Seek legal advice first! Property suretyship
Signing surety for another’s debts carries huge risk.
Yet every day directors of property holding companies happily sign personal suretyships for their company’s, usually substantial, debts.
Whether you want to sell your residential property or buy a new real estate investment, a house or an apartment, your Property Angel is here to help you find your substantial home.
Property Angels – Legal Advice
The problem is that it all seems so safe in the beginning. You need a bank loan to buy or develop a property, you’ve done your homework and the deal’s a good, sensible one.
It’s only when things go wrong down the line that your signature on that suretyship document comes back to haunt you, and by then it’s far too late – or is it?
A recent High Court decision illustrates one of the very restricted circumstances in which you may be able to escape from the trap you signed yourself into.
The developer, the trust and the bank:
A property developer lent some R10m to an associate’s companies for a shopping mall development. The associate’s companies then borrowed a further R5m from a bank, which took a R5m mortgage bond over the one company’s property as security. And, here’s the rub, the developer also signed suretyship to the bank for the R5m both personally and on behalf of his family trust.
The developer signed these suretyships believing that there was enough equity in the bonded property (valued at R12m) to cover both the R5m bond and another bond that he was told about of R2.7m.
What he didn’t know at the time was that there was yet another bond over the property, and this was a big bond for R15m. Neither his associate nor the bank had told him about it.
Only when both of the associate’s companies failed did the developer realise that there was no equity in the property at all, with bonds totalling R22.7m against a value of R12m, and that the bank’s liquidation dividend would leave it with a large shortfall.
The bank duly sued the developer and his trust as sureties for R5.7m (R5m plus interest). To understand how that turned out in court we need to look at when our law will let you off the hook, and when it won’t…
So when can you escape from a suretyship?
Our law will generally hold you to the agreements you make, and a suretyship is no exception. You can only free yourself from it if it was induced by fraud, duress, undue influence or mistake, whether induced by misrepresentation or otherwise.
Without going into all the legal niceties (you definitely need your lawyer’s specific advice if you ever find yourself in this unhappy position) the general principle is that, where you rely on a “justified error as to the nature or contents of the [suretyship] document”, you must show that you were “misled as to the nature of the document or as to the terms which it contains by some act or omission (where there was a duty to inform) of the other contracting party.”
In lay terms, you have to prove that the bank either actively misrepresented, or failed to disclose, something “material” (significant or vital) to you. And where you rely on a failure to disclose something (as in this case) you have to further show that the bank had a “duty to speak” i.e. had a duty to tell you about it. That’s because our law generally requires you to be aware of what you are contracting yourself into, rather than requiring the other party to tell all. The exception to that is where you can prove that the other party had exclusive knowledge of something material and your right to know about it “would be mutually recognised by honest men in the circumstances”.
That’s quite a mouthful and it’s not easily proved, but in the particular circumstances of this case the developer succeeded in doing so. The Court had accepted that the developer wouldn’t have signed surety if he had been aware of the R15m bond, and that the bank officials knew of his concern about there being enough equity in the property to cover the R5m. Moreover the developer hadn’t done a deeds search (which would have revealed the extra R15m bond) because as he saw it there was a “relationship of trust” between him and the bank’s officials and he would have expected them to tell him about it.
Critically, the bank’s disclosure to the developer of the R2.7m bond but not of the R15m one led the Court to conclude that, having thus made an incomplete disclosure to the developer, “a duty arose requiring the [bank]’s officials to speak and to make a full and honest disclosure to the [developer] of the material facts in their knowledge.”
The developer and his trust are accordingly off the hook. But there’s a strong confirmation there of just how narrow your potential escape route is from a suretyship. So as always take legal advice before signing anything!
Author: Chris Fick
Property Angels is an online property portal that promotes residential and commercial property for sale across South Africa. You can buy, sell, list and find South African properties online. Find houses for sale in Johannesburg, Cape Town and Durban which are the three biggest cities in South Africa.
At Property Angels we will help you sell or buy your next house or office space so that you can move on quickly and affordably.
Traditional Estate Agents do offer good service but you want so much more when it comes to selling or buying your next home.
Some of the top property companies online in South Africa include Private Property, Property 24, My Property, Property Fox, PropertyCoZa, Remax, Pam Golding, LeadHome, SA Hometraders, Gumtree and Property Angels.
Whilst most online property brands offer online visibility for Estate Agents South Africa, Property Angels offers online visibility for Attorney Realtor Agents South Africa.
Whether you have a property for sale or you are seeking a house to buy in the southern suburbs, Northern Suburbs, Eastern suburbs or Western suburbs, choose Property Angels as your attorney realtor property website in South Africa. Sell your property online through Property Angels.
Your dedicated Attorney Realtor will call you back today or the next business day.
Whether South Africa is in a buyer’s market or in a seller’s market, contact Property Angels today for quick and efficient online and face to face service.
List your house for sale with Property Angels. You can also find property to view, property selling tips and many other useful property and finance blog articles and property products bespoke to your needs. Buy and sell your private residential property through Property Angels. Allow Property Angels to become your chosen property website portal for your choice of homes to sell and homes to buy.