1 THE LEGAL ISSUE

The issue is whether the clause in a contract of sale of land satisfies the subtraction from
dominium test so as to create real rights which are registrable against the title deeds of the
property concerned.

2 FACTS

2.1 Consultant is Rajen Moodley.

2.2 Consultant wishes to know whether the rights created by a clause in the contract of
sale of land may be registered against the title deeds to the property.

2.3 Consultant explained that he is the owner of a piece of undeveloped land in the
KwaZulu-Natal Midlands which he has agreed to sell to one Vusi.

2.4 Consultant has further explained that the contract of sale in respect of this piece of
land contains a clause entitling the seller and/or his successors-in-title to one-third of
the net profits should the buyer and/or his successors-in-title lay a township upon this
land or any portion and then decide to sell such a township.

2.5 Such profits, as per the clause in the contract, shall be payable to the consultant
and/or his successors-in-title from time to time as each erf or lot is sold.

3 SHORT ANSWER
Counsel is of the opinion that consultant’s prospects of success in his course of action are
relatively strong.

4 THE RULE OF LAW

1
THE DEEDS REGISTRIES ACT

4.1 In order to adequately answer the aforementioned question it is desirable to

highlight from the outset the significant provision of the Deeds Registries Act.1

4.2 Section 63 of the Deeds Registries Act regulates the restriction on registration of
rights in immovable property and provides in this respect that:

“No deed, or condition in a deed, purporting to create or embodying any

personal right, and no condition which does not restrict the exercise of any
right of ownership in respect of immovable property, shall be capable of
registration: Provided that a deed containing such a condition as aforesaid
may be registered if, in the opinion of the registrar, such condition is
complementary or otherwise ancillary to a registrable condition or right
contained or conferred in such deed.”2

THE COMMON LAW

4.3 It follows, as Badenhorst3 has correctly pointed out, that only real rights, as
opposed to personal rights, may be registered against the title deeds to the
property.

4.4 South African courts adopt a two-fold test in order to determine whether the right
is real or personal. Firstly, the right must be intended to bind not only the present
owner, but also his successors-in-title.4 Secondly, the nature of the right must be
such that the registration results in a subtraction from dominium.5 A subtraction

1
Act 47 of 1937
2
Act 47 of 1937; s 63(1)
3
PJ Badenhorst. ‘Registrability of rights in the deeds office.’ (2000) 63(3) THRHR 499
4
PJ Badenhorst. ‘Erroneous omission of real rights from subsequent title deeds.’ (2001) 22(1) Obiter 190
5
Badenhorst (note 4 above; 190)

2
 from dominium entails that ownership entitlements must be diminished or
curtailed by the registration of the right.6

4.5 South African property law is, however, characterized by great difficulty in
respect of the nature of rights (whether real or personal) created during the
transfer of immovable property, particularly where a monetary obligation is
attached to the agreement between the parties concerned.7

4.6 In the landmark case of Ex Parte Geldenhuys,8 the court essentially found that in
cases where the obligation is to pay a certain sum of money to another person, the
right created is personal as it is binding only upon the person in his personal
capacity and not the land. Therefore, the right may not be registered.

4.7 The interpretation of the subtraction from dominium test and whether a monetary
obligation constitutes a real right or not has been considered by the different
Provincial Divisions in two cases, namely Lorentz v Melle9 as well as in Pearly
Beach Trust v Registrar of Deeds.10

4.8 In Lorentz v Melle11 the court came to the following conclusions:

4.8.1 The subtraction from dominium test requires that ownership rights should
amount to the curtailment of the “enjoyment of the land in the physical sense.”

4.8.2 Accordingly, the court found that the monetary obligation, as per the
contractual agreement, relating to the sharing of profits to be accumulated as a
result of the potential township development did satisfy the subtraction from

6
H Mostert & A Pope. The principles of the law of property in South Africa. (2010) 50
7
Mostert & Pope (note 6 above; 49)
8
1926 OPD 155
9
1978 (3) SA 1044 (T)
10
1990 (4) SA 614 (C)
11
Lorentz (note 9 above)

3
 dominium test, but did not diminish or restrict the owner’s rights in relation to
the enjoyment of the land in the physical sense.

4.9 On the other hand, the court in Pearly Beach Trust v Registrar of Deeds12
concluded as follows:

4.9.1 The ‘curtailment of the right of the owner to the enjoyment of the land in the
physical sense’ is inclusive of the right of the owner to alienate his land.

4.9.2 Therefore, if this right is curtailed in a sense that the owner cannot fully enjoy
the fruits of the disposition of his land, then his right of ownership is curtailed
and such curtailment amounts to the subtraction from dominium.

4.9.3 Accordingly, the monetary obligation created was found to have constituted a
real right and was thus deemed registrable.

4.10 It is unfortunate that in Cape Explosive Works Ltd And Another v Denel (Pty) Ltd
And Others,13 the Supreme Court of Appeal did not take the opportunity to reconcile
the conflicting interpretations of the subtraction from dominium.

4.11 In contrast, Denel14 merely provides that the intention with which a right is created
is also of importance when ascertaining if a right is real or not and that erroneous
omissions do not extinguish the enforceability of real rights against the whole
world.

4.12 In reconciling the contrasting interpretations, the following points can be made:

12
Pearly Beach (note 10 above)
13
2001 (3) SA 569 (SCA)
14
Denel (note 13 above)

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 4.12.1 As Badenhorst correctly points out,15 the court in Lorentz16 adopted a narrow
interpretation of the subtraction from dominium test, whereas a wide
interpretation was adopted in Pearly Beach.17 In my opinion, a narrow
interpretation is more likely to be the correct position, especially for purposes
of legal certainty in our law.

4.12.2 Insofar as legal certainty is concerned, Lorentz18 makes it clear that, as a

general rule, a personal right is created where the obligation sounds in money.

4.12.3 It is submitted that it should not matter whether the monetary obligation
(which is a personal right) curtails the right of the owner to the enjoyment of
the land in the physical sense or not in the physical sense. The reason is that
a personal right may never change its nature and be real even if it did restrict
the exercise of ownership in the physical sense or not.

4.12.4 The aforementioned argument is also supplemented by the doctrine of

subjective rights which provides that real rights can be distinguished from
personal rights according to the categories of objects to which they relate. 19 It
follows that things such as ownership are the objects of real rights, whereas
performances such as contractual obligations are the objects of personal
rights.

4.12.5 In light of the above, in my opinion, the view in Lorentz20 is to be preferred

because in both cases the obligation to pay a sum of money is merely a
performance arising out of a contract. A real right cannot have a performance
as its object.21 Accordingly, such an obligation is characteristic of a personal
right.
15
Badenhorst (note 4 above; 195-196)
16
Lorentz (note 9 above)
17
Pearly Beach (note 10 above)
18
Lorentz (note 9 above)
19
PJ Badenhorst; JM Pienaar; H Mostert. Silberberg and schoeman’s the law of property. 5 ed. (2006) 50
20
Lorentz (note 9 above)
21
Badenhorst (note 2 above; 503)

5
 4.12.6 It is, therefore, undesirable to follow the judgment set out in Pearly Beach22
since the court seems to have erred in its judgment.

5 APPLICATION

5.1 The Denel23 case does not bear much substance in the present matter since the
intention to bind both Rajen and Vusi’s successors in title is expressly conveyed in
the facts.

5.2 The case of Ex Parte Geldenhuys24 can be distinguished from the present matter
since a contractual obligation is presently in dispute and not a testamentary
obligation.

5.3 It is clear from the facts of the present case that the right created in the clause
imposes a monetary obligation based on the potential township development.
Given the nature of rights created in cases of monetary obligations, as per Lorentz,25
the right is therefore a personal right.

5.4 In addition, since it is common cause that this is a contractual obligation the
intended outcome is thus a performance. Performances are objects of personal
rights as per the doctrine of subjective rights.

5.5 It goes to reason that although the monetary obligation restricts Vusi from fully
enjoying the fruits of the disposition of his land and thus satisfying the subtraction
from dominium test, the right which is created is still not registrable. The reason is
that the obligation in question does not burden the land in the physical sense, but
rather the owner in his personal capacity.

22
Pearly Beach (note 10 above)
23
Denel (note 13 above)
24
Geldenhuys (note 8 above)
25
Lorentz (note 9 above)

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5.6 Even if the monetary obligation did burden the land in the physical sense, it would
still not be registrable because its nature has been personal from the outset. The
obligation arises from a contract which requires a specific performance that Vusi
allows Rajen to share in the profits should Vusi lay a township upon the land and
then decide to sell it. As a general rule, a personal right may never change its nature
and become real even though it restricts ownership entitlements.

5.7 Since there is no real right to which the personal right can be seen as ancillary or
intimately connected to in the present matter, the obligation in question cannot be
registered on this basis as well.

6 CONCLUSION

In conclusion, it is my opinion that it is more probable that the right created in the clause
of the contract of sale of land will not be registered against the title deeds of the property.

DATED AT PIETERMARITZBURG THIS 06TH DAY OF SEPTEMBER 2010

**************************
K Khumalo

LIST OF WORKS CITED

TABLE OF SECONDARY SOURCES

7
Badenhorst, PJ. ‘Erroneous omission of real rights from subsequent title deeds.’ (2001)
22(1) Obiter 190 – 199

Badenhorst, PJ. ‘Registrability of rights in the deeds office.’ (2000) 63(3) THRHR 499
– 509

Badenhorst, PJ; Pienaar, JM; Mostert, H. Silberberg and schoeman the law of property.
5 ed. Durban: Lexis Nexis, (2006)

Mostert, H & Pope, A. The Principles of the Law of Property in South Africa. Cape
Town: Oxford University Press Southern Africa, (2010)

TABLE OF CASES

Cape Explosive Works Ltd v Denel (Pty) Ltd 2001 (3) SA 569 (SCA)
Ex Parte Geldenhuys 1926 OPD 155
Lorentz v Melle 1978 (3) SA 1044 (T)
Pearly Beach Trust v Registrar of Deeds 1990 (4) SA 614 (C)

TABLE OF STATUTES

Deeds Registries Act 47 of 1937

s 63