The voetstoots clause - no longer always a defence
For a century and more, the "voetstoots" clause in a contract has proved a solid bulwark for a seller of goods or property. In essence, this clause records that the subject of the sale, whether movable goods or immovable property, is sold "as is" and without any warranties as to its condition or suitability. This meant that the purchaser had to accept the goods with all defects, whether latent (hidden) or patent (obvious).
The only exception was if the seller knew of the existence of a latent defect and failed to disclose it. This was referred to as "fraudulent non-disclosure" and the courts have consistently ruled that fraudulent non-disclosure cancels out the voetstoots protection that the seller would otherwise have enjoyed. As a result, if the purchaser can prove fraudulent non-disclosure, which is not always as easy as one might think, then the seller will be obliged to give restitution i.e. to take back the goods and refund the purchase price.
The Consumer Protection Act of 2008 (CPA) has, since its commencement date of 31 March, 2011, brought about major changes to the legal situation outlined above. Sections 51, 55 and 56 of the CPA provide (in summary) that goods sold, including land and buildings, must be sold with an implied warranty that the goods are free of latent defects.
Circumstances in which the CPA does not apply
There are certain circumstances in which the CPA does not apply to a transaction of sale. These are where the seller or any intermediary, such as a broker or agent, is not regarded as a dealer or trader in the goods sold; and also where the purchaser is a body corporate, such as a company or close corporation, a partnership or trust, having assets of R2 million or more or a turnover of more than R2 million annually. So, a natural person or a corporate entity of modest means enjoys the protection of the CPA against the seller's voetstoots clause.
This is the reason why people selling their houses who are not affected by the CPA's provisions because they are not dealers or traders, are required to provide the estate agent with a full description of any latent defects in the property - because the agent, as an intermediary, might otherwise be held directly liable by a disappointed purchaser.
So if you are contemplating buying property or a substantial asset like a motor vehicle, it is worth thinking twice before buying it in a company name. And if you want to hold the asset in a company, it is worth considering the acquisition of a brand new company with no other assets through which to conclude the transaction.
Posted on 9 Nov 2012 11:08
About the author
Michael Hands is a consultant in the commercial department of Garlicke & Bousfield..