Fractional ownership – is there actually such a thing The typical

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					NEWSLETTER – January 2009

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Fractional ownership – is there actually such a thing?

The typical scheme whereby developers advertise Fractional Ownership (which appears to be the flavour of the month lately) is the following (in a simplified form): Company owns a holiday house. The Company then sells shares in the company and a pro rata portion of the loan account. So, for example, the company will sell 13 shares, which will allow each shareholder 4 weeks' accommodation (4 x 13 = 52) in the holiday house. This is then marketed as Fractional Ownership – for which, we may add, NO LEGISLATION EXISTS. As such you do not own any shares in the land, only in the company that owns the land, and through which, you obtain the right to use it for a certain period of time.

It would appear that the sole purpose of marketing Fractional Ownership is to possibly circumvent legislation such as the Property Time-Sharing Control Act of 1975, which deals with Time Share Schemes, and the Share Blocks Control Act 59 of 1980. In terms of the former Act, a Company will sell "shares" (and I use this term very loosely for the purposes of this article) in a specific Unit / House for example, which allows you to stay there for a certain time in the year. However, you do not actually own shares either in the company that owns the property, or in the property itself. You are merely buying the right to stay there for a certain period of time, and clearly this differs markedly from the idea of Fractional Ownership.

The Share Block scheme however, is one where ownership in shares in the actual company dictates your right to stay in the property. Several articles have been written recently

questioning the legality of Fractional Ownership, because these types of Schemes seldom comply with the Share Blocks Control Act. It is to be noted that non-compliance with this Act (when the scheme intends to have the same consequences as that which the Act provides for), is a criminal offence. The Share Blocks Control Act has stringent requirements, and accountability mechanisms, which most "Fractional Ownership" schemes do not have – despite the fact that the end result of what is intended is exactly the same as what the Share Blocks Control Act intends. Furthermore, issues such as Transfer Duty arise when buying into a Share Block Scheme, but which are not usually encountered when buying into a "Fractional Ownership" scheme. Failure to pay Transfer Duty within the time frames laid

down by law result in heavy penalties. Space in this Newsletter hardly allows for a full discussion of the requirements, but readers would be well advised to seek legal advice from an experienced property lawyer with a track record in the field of developments, before agreeing to buy into a Fractional Ownership scheme of any kind, and to make sure that you do not commit a criminal offence or avoid paying Transfer Duty. Maintenance of a former spouse who remarries

Does a former spouse (A), who agreed to maintain the other spouse (B) after divorce, have to continue maintaining B even after B remarries? One would automatically think not, because the legal duty to maintain normally arises from a marriage, and unless otherwise agreed or ordered by Court upon divorce, lapses on divorce. In the matter of Welgemoed and Mennel the parties were divorced and at the time of the divorce had entered into a settlement agreement which had been made an order of Court. The agreement provided that (in this case "A" above) would pay a certain amount of maintenance to "B" until her death, without qualifying it. A few years later B remarried. A then sought a declaratory order to the effect that B's remarriage automatically relieved him of his obligation to pay her maintenance. The Court however held that since there was no limit placed on the period, for which maintenance may be ordered by a Court, in terms of s 7(1) of the Divorce Act, the parties were free to agree that maintenance would be paid beyond the recipient's remarriage or the provider's death, and that remarriage did not necessarily imply financial gain. (i.e. remarriage did not mean that the new spouse was in a financial position to maintain B). Remarriage might therefore constitute sufficient cause for a maintenance order to be rescinded or varied – there is no guarantee. In this case, the ordinary meaning of the relevant clause of the agreement was clear and unambiguous: maintenance was payable until the respondent's death. As such there was no room for an implied term to the effect that there would be an automatic termination of maintenance upon remarriage. Lesson to be learnt: When you sign a settlement agreement make sure that the wording reflects the fact that maintenance is payable until death, or remarriage, whichever occurs first (which is the usual wording) It is also quite common to see agreements nowadays that maintenance is payable until remarriage or until the other party

should cohabit with anyone in the future, in a permanent relationship, or until death whichever occurs first.

Avoiding a judgement under the NCA

Section 129, read with section 130, of the National Credit Act (NCA) requires a credit provider (as defined in the Act) to first serve notice on a defaulting consumer, before the credit provider may institute proceedings in Court to recover the debt. The notice draws the debtor's attention to the arrears, and must contain a clause, which proposes debt review or debt counselling. Once this notice has been served, a credit provider may issue summons against the debtor and if the debtor defends the action, the creditor may apply for what is termed "summary judgement" on the basis that the matter is being defended solely for the purpose of delay, and not because the debtor actually has a viable defence.

A debtor can however oppose an application for summary judgment if the debtor also applies under sections 85 or 86 for debt review. Section 85 allows the court, in proceedings, which deal with a credit agreement, to refer the matter to a debt counsellor or to declare that the debtor is "over-indebted" and make an appropriate order to relieve that over-indebtedness. The Court then has a discretionary power, whether or not to grant summary judgment. The court will take into account the debtor's financial situation (i.e. assets as against liabilities) and whether or not the debtor reacted to the Notice. If not, the court will naturally have to be satisfied that the debtor had good reason and wasn't merely being obstructive and intentionally ignorant. Naturally, if the debtor wants to rely on the fact that s/he is in no position, to meet his/her debts, s/he will have to make a full disclosure of all assets and liabilities, otherwise it is unlikely that the court will be sympathetic.

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