Does a trust need to register as a homebuilder?

Each year, hundreds of new homes are constructed by commercial developers around the country. To regulate this industry, the Housing Consumers Protection Measures Act 95 of 1998 (“the Act”) established the National Home Builders Registration Council (the “NHBRC”). This Council aims to, among other objectives, “represent the interests of housing consumers by providing warranty protection against defects in new homes” and to “communicate with and to assist home builders to register in terms of the Act”.[1]

It is imperative that home builders register as such with the NHBRC. This is emphasized in section 10 , which states that:

“(1) No person shall –

  • Carry on the business of a home builder; or
  • Receive any consideration in terms of any agreement with a housing consumer in respect of the sale or construction of a home,unless that person is a registered home builder.” (own emphasis added)

(2) “No home builder shall construct a home unless that home builder is a registered home  builder.”

The Act applies to “any homebuilder” but excludes “a person who uses his or her own labour to build a home for his or her occupation if the home is part of an approved PHP Project”.[2]  A “home builder” is defined in the Act as:

  • A person who carries on the business of a home builder; or
  • An owner-builder who has not applied for exemption in terms of section 10A”.

To carry on the “business of a home builder” means:

“(a) to construct or to undertake to construct a home or to cause a home to be constructed for any person;

(b) to construct a home for the purpose of sale, leasing renting out or otherwise disposing of such a home;

(c) to sell or to otherwise dispose of a home contemplated in paragraph (a) or as a principal; or

(d) to conduct any other activity that may be prescribed by the Minister for purposes of this definition .”

 

While it may be simple to ascertain whether the business of a homebuilder is being carried out, it is not always as easy to determine whether it is being carried out by a “person” as contemplated in the Act. This is due to the fact that a “person” is not defined therein. Companies and close corporations are recognized as juristic persons, and can thus be considered as a class of ‘person’. But what about trusts? Except where legislation specifically states otherwise, as in the Income Tax Act[3], trusts are not considered to be juristic persons, but stand alone as sui generis entities.[4]

Until recently, it was settled law that a trust was not a ‘person’ in terms of section 1 nor in terms of section 10(1) of the Act.[5] As such, trusts carrying on the business of home builders did not have to register as homebuilders with the NHBRC. However, the case of National Home Builders Registration Council v Michiel Wessel Adendorff & others[6] has altered the legal position. In this matter, Adendorff Trust (“the Trust”) sought to construct a sectional title housing development (“the development”) on an erf in Limpopo Province, and subsequently registered as a home builder with the NHBRC. However, the Trust later failed to renew its registration with the Council. Despite this, the Trust continued with its construction of the development. Compliance notices regarding its failure to register were addressed to the Trust by the NHBRC, but these were ignored by the Trust. The NHBRC then launched application proceedings against the Trust in the High Court, seeking an order in the form of a declarator that  “the construction of [the] homes… contravenes the Act”[7] due to the Trust not being a registered homebuilder.[8] The court dismissed the application with costs. The matter then got taken on appeal.

The key issue to be determined by the Supreme Court of Appeal was “whether on a proper interpretation of the statute, a trust engaged in the building of homes is “a person” as contemplated in s10(1) of the Act”[9].

The Trust vehemently argued, in line with case law, that “since a trust is not a person, it is not required to register as a home builder in terms of the Act”[10].

The Supreme Court of Appeal disagreed with the Trust’s assertion. The court held that a trust is a person, and therefore a homebuilder, as envisaged in ss1 and 10(1). In reaching this conclusion, the court emphasized the purpose and objectives of the Act as well as the intention of the legislature in drafting the Act. The court reasoned that the overall purpose and core function of the Act is “to protect the public by requiring the registration of home builders, thus ensuring that consumers are not exposed to unscrupulous and incompetent home builders, building contractors and developers or to the potential risk of defective housing”. Furthermore, the court referred to sections 9 and 21 of the Act, where ‘trustees’ and ‘trusts’ are expressly mentioned. For example, section 9 of the Act, which deals with access to information, states in subsection 1 that  “the Council shall keep up and provide access to an information database on the homebuilders registered….in terms of this Act.” Subsection 2 goes on to explain that this database shall include the “names and identity numbers of the directors, members, trustees or partners of such companies, close corporations, trusts, partnerships or sole traders” as well as “the number of homes enrolled by such homebuilders[11] (own emphasis added).

The court held that in light of these factors, the legislature must have intended for s10(1) of the Act to apply to trusts which carry on the business of building homes.

There are consequences for all parties concerned if a Trust fails to register with the NHBRC. According to section 21(1)(b) of the Act, any person (and thus a Trust) who contravenes section 10(1) or (2) by not registering as a homebuilder,

“shall be guilty of an offence and liable on conviction to a fine not exceeding R25 000, or for imprisonment for a period not exceeding one year, on each charge.” (own emphasis added)

There are also consequences for the housing consumer. For example, according to section 18(1),

no financial institution shall lend money to a housing consumer against the security of a mortgage bond registered in respect of a home, with a view to enabling the housing consumer to purchase the home from a home builder, unless that institution is satisfied that the home builder is registered in terms of this Act and that the home is or shall be enrolled with the Council and that the prescribed fees have been or shall be paid”

Even the conveyancers can face the same penalties applicable to a non-compliant trust, if they attend to registering a mortgage bond in favour of a financial institution without the home builder first being registered with the NHBRC.[12] In order to avoid this, conveyancers need to ensure that the homebuilder is registered in terms of the Act, has enrolled the home[13] with the NHBRC and has paid the prescribed fees in respect of that enrolment.

 

In light of this case, it is imperative that a trust that carries on the business of a homebuilder registers with the NHBRC in order to be compliant with the Act and to therefore avoid being penalized. It is also of paramount importance that a conveyancer complies with their obligations set out in the Act, in order to avoid being liable for a fine and or imprisonment.

 

Lauren Howell

Candidate Attorney

Lanham-Love Attorneys

 

[1] Section 3 of the Act.

[2] The Act defines “PHP Project” as “a housing project approved in terms of Chapter 8 of Part 3 of the National Housing Code: Housing Subsidy Scheme: People’s Housing Process.” It is a subsidy given to people who want to build or manage the building of their own homes. People are in charge of their own house construction process in this programme and are supported by a support organization – in other words, a project that is owner-built and managed.

[3] No. 58 of 1962.

[4] Commissioner for Inland Revenue v MacNeillie’s Estate 1961 (3) SA 833 (A) 840D-H; Commissioner for Inland Revenue v Friedman NO 1993 (1) SA 353 (A) 370E-I.

[5] See: National Home Builders Registration Council (NHBRC) v Botes (18094/2006)  [2008] ZAGPHC 170 (20 August 2006); National Home Builders Registration Council (NHBRC) Van Rooyen and Others. (11273/2006)  [2006] ZAGPHC 17 (20 April 2006).

[6] (406/2018/) [2019] ZASCA 20 (26 March 2019).

[7] National Home Builders Registration Council v Andendorf NO and Others (1640/2015) [2018] ZALMPPHC 5 (14 February 2018) at para 4.

[8] National Home Builders Registration Council v Andendorf NO and Others (1640/2015) [2018] ZALMPPHC 5 (14 February 2018).

[9] Judgment at para 3.

[10] Judgment at para 5.

[11] S9(2)(a)-(b) of the Act.

[12] This is an offence in terms of section 21(b) read with section 18(2) of the Act.

[13] “Home” is defined in section 1 of the Act as: “any dwelling unit constructed or to be constructed by a home builder, after the commencement of this Act, for residential purposes or partially for residential purposes, including any structure prescribed by the Minister for the purposes of this definition or for the purpose of any specific provision of this Act, but does not include any category of dwelling unit prescribed by the Minister”.