Unjustified Enrichment

Unjustified enrichment in the context of improvements to immovable property

The circumstances in which unjustified enrichment claims in respect of improvements to immovable property may arise are various and unlimited. For present purposes the focus is on the bona fide possessor of residential property – a person in control of a house bona fide but mistakenly believing he is or is about to become the owner thereof – for example the purchaser of a house who took possession thereof under a contract of sale which is invalid for failing to comply with the formalities for its validity of writing and signature prescribed by section 1(1) of the Formalities in respect of Contracts of Sale of Land Act 71 of 1969 (Jacques du Plessis The South African Law of Unjustified Enrichment 2012 (“Du Plessis”) at 275).

The ground rule which is the common denominator of all rules of the law of unjustified enrichment was formulated by Pomponius: Nam hoc natura aequum est neminem cum alterius detrimento fieri locupletiorem (for it is naturally just that nobody be rendered richer to the detriment of another) (Digest of Justinian 12.6.14). The ground rule contains all the general requirements of any enrichment action: (i) the defendant must be enriched; (ii) the plaintiff must be impoverished; (iii) the defendant’s enrichment must be at the expense of the plaintiff’s impoverishment meaning that there must be a causal link between the former and the latter; and (iv) the enrichment must be unjustified. (Kudu Granite Operations (Pty) Ltd v Caterna Ltd 2003 (5) SA 193 (SCA) [17]).

Should the seller and owner of the house in the example decide against implementing the sale and claim eviction of the purchaser, the latter has an unjustified enrichment claim against the owner for necessary expenses in respect of, and useful improvements to, the house. This claim normally takes the form of a defence founded on an improvement lien against the plaintiff’s eviction claim based on the rei vindicatio.

Necessary expenses are those necessarily incurred to preserve the value of the house. For example expenses incurred to repair and maintain the house in a good condition. The bona fide possessor has an enrichment claim for the full amount of such necessary expenses incurred (Du Plessis, 279-280).

A useful improvement would be the construction of an additional bedroom to the house. If the bona fide improver himself used the house, the calculation of his enrichment claim is relatively simple: the extent by which the improvement enhanced the market value of the house (the enrichment of the owner of the house), or the total amount expended by the improver to effect the improvements (the impoverishment of the improver), whichever is less (Voet 6.1.36; Fletcher and Fletcher v Bulawayo Waterworks Co Ltd 1915 AD 636 at 348, 656-657 and 664-665; Paschke v Frans 2015 (3) NR [14]).

However, where the bona fide improver used the house to derive an income therefrom, for example by letting it, the calculation of his enrichment claim may become complicated. In such circumstances the improver’s impoverishment has to be adjusted by deducting therefrom: the income derived from the house excluding the improvements, less the costs of generating the income, calculated from the time the bona fide improver becomes a male fide possessor, namely, when the seller and owner claims that the contract of sale is invalid and demands the purchaser’s vacation of the house. (Grobler NO v Boikutsong Business Undertaking (Pty) Ltd and Others 1987 (2) SA 547 (BG) 568A-G; Van den Horst Compensation for Improvements The Roman Dutch Law in Sri Lanka 1989 at 110-115).

The rule that the bona fide improver must deduct the income which he derives from the house from his enrichment claim derives from the application of the rule that the bona fide possessor becomes the owner of the fruits he collects from the owner’s property, whereas the male fide possessor has to account to the owner in respect of such fruits. (Rademeyer and Others v Rademeyer and Others 1967 (2) SA 702 (C) 706-709G; Couzyn v The Government 1909 TS 444).

The bona fide improver does not have to deduct from his enrichment claim the reasonable value of his use of the house, because it was never within his contemplation that he would compensate the owner for such use. By contrast the bona fide occupier (for example a lessee under an invalid lease) has to make such deduction (Rademeyer and Others v Rademeyer and Others 1967 (2) SA 702 (C) 711F- in fin).

The practical application of the above rules is best explained by an example: A takes possession of a house owned by B under an invalid contract of sale of a three bedroomed house. B in terms thereof purports to undertake to transfer ownership of the house to A after payment of the purchase price in monthly instalments over 5 years. A improves the house by adding a fourth bedroom and leases it for N$10 000 per month. A is liable for the water and electricity consumed by the tenant at the house amounting to N$1 000 per month. A expends N$300 000 to add the fourth bedroom which enhances the market value of the house by N$500 000 from N$1 000 000 to N$1 500 000, and the market value of the use thereof by N$2 000 from N$8 000 to N$10 000 per month. In the first 3 years A spends N$5 000 in respect of repairs and maintenance to the house to maintain it in a good and tidy condition. After 3 years B discovers that the contract of sale is invalid and claims the eviction of A and his tenant from the house on account of the rei vindicatio. A may raise the defence that he is entitled to remain in possession of the house on account of his improvement lien until B pays his unjustified enrichment claim calculated as follows: