Sep 1,2010 / News / Legal Brief

In this era of consumer protection, it is ironical that South African law continues to allow residential and commercial property to be sold at rock-bottom prices if there is a civil judgment against the owner. No one benefits except the “seasoned bargain hunters” who attend the auctions where these properties go under the hammer, says Jenny Smit, Senior Associate at Werksmans Attorneys.

“It’s curious that a procedure as anachronistic as that relating to the sale and execution of immovable property still exists,” says Smit, referring to the procedure for prosecuting civil claims in the High Court.

Currently, only Sheriffs of the High Court may conduct sales in execution, she says. This severely limits the debtor’s ability to have a hand in increasing the potential value to be realised. “Another party to suffer the misfortune of this regulation is the execution creditor. Often, the money raised is not enough to cover the judgment debt in full.”

Smit says that the Sheriffs-only rule for conducting sales in execution, usually by auction, has several price-inhibiting effects.

One is that notices of sale are usually published in the Classifieds section of local newspapers and typically say almost nothing about the nature, situation or appearance of the property concerned.

“A very limited audience hunts for properties in this market,” Smit says. “The regular attendees at Sheriff’s auctions are generally seasoned bargain hunters who have been known to collude with each other to obtain properties at even lower values. This inhibits the extent to which the price can be driven up and is an anti-competitive practice which, because of the lack of popular interest and attendance, is being allowed to flourish.”

Another factor that keeps auction prices down is that Sheriffs have neither the skills nor the incentives to pursue higher prices.

“In terms of the tariff, the Sheriff of the High Court is not entitled to claim more than R8 050.00 excluding VAT from any one sale, regardless of the final price,” Smit says. “It is preposterous to expect any person to motivate an increased sale price in these circumstances.”

Commenting on Sheriffs’ skills, she says: “Having attended several sales in execution, it is apparent that many Sheriffs do not have the skills of professional auctioneers. Frequently, this allows bidders to bid in increments of single Rands, which is utterly ludicrous in the context of immovable property.”

Because of these shortcomings, residential and commercial properties are sold in execution for far less than their commercial value. “While the sale is obviously a forced sale, this in itself should not be a valid reason to prevent the debtor or the creditor from helping to realise the best possible price.”

At the very least, says Smit, the parties with an interest in the outcome of the sales price should be entitled to appoint an auctioneer with established networks of buyers, knowledge and use of advertising spaces, as well as expertise in conducting auctions.

She warns that sales in execution of immovable property are not permitted when judgments are for “trifling” amounts. “There is a constitutional necessity for judicial oversight in circumstances where a person’s right to housing could be interfered with*.”

Yet another anomaly is that judgments obtained in the Magistrate’s Court allow for sales in execution to be conducted by the sheriff or an auctioneer, whereas this is not permissible for High Court judgments.

“This flies in the face of the principle that ‘everyone is equal before the law and has the right to equal protection and benefit of the law’ as enshrined in the Bill of Rights. Clearly, the time has come for the regulations to be revised and synchronised.”

Smit adds that written concerns about the regulations were raised with the Rules Board for Courts of Law in May 2009. “The Rules Board has yet to resolve whether or not the regulations should be amended.”

“There is a deafening silence around the unfairness of the regulations. It can perhaps only be attributed to the lack of funding available to such unfortunate individuals who have had their last remaining assets of value taken from them, for less than what they were worth. Is it not time for the legislators to step in?”

* In the matter of Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others 2005 (2) SA 140 (CC), it was recognised that sales in execution of immovable property should not be permitted in circumstances where judgments were for trifling amounts.