Property developers should not be lulled into a false sense of
security when subcontracting with construction companies that are
registered as home builders in terms of the Housing Consumers
Protection Measures Act, No. 95 of 1998 (Housing Protection Act).
As clarified in the Constitutional Court's recent finding in
the case of Cool Ideas 1186 CC v Hubbard and Another 2014 (4)
SA 474 (CC) (Cool Ideas v Hubbard), both property developers
and the construction companies with whom they subcontract, have to
be duly registered as home builders in terms of the Housing
Protection Act, prior to the commencement of construction.
In the case of Cool Ideas v Hubbard, a property
developer entered into a building contract with a housing consumer
and subcontracted the services of a building contractor to
undertake the construction of the housing consumer's home. The
housing consumer took issue with the quality of the work and
refused to make final payment in terms of the agreement. Following
this refusal, the housing consumer instituted arbitration
proceedings, claiming the costs of remedial works; and the property
developer counter-claimed for the balance of the contract price. It
transpired that although the building contractor was registered as
a home builder in terms of the Housing Protection Act, the property
developer was not registered as such at the time of entering into
the building contract nor at the commencement of construction. The
question consequently arose as to whether s10(1) of the Housing
Protection Act required a property developer to register as a home
builder prior to the commencement of construction or whether
registration before payment was sought would suffice.
Section 10(1) of the Housing Protection Act provides that:
"No person shall –
(a) carry on the business of a home builder; or
(b) receive any consideration in terms of any agreement with a
housing consumer in respect of the sale or construction of a home,
unless that person is a registered home builder."
The Constitutional Court held that a purposive reading of the
Housing Protection Act, which is aimed at protecting housing
consumers, requires both the property developer and the building
contractor to be registered as home builders before commencing
building works. The statute does not permit the registration of a
home builder after-the-fact. Failure to register as a home builder
prior to the commencement of building results in the property
developer being ineligible to claim consideration for work done in
terms of a building contract.
The property developer argued that the prohibition on the
receipt of consideration due, in terms of the building contract,
amounted to an unconstitutional deprivation of the property
developer's property. The Constitutional Court, however, held
that the deprivation of the property developer's property did
not violate s25 of the Constitution. Section 10(1)(b) is aimed at
achieving a legitimate and important statutory purpose with a
rational connection between the statutory prohibition and its
purpose. There is accordingly no arbitrariness in the deprivation
and thus no violation of s25 of the Constitution.
The Constitutional Court also confirmed that the prohibitions
set out in s10(1) and (2) of the Housing Protection Act are not
directed at the validity of building contracts, but at the
unregistered home builder who is barred from receiving any
consideration for the work done in terms of that agreement. The
building contract is thus not invalidated by the breach of the
statutory prohibition contained in s10 of the Housing Protection
In light of the above, it is essential that property developers
register as home builders prior to the commencement of
construction, even if they have subcontracted to a building
contractor that is duly registered. Failure to do so will result in
the property developer being barred from claiming consideration for
the services rendered in terms of the building contract.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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As a developing country, Nigeria's real estate sector is evolving at a tremendous pace. Governments at all levels are more aware of the role of real estate development on the growth of their respective territories.
In principle, when the parties agree to arbitrate, they shall be
bound by that agreement. It should therefore follow that when a
party initiates arbitration proceedings, the other party - the
respondent – will avail itself of the opportunity to present
its case and participate in the proceedings.
Many standard form contracts contain provisions limiting the overall liability of the contractor, upon which a contractor unfamiliar with UAE law may place mistaken reliance.
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