In December 2018 the High Court in the Western Cape delivered a judgment in respect of six applications against mortgagees who had defaulted on their respective bank loans where such loans were secured by mortgage bonds over primary residences (The Standard Bank of South Africa Limited v Hendricks and Another).
In terms of section 26 of the Constitution, debtors have the right to access adequate housing and no-one may be evicted from their home “without an order of court made after considering all the relevant circumstances.” The case centred on Rule 46A of the Uniform Rules of Court regarding execution against residential immovable property. The court asked the bank’s counsel and the amici curiae to address it on several issues, including the circumstances under which a court is to set a reserve price for the sale of a property in execution and how this is to be determined in terms of the new uniform rule 46A.
It was held that the factors to be taken into account by the court in deciding whether to set a reserve price are clearly set out in Rule 46A(9)(b). These include:
- the market value of the property;
- the amount owing in rates or levies;
- the mortgage bond amount outstanding;
- any equity which may be realised between the reserve price and the market value of the property;
- any reduction of the judgment debtor’s indebtedness on the judgment debt;
- whether the immovable property is occupied, by whom and the circumstances thereof;
- the likelihood of the reserve price not being realised and of the property not being sold;
- issues of prejudice; and
- any other factor which the court considers necessary.
The forced nature of a sale in execution necessarily impacts negatively upon the purchase price of a property and a voluntary sale will generally realise a higher value. The Western Cape High Court agreed with the approach taken by the Gauteng High Court in Absa Bank Limited v Mokebe that the benefits of setting a reserve price generally outweigh any prejudice which may arise in doing so. A reserve price will halt the sale of homes at minimal value and it is only in exceptional circumstances that the court should exercise its discretion not to set a reserve price.
The court went on to hold that no purpose is served in setting a reserve price with no evidence as to what that reserve price should be, as this would amount to the court failing to exercise its duty judicially. A practice directive should be developed which details the manner in which the information is required to be placed before the court to allow it to have regard to the factors relevant to setting a reserve price according to the rule.
This article has been written by Janine Will, a Senior Associate in the Commercial Department of Garlicke & Bousfield Inc
NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of commercial litigation.
