her own means and earnings.

What is the definition of own means?

“own means” include any money or property or other financial benefit accruing to the survivor in terms of the matrimonial property law or the law of succession or otherwise at the death of the deceased spouse.”

What is reasonable maintenance means?

Section 3 of the Act determines as follows:

“Determination of reasonable maintenance needs – In the determination of the reasonable maintenance needs of the survivor, the following factors shall be taken into account in addition to any other factor which should be taken into account:

  1. The amount of the estate of the deceased spouse available for distribution to heirs and legatees;
  2. The existing and expected means, earning capacity, financial needs and obligations of the survivor and the subsistence of the marriage; and
  3. The standard of living of the survivor during the subsistence of the marriage and age at the death of the deceased spouse.”

The executor of the deceased estate has to take the requirements above into account when determining the amount of the claim against the estate.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SELLING YOUR PROPERTY? HOW TO STAGE YOUR HOME

If you want to ensure that your property sells quickly, staging your home could help. If you stage your home, you are presenting it in the best possible light and condition, which will make it easier for potential purchasers to imagine themselves living there. So, how do you stage your home?

1.Declutter your home

When staging your home, the first thing you should do is remove any clutter and clean your home. Remove any small and personal items from all surfaces. Make sure to box up spare belongings, rather than throwing them in drawers and closets as purchasers tend to open them. Once you have decluttered your home, do a deep cleaning. Make sure that your kitchen and bathroom is spotless and clean anything that your pet touches, as no purchaser will be attracted to pet odours. If you do not have the time to clean your home, hire a professional cleaning company to ensure that your home is spotless.

2.Light and bright is the way to go

Purchasers usually like bright, sun-filled rooms, so lighting is an essential part of staging your home. Make sure to open your blinds/curtains before a showing. Also, ensure that your light fixtures are appealing and that your lampshades aren’t dated and lopsided. With the correct lighting, your home will feel welcoming and bright and will capture the hearts of potential purchasers as soon as they walk through the door.

3.Start with the most important rooms first

If you want to stage your entire house, you can, and it will certainly get your home sold quicker. However, if you don’t have the time or money to stage your entire home, try only staging the most important rooms. The most important rooms include the living room, the master bedroom and the kitchen. Any extra bedrooms should be at the bottom of your list of priorities.

4.Remove furniture

The last thing you want is for your home to look cramped. Consider removing some furniture, as your home will look bigger and more appealing.

5.Rearrange your furniture

Now that you have removed some of your furniture, position all couches, chairs and tables away from your walls. You can then anchor your space with an area rug, which will create a cosy, intimate space which is ideal for socialising with friends and family.

6.Don’t just focus on the interior of your home

If you neglect the outside of your home, you might not attract as many potential purchasers. You can get potential purchasers to walk through the door by power-washing your house and walkways, cleaning your windows, mowing the grass, planting flowers etc.

7.Add the finishing touches

Finally, now that your home is picture-perfect, add some finishing touches, such as fresh flowers in vases, a bowl of fresh fruit on the counter and folded towels in the bathroom. Your home is now ready to meet and impress its potential new owner.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

PRIVATE USE OF GROUNDWATER RESOURCES

This article will provide a brief overview of how the abstraction and usage of groundwater resources are regulated, with specific reference to the Cape Town Metropole which has made headlines over the past few years for being one of the first big metropoles in the world to almost run out of this valuable resource.

The usage of groundwater in the Western Cape is regulated by three important pieces of legislation, namely the National Water Act (1998), the Water By-law (2010) and the Water Amendment By-law (2018). It is from the outset important to note that all groundwater in South Africa has been a national resource since 1998 as per the preamble of the National Water Act and no private person may thus use and abuse water which they abstract on their private property as they wish.

Installation of mechanisms to abstract groundwater:

Groundwater is most commonly abstracted by way of a borehole, well-point, or well. This article will only refer to boreholes as the relevant legislation defines a borehole as a “hole sunk into the earth for the purpose of locating, abstracting or using subterranean water, and includes a spring, well and well-point”. This definition is thus broad enough to include almost any method of abstracting groundwater.

The City of Cape Town requires a property owner who plans to sink or dig a borehole to notify the director in writing at least 14 days before such action of his or her intention to do so. The “director” is defined in the City’s by-law as the employee of the City who is responsible for water and sanitation. This notice must also inform the director of the exact location where one intends to sink or dig the borehole, as well as the purpose for which the groundwater will be used for.

It is furthermore important to take note of section 57 of the Water By-law which requires the owner of a premises on which a borehole is located to ensure that:

  • the borehole is adequately safeguarded from creating a health nuisance;
  • the borehole is not filled in a way or with material that may cause an adjacent well, borehole or underground source of water to become polluted or contaminated; and
  • no interconnection is made between a water installation supplied from the main and any other source of water supply, meaning that your groundwater system may not in any way be connected to the municipal water supply system.

Section 61 of the Water By-law is also important to take note of as it states that the owner of a premises on which non-potable water, which includes groundwater, is used must ensure that “every terminal water fitting and every appliance which supplies or uses the water is clearly marked with a weatherproof notice indicating that such water is unsuitable for domestic purposes”. This notice must be in three official languages and must be clearly visible.

Usage of the groundwater:

It is important to note that groundwater may not be used for domestic purposes. Water is deemed to be used for domestic purposes when it is used for drinking, ablution and culinary purposes, excluding water used for toilets and urinals. You may thus use your borehole water for any non-domestic purpose, subject to certain restrictions. One such restriction relates to the watering of your garden. The Water Amendment By-law of the City of Cape Town states that no garden may be watered between the hours of 09h00 and 18h00, and watering within the permitted hours may not exceed one hour in duration.

Complying with the above-mentioned regulations is important for two main reasons. Groundwater is a limited resource which must be used sparingly. Scientists have warned that lower rainfall figures will become the norm due to factors such as global warming. Furthermore, the preamble of the National Water Act emphasises the fact that water must be used in a sustainable manner and that it must be used to the benefit of all people. Another very important consideration is that non-compliance with any of the above regulations is an offence and a person who is convicted of such an offence shall be liable to pay a fine or to serve a term of imprisonment of up to five years, or both.

Readers who are not resident in the Cape Town Metropole are strongly encouraged to check if their local municipalities have their own by-laws regulating the use and abstraction of underground water as non-compliance therewith may carry similar penalties.

Reference List:

  • National Water Act 36 of 1998
  • City of Cape Town Water By-law (2010)
  • City of Cape Town Water Amendment By-law (2018)
  • http://www.capetown.gov.za/Family and home/Residential-utility-services/Residential-water-and-sanitation-services/Residential-water-restrictions-explained

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SALE OF PROPERTY AGREEMENTS: TYPES OF CLAUSES

Non-refundable or Forfeiture Clause

Sellers are sometimes sold on the idea of including a non-refundable deposit clause in the Contract of Sale. More often than not, sellers are under the impression that they will be entitled to all of the non-refundable deposit or monies already paid to the conveyancer on account of the purchase price if the purchaser breaches a Deed of Sale and such breach results in the cancellation thereof.

The seller will, however, then find out that after cancellation of the contract due to breach, that not all amounts may be retained as liquidated damages or as a non-refundable deposit.

In terms of our case law, Matthews v Pretorius (1984) (3) (SA547W) and the Conventional Penalties Act 15 of 1962 (“the Act”), any penalty or liquidated damages contained in a contractual obligation shall be subject to the provisions of the Act which affords the Court the discretion to, on hearing a claim for a penalty or a non-refundable deposit, find that it might be out of proportion to the prejudice suffered by the creditor and the Court may reduce the penalty to such extent as it may consider equitable under the circumstances, taking in due consideration the interests of all concerned.

This means that any forfeiture stipulation resulting from the cancellation of an agreement, including non-refundable deposits, as well as the retention of certain monies already paid by a purchaser as liquidated damages, will be subject to the measurement as described in the Conventional Penalties Act.

Estate agents should be very careful not to create an expectation with the seller that he or she will be entitled to all of the non-refundable deposit or monies already paid to the conveyancer on account of the purchase price if a purchaser breaches a Deed of Sale of immovable property and such breach results in the cancellation thereof.

The role of conveyancers is important to understand as well. It is not expected from conveyancers to act as a Judge and Jury when dealing with monies in their trust account when a dispute arises about who should be the rightful recipient of such monies once the Deed of Sale is cancelled. Unless and until such time as an agreement has been reached between the parties or a competent Court has made an order, it cannot be expected of conveyancers to pay the monies to either party.

Breach of Contract

The relationship between a purchaser and seller is governed by the Contract of Sale. The breach of contract occurs generally when a party to a contract without lawful excuse fails to honour his or her obligations under the contract.

When a contract is cancelled in terms of the breach clause of the said contract, the aggrieved party would normally have the right to claim damages from the guilty party. When claiming damages, the aggrieved party must note that the Conventional Penalties Act will also be applicable to the amount of damages that may be claimed.

In the instance of the seller, the seller's damages will often only be liquidated once the property is resold and the seller's claim will only be for the deficit between the amount of resale and the original contract sum of the cancelled agreement.

Rouwkoop

A rouwkoop clause in its pure form comes from our common law. It is derived from the Dutch words meaning “regret and purchase”. Such a clause entitles a party to a contract to pay a sum of money in order to be allowed to withdraw from the contract. It essentially sets a purchase price for freedom from the contract payable by the purchaser. If the purchaser then withdraws from the contract and pays the agreed rouwkoop amount, he will be acting in accordance with the terms of the agreement and his withdrawal will not constitute a breach of contract. (It is not regarded as a penalty.) This is clearly very distinguishable from a penalty clause which would come into operation only where there was a breach of contract.

Unfortunately, many sale agreements confuse the position in law whereby the forfeiture clause is merged with a rouwkoop clause, which provides that if the purchaser breaches the agreement and the seller cancels the agreement as a result thereof, the purchaser will forfeit his or her deposit as rouwkoop.

In a decision of Royal Anthem Investments 129 (Pty) Ltd v Yuen Fan Lau and Shun Cheng Liang (941/2012) (2014) (ZASCA 19) (26 March 2014), the Court had to interpret a rouwkoop clause in a Deed of Sale which read as follows: “Will have the right to cancel the agreement and to keep other amounts payable as rouwkoop, or by means of any pending decision by a Court of the real damages suffered”.

The Court in this instance found that the deposit was not an amount as envisaged by the rouwkoop clause in the true intention of the rouwkoop clause history. A penalty clause will only come into operation when there was a breach of the contract.

Conclusion

From the said case law and the provisions of the Act above, it is clear that:

  1. Non-refundable deposits are a myth and together with forfeiture clauses, subject to scrutiny by the Courts. Unless the parties to the agreement can come to an agreement regarding the penalty, the Court must be sought to quantify the amount payable as a penalty.
  1. A rouwkoop clause in a Deed of Sale must be clearly distinguished from the penalty clauses above as it is not subject to the provisions of the Conventional Penalties Act.

So, be sure to demystify the myth before you enter into one of the most important transactions of your life. Consult with an attorney.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

TRUSTEES’ DUTIES AND POWERS

All the powers of a trustee are ‘fiduciary’, which means that they must be exercised as follows:

  • in the best interests of all the beneficiaries;
  • only for the benefit of the beneficiaries and not for third parties;
  • not for the trustees’ benefit, unless specifically authorised; and
  • not to defeat the terms of the trust, but in compliance with them and in consideration of all other relevant circumstances.

Duties

A trustee owes a duty of honesty, integrity, loyalty and good faith to the beneficiaries of the trust. A trustee must at all times act exclusively in the best interests of the trust and be actively involved in any decisions. Prior to accepting the position of trustee, a potential trustee must ensure that:

  • there is no conflict of interest between his or her own personal circumstances and those of the beneficiaries;
  • they have read and understood the trust deed;
  • they understand the nature of the beneficial interests and as much about the beneficiary’s personal circumstances as will be necessary to administer the trust;
  • they are satisfied there are no outstanding breaches of trust by the existing trustees; and
  • they have determined the extent of the trust property and will ensure that, once appointed, it is vested in the names of the new trustees.

General Duties of a Trustee:

  • To always act in good faith and jointly – the common law rule is that the trustees must always act jointly in a transaction with third parties and contractual powers must be exercised by all the trustees acting together.
  • To observe the trust deed – trustees must inform themselves of the terms of the trust deed and comply strictly with the duties and directions set out in therein.
  • To take possession of the trust property – the trustee needs to take charge of the trust property and he must, as soon as possible, acquaint himself with the nature and extent of thereof and take possession of the property so that it comes under his/her control.
  • To act independently between the beneficiaries – trustees must not allow one beneficiary to suffer at the expense of another and must balance potentially competing interests for income and capital.
  • To provide information – trustees are under a duty to provide clear and accurate accounts and produce any information or other documents relating to the trust when required to do so by a beneficiary.
  • To act unanimously.
  • To exercise reasonable care and ensure the correct distribution of assets.
  • To provide an income for the beneficiaries and to preserve the value of the capital.

Powers

The precise powers that a trustee has will be defined by the trust deed and by law. However, a trustee will normally be given the following powers:

  • investment;
  • dealing with land;
  • delegation to agents, nominees and custodians;
  • insurance;
  • remuneration for professional trustees;
  • advancement of capital;
  • maintenance of minor beneficiaries; and
  • to pay, transfer or lend funds to beneficiaries.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

THE DIFFICULTIES IN RELOCATING A CHILD OF DIVORCED PARENTS

I have divorced my husband and I am now the primary caregiver of our minor child. I received a job offer in another country and I would really like to accept it. My ex-husband and father of my minor child won’t consent to the relocation of our minor child. Will I get permission from the court to relocate?

In the case of relocation disputes where the primary caregiver wants to relocate, there are certain factors the court considers before granting the relocation. These factors are listed in Section 7 of the Children’s Act.

As one can imagine, family law and divorces are difficult topics; especially when minor children are involved. In the event the parties separate, the minor children will need to be in the primary care of one parent and the other parent will have rights and responsibilities in respect of the minor child but does not necessarily have to live with the child.

The issue that arises in situations as outlined above is where the primary care-giver wants to relocate to another country and the other parent won’t give consent (hereafter “the disputing party”). The difficult part of disputes relating to relocation is that there are numerous competing rights. The Children’s Act (“the Act”) regulates and makes provision for those rights.

In order to have a full understanding of the issues that arise here, a breakdown of the various rights should be discussed. Firstly, the right to freedom of movement and association of the primary caregiver may become a problem. Secondly, the rights of the opposing parent to be in contact with the minor child. Lastly, the rights of the minor child are restricted, i.e. the right of the child to maintain personal relations and direct contact with his parents. The infringement of these rights can, by their very nature, turn into a dispute.

Where the dispute cannot be resolved between the parties through negotiation, the parties would rather opt for mediation than litigation. The reason for choosing the former is because of the nature of the dispute – it is a family matter and there are minor children involved. Litigation is a more strenuous route of dispute resolution, thus not the most suitable given the circumstances.

Where the court is tasked with making a ruling in a relocation dispute, there are certain factors the court considers. Section 7 of the Act sets out a list of these factors.

If the parties are divorced, the court will consider whether there is a court order in existence prohibiting the removal of the child from the court’s jurisdiction. In some case, the parties agree in their settlement agreement to never remove the minor children from the Republic of South Africa.

In the event the court has to consider the right to contact with the minor child, the court looks at the meaning of the word “contact” as used in the Children’s Act. It is important to keep in mind that “contact” does not only mean the physical seeing of each other in flesh, but also communications via laptop and/or cell phone. This form of contact is easier to make use of in our era.

The court will consider the reason for the relocation as a factor in these matters. The reason for this consideration is because the best interest of the child is of utmost importance. If the reason for relocation is, for example, to contribute to the child’s education or safety (something that would be considered positive), the court is likely to be more pleased.

The court will also consider the relationship the child has with the parents. If the opposing parent has a great relationship with the minor child and sees the child every alternate weekend or holiday and will now only be able to email the child- the court will have to consider this and the possible influence the absence of the opposing party would have on the minor child, if relocation is granted.

This will also become clearer when the court considers the choice of the minor to relocate or not.

The court also considers the stability factor. This includes the court considering the life outside the home of the minor. It is important to know whether the child is happy where he/she is, how well the child does at school, whether he/she has family members living nearby and whether he/she visits on a regular basis.

As with the conflicting rights of the parties, the court kept the best interest of the child in mind, whilst considering the abovementioned factors. The court in the AC v KC case also applied the “reasonable person’s test” and the court held that “one must think oneself into the shoes of the proverbial bonus paterfamilias or the reasonable man”. Even though the reasonable person test was used in AC v KC, the best interest of the child is the most important factor.

Reference list:

  • Children’s Act 38 of 2005
  • A.C. v K.C. (A 389/08) [2008] ZAGPHC 369
  • Jackson v Jackson (18/2001) [2001] ZASCA 139

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

CANCELLING A CONTRACT? THE DO’S AND DONT’S TO CONSIDER!

Every person, whether an individual or a juristic person, will find themselves in a situation where they will want to terminate a contract. The aim of this article is to set out the requirements for terminating a contract as well as to give basic guidance when doing so.

When a person wants to cancel a contract, the cancelling party (innocent party) will have a choice to either cancel the contract or to enforce it. This article refers to the innocent party and the party in breach. The reader must however remember that fault it not a requirement for breach of contract.

The law regards breach of a contract as a wrongful act in itself which allows the innocent party to cancel the contract. It is important to remember that cancelling a contract is an extreme remedy that is only available in exceptional circumstances, namely where there is a cancellation clause or where the breach of contract is material or serious. If the contract is however silent on cancellation, the innocent party may still cancel the contract provided that the said breach is material or serious in nature.

The point of departure when cancelling a contract is to determine what the exact terms of the contract are, i.e. if the contract has a cancellation clause or not and whether there is a date of performance or not.

If the contract has a cancellation clause, the innocent party will be able to cancel the contract in the event of a breach of a term thereto. The innocent party must however take care not to cancel the contract incorrectly, otherwise the party in breach may interpret the cancellation as a repudiation of the contract, in which case the party in breach will also have the right to cancel the contract.

In the event where the contract does not have a cancellation clause, the innocent party will only be able to cancel the contract if the breach is material in nature. What constitutes a material breach depends on the terms of the contract. According to South African case law, a material breach is one which goes to the root of the contract and constitutes a breach of a vital term thereto.

Depending on the type of breach, the innocent party might have to give the party in breach notice of same. This will be the case where there is no date of performance specified in the contract. The innocent party must then demand performance by giving the party in breach reasonable notice to perform before he will be able to cancel the contract.

On the flip side, if a date of performance is specified in the contract, and a party does not perform in time and as stipulated, that party will be in breach, otherwise referred to as being in mora. It does however not automatically give rise to the right to cancel the contract. The only instance where there will be an automatic right to cancel a contract is if there is a cancellation clause or a suspensive condition in the contract.

A contract containing a suspensive condition will terminate automatically unless the suspensive condition is fulfilled or waived. If there is not a cancellation clause in the contract and no date of performance, the innocent party must give notice to the party in breach that time is of the essence and give him a reasonable time to perform.

In summary, the requirements for cancelling a contract vary according to the terms thereto, the type of contract and the factual scenario. There are no formalities for cancelling a contract unless the parties otherwise agree and/or a statute (i.e. Alienation of Land Act and the National Credit Act) prescribes same.

Other requirements include that the innocent party must give reasonable notice to the party in breach that they are cancelling the contract, which cancellation becomes effective from the time the cancellation comes to the attention of the party in breach.

The consequences of cancelling a contract are that the obligations to perform terminate and the parties are obligated to return what has been performed. If both parties agree to the cancellation, the preferred route would be to enter into a cancellation agreement, setting out what needs to be returned, claims for damages etcetera.

Considering that each contract and factual scenario differs and will be judged and interpreted accordingly, readers are advised to obtain legal counsel before cancelling a contract.

Reference List:

  • “Contract: General Principles” by Van Der Merwe, Van Huyssteen, Reinecke & Lubbe 2004 (Juta Law)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)