The current state of the rental market

While restaurants, shopping malls and beaches may look somewhat similar to what they did before the pandemic, nevermind lockdown regulations and social distancing protocols, the real estate rental market has not recovered quite as well as the consumer market.

Studies conducted by the TPN Credit Bureau have indicated that, at the start of the hard lockdown of 2020, only half of short-term credit accounts were paid in “current” terms. Already in the third quarter of 2020, the repayment of credit accounts had increased to 70%. The rental market has not been so fortunate in its recovery.

Due to job losses and increasing financial insecurity, the prospect of defaulting on rental payments has become an ominously looming possibility for many tenants. However, TPN’s research has indicated that the number of tenants more than three months in arrears is steadily declining, thanks in part to the rental relief that was provided by numerous landlords when tenants’ financial situations were in dire need of every cent that could be spared. While tenant payment has increased greatly since the third quarter of 2020, it seems as if it was an improvement that levelled out in 2021.

When looking at the section of the market that is still most affected by non-payment, it is unfortunate that it proves to be properties with a rent of under R7 000, which is commonly considered the more affordable market. With the under-R3 000 market, only 65.73% of tenants are currently in good standing according to statistics. This is a clear indication that the tenants struggling the most with rent are also those who have felt the impact most due to lesser wealth.

Research makes it clear that there are numerous tenants who are more than six months in arrears still occupying properties, placing landlords in an increasingly difficult predicament. The unfortunate reality is that where mediation was previously possible, the employment circumstances of many tenants are unlikely to change soon, making mediation a redundant process. The last resort left to landlords thus becomes a court-ordered eviction. However, evicting long-term delinquent tenants who have invertedly become squatters is a costly and drawn-out process. Once a landlord’s legal counsel has advised them on the avenues of legal action available to them within eviction law and the state of disaster regulations, the difficulty of securing a court date makes a court-ordered eviction a problematic solution, to say the least.

When it comes to squatting tenants and evictions, landlords also have to keep in mind that they may not hinder a tenant’s ability to reasonably occupy the property, even if they are in arrears on rent. The law prohibits landlords from activities such as removing doors, cutting off electricity, or changing the locks of the doors – activities certain landlords have previously resorted to in hopes of making the occupation of the property so unbearable that the squatting tenants would leave on their own.

The fear of non-payment has become one of the greatest concerns for landlords in general, leaving many landlords preferring a temporarily vacant property over risking tenants who will end up in arrears and the possibility of squatting. As proof of this, the statistics show that while the national vacancy rate has stabilised at 13.5% in the second quarter of 2021, areas such as Sandton still show a vacancy rate of above 20%.

Hopefully the rental market will mirror the improved activity and regained sense of normalcy of the consumer market and continue to stabilise as 2021 heads into its final quarter. One silver lining around this cloud is that you are not alone. Whether you have further questions regarding tenants falling into arrears or want advice regarding your vacant rental property, our property experts are here to help you on your journey.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Must employees disclose their vaccination status?

While employers cannot force their employees to be vaccinated, there are various grounds for dismissing employees who object, provided that the employer has conducted a thorough risk assessment to determine the need for vaccination. They also need to provide every possible reasonable solution to accommodate them.

One of the grounds on which an employer can let go of an employee who refuses the jab is the refusal of sharing medical information if they wish to be exempt from their workplace’s vaccine programme for medical reasons. If an employee objects on medical grounds, they may be sent for medical testing to prove the veracity of their claims.

Employers must, however, ensure that they are obtaining the consent of their employees before they send them for medical testing and that all the provisions of the Employment Equity Act are closely complied with in relation to discrimination.

However, an employer can make the disclosure of medical information mandatory for a public policy reason. Employers can argue that mandatory vaccination and vaccination-related information are critical to the organisation and necessary for the company to continue its operations. An option would be for the inclusion of an employment policy or a workplace vaccination policy which states that vaccination and Covid statuses must be disclosed. If the employer can show that the non-disclosure of it prevents the company from operating, or that it endangers others, it can go as far as dismissing the employee.

In terms of the guidelines and directives of the Health Professions Council of South Africa, registered health practitioners can be approached for a patient’s medical details. Any personal information can, however, only be shared in alignment with the council’s ethical rules and regulations. Confidential information can only be shared with the express consent of the relevant parties. Any of the personal information can be shared if all parties expressly grant such permission.

However, in some instances, the law can require that medical professionals provide and/or divulge certain medical information without the consent of a patient, by way of a court order if required by law, and/or if the disclosure is in the public interest.

Although civil actions for breach of confidence are rare, the issue can be a minefield for the unwary. Thus, those who are about to reveal and/or compel the disclosure of confidential information should carefully consider their grounds for doing so and be clear that there is either consent, lawful authority, or some public interest justification.

Reference List:

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Resigning with immediate effect, or not?

Employees often consider to immediately terminate their employment relationship due to a new opportunity arising or to avoid responsibility when faced with disciplinary procedures. Employment relationships are governed by an employment agreement or legal statutes, and in most cases both. If an employer and employee do not expressly agree on the notice period needed for either of them to terminate their relationship, section 37 of the Basic Conditions of Employment Act, 75 of 1997 (the Act)  provides for minimum notice periods. But what happens when the employee does not follow the notice period in the employment agreement and resigns with immediate effect?

The Labour Appeal Court address this matter in Standard Bank of South Africa Limited v Nombulelo Cynthia Chiloane (2021) 4 BLLR 400 (LAC). In this matter, the employee was said to have cashed a cheque without following proper procedures. It later transpired that the cashed cheque was fraudulent, which caused the employer a loss of just under R30 000. The employee was given notice to attend a disciplinary hearing. On the day that the employee received the notice to attend the disciplinary hearing, she handed her superior her letter of resignation, stating that she was tendering her “resignation with immediate effect”.

Standard Bank proceeded with the employee’s disciplinary hearing during her contractual notice period, but the employee argued that her resignation immediately terminated the employment relationship, and that Standard Bank was therefore not entitled to proceed with her disciplinary hearing. The chairperson of the disciplinary hearing rejected this argument and proceeded with the hearing. The employee and her attorney then left the disciplinary hearing, which proceeded in her absence.

The employee was ultimately found guilty of the misconduct and dismissed. After becoming aware of the dismissal, the employee launched an urgent application in the Labour Court to challenge the validity of the dismissal.

The Labour Court held that a resignation with immediate effect terminates the employment relationship immediately and Standard Bank was not permitted to hold the employee to her notice period. Accordingly, the Labour Court declared that the employee’s dismissal was null and void. Standard Bank, however, appealed the decision to the Labour Appeal Court.

The Labour Appeal Court held that if the contract provides for a notice period, the party that seeks to terminate the contract must give or serve the prescribed notice. A party’s failure to abide by their notice period thus amounts to a repudiation of the employment agreement. The Labour Appeal Court found that the employee’s reliance on her resignation being with immediate effect was not valid. Standard Bank was therefore within its rights to hold the employee to her notice period as prescribed in her employment agreement, and to proceed with her disciplinary hearing during that period.

What is important to note from this judgement is the fact that unless the employer releases the employee from his/her obligation in terms of the employment agreement, the employee will commit a breach of agreement. Accordingly, the employee can also be held liable for damages suffered by the employer.

Employees will also expose themselves to a poor reference for future opportunities.

Should the employer, however, decide to accept the short notice, even when it contradicts the prescribed notice period, there will be no obligation on the employer to pay the employee beyond the last day on which they worked.

Accordingly, it will be best for employees to revisit their employment agreements prior to tendering their resignation or committing to any other opportunity. However, should the need arise for short notice, employees will have to engage with their employers to see if a mutual agreement can be reached to accept the notice.

Reference List:

  • Standard Bank of South Africa Limited v Nombulelo Cynthia Chiloane (2021) 4 BLLR 400 (LAC)2021) 4 BLLR 400 (LAC).
  • Steenkamp & others v Edcon Ltd (National Union of Metalworkers of SA intervening (2016) 37 ILJ 564 (CC).
  • Basic Conditions of Employment Act, 75 of 1997.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Balancing your business’s losses and taxes

In line with the 2020 Budget Announcement, Government proposes to broaden the corporate income tax base by restricting the offset of the balance of assessed losses carried forward to 80% of taxable income.

The proposal extends to the balance of assessed losses at the time of implementation, i.e. it is not only the accumulation of losses starting from the date of implementation that will be subject to the new rules. This will contribute to providing the fiscal room for Government to lower the corporate tax rate.

The effect of the proposed restriction is that only companies that would be in a positive taxable income position before setting off the balance of assessed losses will be affected.

The table below provides an overview of four potential combinations of taxable profit/loss positions combined with whether there is an assessed loss balance or not.

*Source: National Treasury

Those in Groups A, C and D will not be affected by the proposed restriction on assessed losses. It is only companies in Group B that will potentially be affected. Within Group B, if the company’s accumulated assessed loss balance exceeds 80% of its taxable income, the company will be required to pay corporate income tax on 20% of its current-year taxable income.

The examples below illustrate how three different companies in Group B could be affected – all of which have years of assessment starting on/after 1 April 2022 and would be in a positive taxable income position before offsetting any prior year losses.

Example 1 

Company B1 has a year of assessment starting on 1 April 2022. It has R500 of taxable income before offsetting accumulated losses of R1,000. The accumulated loss balance thus exceeds its current-year taxable profit – and, by implication, is more than 80% of taxable income. Company B1 will be required to pay corporate income tax on the portion of its current-year taxable income that exceeds 80% of taxable income (i.e. on 20% of taxable income). As a result, Company B1 will be required to pay CIT of R28 (CIT rate of 28% applied to the taxable income of R100). The remaining balance of the assessed loss can be carried forward to the following year of assessment.

Example 2 

Company B2 has a year of assessment starting on 1 July 2022. It has a taxable income of R500 prior to setting off assessed losses of R475. The balance constitutes 95% of its current-year taxable income – exceeding the proposed 80% restriction. As a result, Company B2’s assessed loss balance, which can be set off against its taxable income, will be limited to R400 (80% of its taxable income), with the remaining balance of R75 carried forward to future years. Company B2 will also pay CIT of R28 (CIT rate of 28% applied to the taxable income of R100).

Example 3 

Company B3 has a year of assessment starting on 1 October 2022. It also has a taxable income of R500 before offsetting the assessed loss balance. However, its assessed loss balance is R200, which is less than 80% of its taxable income. Company B3 will be able to use its total assessed loss balance of R200 to reduce its taxable income.

*Source: National Treasury

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax costs of barter transactions

Barter transactions are commonplace in today’s commercial environment. Parties exchange goods or services without a cash transaction underpinning it. The question is, “What happens when I sell the asset in future? Do I have a tax cost for it?”

Paragraph 20(1)(a) of the Eighth Schedule to the Income Tax Act refers to ‘the expenditure actually incurred in respect of the cost of acquisition or creation of that asset’. The word ‘expenditure’ includes expenditure in cash or in kind. In ITC 1783 the court established the following about the meaning of the word ‘expenditure’:

“Expenditure” in its ordinary dictionary meaning is the spending of money or its equivalent e.g. time or labour and a resultant diminution of the assets of the person incurring such expenditure.”

The court cited the following extract from the authors of Silke:

“It is submitted that the word “expenditure” is not restricted to an outlay of cash but includes outlays of amounts in a form other than cash. For example, if a merchant were required to pay for his goods by tendering land or shares in a company, the value of the land or shares would constitute expenditure in terms of s 11(a) and would be deductible.”

This principle confirms that the expenditure in a barter transaction is the amount by which each party’s assets are diminished. For example, in South Atlantic Jazz Festival (Pty) Ltd v C: SARS the taxpayer staged annual international jazz festivals during the period in question. During its enterprise it concluded sponsorship agreements with various suppliers in which the sponsors paid money towards and provided goods and services for the festivals in return for which the taxpayer provided goods and services to the sponsors in the form of branding and marketing. The transactions under the sponsorship agreements were essentially barter transactions despite their part-cash components. The court found that:

“In consequence, and accepting, as one may, that the transactions were at arms’ length, the value of the goods and services provided by the appellant to the sponsors in each case falls to be taken as the same as that of the counter performance by the relevant sponsor. … ‘In an ordinary arms’ length barter transaction, the value that the parties to it have attributed to the goods or supplies that are exchanged seems to me, in the absence of any contrary indication, to be a reliable indicator of their market value.” 

In general, therefore, it can be accepted that when assets or services are exchanged for assets or services under a barter transaction, the market value of the assets or services will, absent any contrary indication, be the market value of the assets or services as agreed between the parties and would be of equal value. In most instances the market value of the assets or services to be exchanged between the parties is reflected in the relevant agreement.

Should you engage in barter transactions on a regular basis, it is advisable to speak to your financial/tax adviser to determine the specific factors relevant to these transactions.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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