Can I Reserve Ownership Rights After Installation

We have often been asked by our Contractor Clients if they have the legal right to remove installations performed by them when they have not been paid in full

Many contracts nowadays include provisions that stipulate the date of transfer of ownership being the effective date upon which payment for the goods is made. It is a standard provision and is designed to provide certainty on the rights of the parties to the contract.

However, when it comes to installations of goods (both individually and collectively), it is not always possible to protect ownership rights by including such a provision in the agreement and then relying on this blindly.

The problem comes in when the contract is to install movables onto an immovable property. By way of example, a kitchen installation contract is concluded for the complete renovation of a kitchen by first removing all core items of the existing one and replacing it with that which was designed to the Client’s specifications. Are you, as the installer, covered by a provision to secure ownership where same passes only upon full payment?

The law relating to this topic falls within the area of original ownership acquisition called “accession&rdquo which refers to “the joining of a subordinate thing to a dominant one, so that the identity of the subordinate becomes submerged in the dominant.”[ ] When accession takes place, the rule is that the owner of the dominant thing retains the thing in its new and enlarged state.[ ] This may also include materials used to work into the property of another.[3]

Given the drastic nature of accession as a means of original ownership, the Courts have developed and implemented tests to determine when accession has taken place. The following characteristics appear to be uniformly accepted and applied by South African Courts in determining whether or not accession has taken place:[4]

1.   the nature and function of the thing attached;
2. the manner of its annexation (considered subjectively);
3. the intention of the owner of the movable thing at the time of its annexation.
4. the conduct or behaviour of the owner of the attachment; and
5. any other relevant facts or circumstances.

Intention of the parties has been considered the most important factor, especially in instances where the remainder of the factors are inconclusive. However, considering the subjective nature of intention, it was highlighted that the “professed intention must be reasonably possible or capable of being realised.”[ ] In this regard, intention must be judged within the context of all facts applicable to the case at hand.[6] Therefore, factors such as reasonableness and common sense now also play a role in determining intention in the way of feasibility.

In the content of feasibility, involuntary accession would occur in cases of practical necessity. Ownership of the movables is retained by their original owner until it is shown that it is a matter of practicability that they cannot be identified, or, if identified, they have been incorporated to such an extent that they cannot be detached from the immovable property.[ ] Therefore, the South African Courts have accepted that “if the accessory cannot be identified or cannot be detached, then accession has occurred.”[8]

In the context of construction contracts, I believe that the concept of involuntary accession is a very real risk to the contractor if the latter does not take proper steps to secure performance. I say this because some judges have recognised the importance of what the affixtures to the property mean in the long term e.g. for prospective buyer-seller transactions on immovable properties. Some Courts have expressed that, in the context of practical necessity, reasonableness and common sense dictate that fixtures such as kitchen renovations, windows, bricks, etcetera indicate that the intention was that of permanent affixing to the immovable property.

From the point of view of commercial certainty and common sense, it is highly probable that these installations would be seen to have become affixed to the property and the owner of the immovable property thus acquiring ownership through accession. The only recourse then available to the contractor would be to institute proceedings against the other Party for damages. The security itself would be, in and of itself, gone.

If you have a situation that resembles the above, or you wish to adjust your contracts to cater for the risk highlighted above, please arrange for a consultation with us to discuss further.

Aleisha Oliver

Practising Attorney