Legal battle looms over Durban social housing sale

The Social Housing Regulatory Authority (SHRA) is investigating the sale of a block of flats on Durban’s South Beach after social housing tenants were threatened with eviction from their homes of more than 20 years.

This comes after several residents of the blocks, Hawaii East and Central, in Gillespie Street told the Mail & Guardian that the social housing institution and nonprofit company First Metro had allegedly told them two decades ago that they had entered into a rent-to-buy lease agreement. Three residents — Lorraine Nair, Florah Tshezi and Hassan Abu — said the promise had been verbal at the time they signed their lease agreements.

Several other tenants, including those who have been living in the block for up to 12 years, said they had not been promised a rent-to-buy arrangement and their leases allowed for six months’ notice should they have to vacate. 

The tenants said they were given a month’s notice on 10 May to leave after the block was sold on public auction to Capone Group in October.

Phoenix Tenants and Residents Association founder Mervyn Govender said the association had sent a letter of demand from its attorney to Capone Group’s managing agent, Trafalgar, on 28 June after security officers had threatened to evict residents, despite not having a court order to do so.

In it, the association asked the company and its security contractor to “refrain from any act of intimidation, harassment and forced removal” of people.

Capone Group manager Monawwar Pharos denied that security officers had threatened residents, adding that, in some cases, “third parties” were living in flats and that rent had not been paid since May. He said the legal letter had been handed to the company’s attorneys to deal with.

The company had no knowledge of the tenants’ dispute with First Metro, nor the SHRA investigation, and had only been introduced to the company through the sale.

Govender alleged that First Metro received first-home owner institutional subsidies from the state for some residents, which are administered by the SHRA, and told them that they had entered into a rent-to-buy scheme.

First Metro, which has gone into business rescue, has not responded to the questions the M&G has sent to it over the past two weeks. 

Its business rescue plan, published on its website, highlights that it received a government subsidy totalling R1 587 000 (R17 250 for each of the 128 flats) for the redevelopment of the Hawaii East and Central blocks of flats. 

The plan states that, despite collecting rent of R194 745 a month, the block’s  “total direct project expenditure” is R207 289, which means it runs at a monthly loss of R12 545. 

In addition, it notes that, according to Deeds Office information, there is a mortgage for R1 647 750 in favour of National Housing Finance Corporation registered against the property.

Henk Strydom, who is named on the plan as the business rescue practitioner, had also not responded to requests for comment by the time of publication.

A spokesperson for the SHRA said: “The First Metro housing [situation] is an unfortunate one.

“The purpose of business rescue is to make every effort to rescue the entity and restore it to operational and financial sustainability, thus avoiding liquidation. The ultimate objective is to prevent disruption to tenants’ lives unnecessarily,” said the spokesperson, who did not want to be named.

Asked to comment on the allegation that the sale on auction of the state-funded social housing property was unlawful, they said the regulatory authority had only recently become aware of this, which is why it was now “reviewing the circumstances surrounding the sale”.

“In terms of applicable legislation, any sale requires the express consent of the regulator, SHRA — and the SHRA has not provided such consent.” 

They added that the state’s investment in these projects was also generally protected through the registration of a notarial deed of restraint.

But, they said, SHRA-regulated stock is “rented in perpetuity” and not sold through rent-to-buy schemes “as there is currently no provision in law or policy for a rent-to-own model in South Africa”.

She said the tenants have the right to a fair notice period as stipulated in their lease agreements.

“The SHRA will make every effort to protect the rights of tenants. In the unfortunate circumstance that the terms of the lease have been violated, the SHRA will assist tenants access proper and adequate legal recourse to enforce their rights..

“This includes facilitating engagement with the provincial Rental [Housing] Tribunal for assistance in this matter. 

“Furthermore, the rental tribunal will also ensure full adherence to the PIE Act [Prevention of Illegal Eviction from and Unlawful Occupation of Land Act], that suitable alternative accommodation is found for each of the affected tenants.”

They said the law expressly requires any transaction that could result in the relocation of tenants to have a condition relating to the provision of alternative accommodation.

“As part of the engagements that we will facilitate with the provincial rental tribunal, the issue of alternative accommodation will be central to all deliberations,” they said.

Asked how much money First Metro had received from the state in subsidies and the redevelopment capitalisation grant, they would only say that “a significant 

amount has been invested over the years both at a national and provincial level”. 

“It is in this regard that the state generally registers notarial deeds to ensure no party can trade with these properties without the express 

consent of the state, which consent has not been provided in this instance.”

The SHRA was not a party to the sale agreement and did not have details regarding the purchase price but would “obtain all relevant details” about the sale.

The spokesperson added that the SHRA would obtain details regarding the plans to redevelop the block from the business rescue practitioners.

“Furthermore, we are enjoined to protect the state’s investment in these projects and will endeavour to fulfil our mandate within the rights and powers that the SHRA has.”

Govender has alleged that, in terms of the Social Housing Act, it is unlawful for a social housing institution to take matters into its own hands, go into business rescue and sell a social housing development to a private buyer.

“They have to transfer the stock either to the state or to another NPC that has similar objectives. So they could not have just sold [the block].”

He said section 12 of the Act stipulated that, if the SHRA is “satisfied on reasonable grounds that there has been maladministration by a social housing institution”, it must prepare a report to that effect and provide the social housing institution, in this case First Metro, with a written notice of its intention to intervene.

“It must specify in that notice what remedial action must be taken by the social housing institution … and may request the institution to obtain specified support in order to rectify such maladministration,” Govender said.

He said that the SHRA could also make funds available to assist with this support.

According to the Act, should the social housing institution resist the intervention, or if there is no improvement in performance, the regulatory authority may authorise a forensic investigation into the institution’s affairs and can apply to the high court for the suspension of the chairperson, members of the board, manager and executive or senior staff of the institution for the period of the investigation. 

It can appoint a suitably qualified person to manage the institution’s affairs pending the findings of the forensic audit report.

“What it’s saying is only the high court can place the institution under administration, and in this case, the social institution went voluntarily under business rescue. They [management] could have only put it under business rescue if it was authorised by the regulatory authority,” Govender said.

He said that the residents association had also so far assisted 14 tenants to file cases against First Metro for the alleged “unlawful notice to vacate” and for its failure to do maintenance, with the KZN Rental Housing Tribunal.