- Marriage Types
One of the most important aspects of concluding a valid and effective sale is the need to properly identify and qualify the respective parties to the contract. Mistakes at this point can render the wholesale invalid and will often have severe repercussions for the estate agent. This section deals with the fundamental facets relating to the identity of Sellers and Buyers respectively.
- ANC Contracts (Antenuptial Contract)
The Matrimonial Property Act first introduced the concept of the Accrual System to marriages with prospective spouses having the right to choose whether it will apply to their marriage or be expressly excluded from it. This, however, will never affect their signing capacity when it comes to sales of immovable property or any documents relevant thereto. They are two separate persons with entirely separate estates to the outside world.
It often happens that spouses married out of community will purchase property in both names in equal shares. In such cases, the signature of both will be required when selling or purchasing a property. In cases where just one will be purchasing a property in his/her own name alone, or where just one is the registered owner and is now selling, the signature of that person alone is required.
Martial power no longer applied in South African law, having been entirely abolished by Section 29 of Act 132 of 1993, and all women married out of community have the right at all times to contract on their own account in matters relating to immovable property. Any matrimonial power a husband has over the person and property of his wife is repealed. It remains her property and he has no jurisdiction over her estate.
Either a husband or a wife married out of the community of property has the full contractual capacity to register immovable property in his/her name and to register a mortgage bond over such property. The spouses act totally independently of each other, and each one signs documents pertaining to the registration process completely independently from the other.
The debts incurred by one spouse do not place the estate of the other at risk from creditors. Should the parties get divorced, each party will retain their own assets and liabilities, as no provision was made for sharing. The party’s contractual capacity remains unaffected.
ANC contracts need to be drawn up between the two parties wishing to get married before the wedding. The contract must be signed before a notary and two witnesses. This contract then needs to be lodged with the relevant Registrar of Deeds. The marriage officer will require a letter confirming the agreement from the Registrar before conducting the marriage ceremony. Failure to do so before the marriage date will render the agreement null and void and the marriage will be considered to be that of a COP (Community of Property) contract.
Where there is any doubt, however, as to whether just one of the parties is the owner of the property (or which of them actually owns it) it is wise to get both signatures. The signature of both will not affect your contract even if just one is the actual owner.
The sound principle in all cases where you are uncertain as to the full identity of the Sellers of a property is always to get both parties to sign your contract and mandate.
- ANC with Accrual
An ANC with an Accrual marriage contract gives the parties the advantage of keeping separate their individual estates at the time of marriage but also allows for a form of sharing and redistribution should the parties get divorced.
The parties can exclude certain assets from the joint estate, however, these must be specifically excluded and listed in the ANC contract. An initial sum of money can also be stipulated as a separate asset, should there be a death or divorce, which each party is entitled to.
At the point of death or divorce, the accrual, or growth of each person’s estate, is determined. The joint estate is then divided between the two parties.
- Community of Property (COP)
By law a couple so married are, to the outside world one person and possess a joint estate. In terms of Section 15(2) of the Matrimonial Property Act of 1984, it is necessary for both spouses to sign all documents relating to immovable property including contracts of sale, mortgage bonds, and in particular, mandates to sell or let property. In every transaction, therefore, where a couple is married in the community, you will need the full signatures of both husband and wife to validate your agreement of sale, whether signing as Seller or Buyer.
It is important to note that both spouses must also sign any bond application form as the practice of allowing just one party to register a bond with the written consent of the other (Section 15(2)(a) of the Act) has fallen away in local deeds offices.
It is a simple rule of thumb that spouses married in community must sign each and every document together.
A community of property marriage contract is the easiest and cheapest marriage contract in South Africa. No contracts need to be drawn up before the wedding and the marriage office will lodge the marriage certificate with the Registrar of Deeds, after the conclusion of the marriage.
In a COP agreement, both parties’ estates, their assets, and liabilities become part of the joint estate. There are a few exceptions to this rule, where certain assets may not form part of the joint estate. An example would be when a deceased person stipulates that inheritance, they have left to a person may not become part of a joint estate. In such a case, the other spouse has no jurisdiction over that estate that now belongs to their spouse.
All debts incurred by a party before the marriage and after the marriage become part of the joint estate and each party is equally responsible for the debts of the other. This would also include any maintenance due to a previous spouse and any children of such previous marriage.
Each spouse has the capacity to bind the joint estate through their actions. For example, if a spouse has his/her own business and applies for an overdraft, and the business fails to pay the overdraft, a claim can be made against the joint estate. However, there are circumstances where a spouse must first obtain the consent of the other spouse before he/she can bind the communal estate. Where a spouse binds his/her separate estate, such as a car or business in his/her name, through debt, the creditor can lay claim against the private estate of that spouse. Only if that spouse’s private estate has insufficient assets to satisfy the creditor’s claim, can the creditor lay claim against the communal estate.
One of the most devastating consequences of a marriage in community of property is when one spouse becomes insolvent (cannot pay his/her debts), then both spouses will be declared insolvent as there is only one communal estate. If there is a court order against either one of the spouses, the communal estate can be lost.
- Managing the joint estate
Each spouse has equal management of the joint estate; however, the consent of the other spouse is needed for certain transactions. Although you have to acquire the consent of the other spouse to alienate joint assets of the estate, written consent is only required in certain instances.
Examples of instances where no consent from the other spouse is needed, i.e. where one spouse may act independently, to perform acts binding on the joint estate, include:
- Making deposits at a banking institution.
- Making donations to third parties that do not prejudice the other spouse.
- Forming a company or trust.
- Entering into a transaction on the stock exchange.
- Entering into a contract in the ordinary course of his/her business.
- Selling certain movable assets, such as a car.
- Performing transactions in the course of his/her business, trade, or profession.
The Matrimonial Property Act categorises acts where a spouse needs the consent of the other spouse to enter into a valid transaction under the following types of consent:
- Informal consent
In certain instances, only informal consent from the other spouse is required. In these instances, oral consent is sufficient. The following types of transactions fall into this category:
- Receiving money that is due to the other spouse, from sources such as:
- An inheritance, donation, or prize.
- Remuneration, bonuses, allowances, earnings, a pension, gratitude for services rendered or by virtue of their profession, trade, or business, or damages awarded for the loss of income from any of the aforementioned sources.
- Income from his/her separate property, for example, rent money earned from renting an immovable property.
- Dividends or interest on investments in their name.
- The proceeds of an insurance policy.
- The alienation or burdening (i.e. selling and pledging) of common household furniture, such as washing machines, stoves, bicycles, or pets.
- Donating from the joint estate where the donation unreasonably prejudices the interests of the other spouse, such as donating furniture from the common household.
- Written consent
The following acts may only be performed with the written consent of the other spouse:
- Alienating or burdening assets of the joint estate kept mainly for investment purposes, such as stamps, works of art, jewellery, or coins.
- Alienating, ceding, or burdening insurance policies, mortgage bonds, fixed deposits, shares, stocks, or any of the other spouse’s investments at any financial institution.
- Withdrawing money from any account held in the name of the other spouse.
- Written consent with two witnesses
The following acts may only be performed with the written consent of the other spouse, signed by two witnesses:
- Alienating immovable property, such as a house, townhouse, or farm, belonging to the joint estate.
- Entering a credit agreement in terms of the National Credit Act 34 of 2005.
- Entering into a contract to purchase immovable property.
- Prior written consent with two witnesses.
In some instances, a spouse must give his/her consent prior to the transaction. It cannot be ratified later. The following acts may only be performed with the prior written consent of the other spouse, signed by two witnesses:
- Entering into a contract of surety, where one spouse binds the communal estate as a surety for debt of a third party.
- The actual alienation or burdening of immovable property belonging to the communal estate or the actual granting of the rights (selling or giving a third party a share in the property) over such immovable property.
When a spouse enters into a transaction requiring consent without the consent of the other spouse, our law favours the rights of the third party with whom the spouse contracted. If the third party doesn’t know, or can’t reasonably have known, that consent wasn’t given, then the transaction is valid. The innocent spouse is, however, given some protection. When the communal estate is divided at the end of the marriage, the court will make an adjustment and the innocent spouse will be compensated accordingly.
- Suing for damages
Spouses married in community of property cannot sue each other for damages. This would be pointless, as money taken from the joint estate to pay the one spouse will simply fall back into the joint estate.
There is however an exemption to this rule. A spouse can sue the other for non-financial loss arising out of bodily injuries caused by the other spouse. For example, if the wife is a passenger in a car driven by her husband, and because of his negligent driving they are involved in a car accident, she can sue him for her pain and suffering because it is a non-financial loss. She can’t sue him for her medical expenses, since they are considered a financial loss. Damages that she recovers in respect of the non-financial loss (damages paid to her for pain and suffering) will fall into her own estate, outside the joint estate.
- Customary Marriage
In South Africa, a customary marriage is understood to be one entered into in accordance with the traditions and customs of indigenous African customary law. This type of marriage does not require the approval of a marriage officer in order to be regarded as valid.
Customary marriage is different from communal marriage in that it allows for polygamy. A customary marriage is not only concluded between two people but also extends to their respective families.
Unlike civil marriages, customary marriages occur gradually and are not concluded by a single event like a ceremonial signing of an official document.
It is the duty of the spouses to register the marriage with the Registrar of Deeds.
The RMCA Amendment Bill
The Bill brings Section 7(1) and (2) of the Recognition of Customary Marriages Act (RCMA), 1998 (Act 120 of 1998) in line with the judgments of the Constitutional Court, which declared the sections constitutionally invalid. The sections discriminated unfairly against women in customary marriages.
The Bill provides for the equal treatment of women in pre-act, monogamous, and polygamous customary marriages. The amendments eliminate the former gender-based discrimination against women in such marriages entered into before the commencement of the RCMA of 1998. Spouses will now have joint and equal proprietary rights over matrimonial property.
Women married by customary law will now have equal rights over matrimonial property, and husbands will no longer have exclusive proprietary rights over marital property to the detriment of their wives. Children can also benefit as they will be able to inherit from the mother’s estate as well.
- Foreign Marriages and Property Ownership in South Africa
Literally, tens of thousands of people living in South Africa are married in another country. It is useful to know both the law and Deeds Office procedures relating to such marriages to avoid making mistakes at this point.
Even if a couple has lived in South Africa for thirty years, but at the time of their marriage the husband was from England and regarded it as his permanent home, the marriage is governed by the laws of that country. It all depends on the domicile of the husband at the time of marriage – even if the couple was married in South Africa where the wife was resident. Throughout the world, the principles of marriage in or out of community of property apply though South Africa is a notable exception to most in allowing both types.
When it comes to sales and transfers of immovable property in this country, however, the question of in or out of community is totally irrelevant. Title Deeds, mortgage bonds, and the like simply describe foreigners as married, which marriage is governed by the laws of Portugal, or whatever country applies.
Once again, where people were married outside South Africa, it is wise when they are the Sellers to bet both to sign your mandates and sales contracts.
It is not essential if only one is known for certain to be the sole owner of the property but it is still recommended as the other spouse will have to sign relevant Power of Attorney in assisting the owner to authorise the transfer to the Buyer. When only one of the parties wants to be the Purchaser of a new property only this party must sign your contract but the other spouse will have to sign any Power of Attorney to assist him in registering a bond over the property.
Once again, the same fundamental principle applies to Sellers in such cases – where there is any doubt get both parties to sign your documents.
It is a safety-first tactic that can be applied to all marriages, whether in or out of community or according to the laws of another country. If the parties are separated and only the sole owner lives in South Africa, the local Deeds Office will probably allow the Power of Attorney to pass transfer to be signed by that party alone.
The Deeds Registry treats all foreign marriages as potential “in community of property” marriages as they cannot recognize or apply foreign laws. This means that when parties are married by foreign law, one spouse must assist the other spouse. In practical terms, when dealing with the immovable property the following rules apply:
If the property is registered in only one spouse’s name, the other spouse will have to assist the selling spouse. i.e. the spouse who is not an owner of the property will have to sign the transfer documents to enable the transfer of the property to be achieved. It is preferable that they also sign the agreement of sale so that there is no uncertainty. Note that this does not mean that the assisting spouse is entitled to any of the proceeds of the sale, but rather that the assisting spouse is made aware of the sale.
In addition to the above, if the property is registered in the name of both spouses they will need to “assist” each other.
No assistance is required where the property is purchased for cash (i.e. no bond is registered). Where the purchasing spouse purchases a property and wishes to take a bond to pay the purchase price, the non-purchasing spouse will have to assist the purchasing spouse in taking the bond. Note that this does not mean that the non-purchasing spouse becomes a co-owner, nor do they become liable under the bond. It means that the non-purchasing spouse signs documents to show they are aware the bond is being taken out.
- Common-Law Marriage
In South African law, cohabitation does not have any special legal consequences. Generally, the rights of ownership and rights flowing from marriage are not available to unmarried couples, regardless of how long they have been living together.
If there is a breakup, or when one party dies, the other does not have any of the automatic rights over the possessions and property of the other that are afforded those in a civil union or marriage.
Cohabitation between two people is not automatically seen as a “universal partnership.” This partnership must be proved in a court of law and the grieving party must prove what they brought into the partnership, whether it be money or skills. They must prove that the business had been carried out for the benefit of both parties, with the intent to make a profit.
The only way couples can protect themselves without getting married is through a formal cohabitation/life partnership agreement.
- Minors, Executors, and Insolvents
By law, minors are all people under the age of eighteen years with the exception of any married person under this age who automatically acquires the rights and powers of majors.
Minor buyers have to be assisted by their legal guardians (either of their parents) in writing to purchase a property through no such consent is required by the Deeds Office when the transfer is passed to a minor. In all cases of Minor Sellers, however, the consent of the Master of the Supreme Court is required for the sale of a property where the purchase price is R100 000 or less, otherwise, a Supreme Court Order must be obtained. It is appropriate, in such cases, to get the legal guardian to sign your sale contract on the minor’s behalf with the following clause included in it:
This sale is subject to the consent of the Master of the Supreme Court in terms of Section 42(2) of the Administration of Estates Act, No.66 of 1965, the Purchaser acknowledges that he is aware that such consent is required by law.
It is commonly believed that unrehabilitated insolvents can neither own nor mortgage immovable property. They can in fact do both with the written consent of their Trustees. When a person who has been sequestrated and is a declared insolvent wish to sell his property (which must have been acquired after his insolvency or exempted from his insolvent estate), or where an insolvent wish to purchase and mortgage a new property you need to insert a clause similar to this one in your contract.
This sale is subject to the consent of the Trustee/Liquidator of the Seller, the Purchaser acknowledging that he is aware that the Seller is an unrehabilitated insolvent.
Where the Purchaser is insolvent, the terms Seller and Purchaser in this clause would simply be reversed. Your conveyancer needs a Letter of Authority from the Trustee consenting to the transaction.
e.g. In my capacity as Trustee of the above-mentioned insolvent, I hereby consent to the acquisition by the above named of the following property: ……… for a purchase price of …. And do further consent to the registration of a first mortgage bond of the property in the favour of …bank, for the said sum of ….
A fully rehabilitated insolvent can sell, purchase, and mortgage without anybody’s consent but your conveyancer will require a copy of his rehabilitation order if his insolvency is still recorded in the local deed’s office.
- Aliens and Illegal Immigrants
The Aliens Control Act of 1991, which restricted the right of foreigners to own property in South Africa, was repealed a few years ago. There is no prescribed legislation inhibiting foreign ownership at present in South Africa, though the Government has, at a time in recent years, suggested it may have to produce this kind of legislation at some time in the future.
No one who is illegally in South Africa may purchase property here, but this is the only prohibition presently on the statute books. There are, however, a few exchange control regulations affecting investment by foreigners in property here, and every estate agent concluding a deal with a “buitelander” (foreigner) needs to know what they are.
Actually, these conditions apply to all non-residents, whether they are citizens of another country or South African citizens living abroad. For the purpose of foreign property purchases, all foreigners fall within the definition of a non-resident. The key issue is the payment of the purchase price. Note the following
- If the foreigner is paying the full purchase price in cash, no restrictions apply. You can simply sign the sale contract up as a normal cash sale and the property can be transferred to the foreign purchaser without further ado.
- If, however, the purchaser needs a mortgage loan to make up the purchase price, he may only take up to 50% of the purchase price (or whatever the current lending rate is). He must pay at least half the purchase price in cash and the balance must be paid with funds transferred from a recognised foreign bank.
- If the foreigner intends to move to South Africa, he can take out a loan for up to 100% of the purchase price provided he is in possession of a temporary work permit (which incorporates temporary residence) or has completed the required Declaration and Undertaking form (obtainable from any local bank) that he intends applying for permanent residence within a reasonable period thereafter.
Regulation 3(1)(e) and (f) of the Exchange Control Regulations of 1961 prohibit the granting of financial assistance without the prior written consent of the Treasury in certain cases where non-residents are involved. Your property sale transactions can be affected by these restrictions. If your purchase is a non-resident, no one locally may lend him the funds he needs to make up the cash portion of the purchase price, even if the non-resident intends to repay him with funds guaranteed from a foreign bank. Be careful here – the cash portion must be coming directly to the purchaser from funds held in a foreign bank.
- Divorcees and Pending Divorces
Numerous problems are often experienced with divorcees or people in the process of getting divorced. Very often the two spouses are at loggerheads with each other over just about everything and are determined to spite or frustrate each other in any way they can. It then becomes very difficult to obtain their co-operation in concluding a sale of their property.
What often happens in pending divorces is that one of the spouses comes to you to sell the property owned by both of them and assures you it is their joint wish to dispose of it. When you find a prospective buyer, however, you may find they are still in the throes of protracted negotiations to settle their differences and interests. The months can go on before they come to an agreement and the other party will invariably insist on signing nothing until their written Settlement Agreement is fully signed and completed. Be very careful not to act on the written mandate of just one of the parties, nor conclude a sale with just one of them with a view to getting the other to sign later when he/she is ready to do so. You may be in for a long wait before matters are finalised while your buyer becomes increasingly frustrated.
It also often happens that someone in the process of a divorce will approach you to purchase a property as the sole buyer. The parties may still be married in community of property and, if in your haste to conclude a sale, you get your Buyer to sign a contract along with the intention of taking transfer only once the divorce is finalised, you are almost certainly in for a rough ride. Once again, the other party to the contract may be prejudiced.
Firstly, your Buyer, if still married, cannot legally sign a binding sale contract unless his spouse does so as well and your Buyer can, at any time, simply walk away from the sale. This holds true even after the divorce is granted if the original date of signature remains prior to the divorce. Secondly, your Buyer, if it is a woman, probably requires a cash settlement out of her divorce to put up the finance for the sale and protracted delays in finalising the divorce will delay the transfer considerably to the Seller’s disgust.
If either your seller or a buyer claims to be divorced, make sure he really is as there are many people in the process of divorce actions – usually the defendants – who may believe that they are already divorced after just having received a summons. You should always insist on a copy of the Divorce Order to prove your client is really divorced, otherwise, you could again finalise a defective sale where someone else’s signature is legally required to make it valid.
- Juristic persons
Companies, Close Corporations, and Family Trusts
- Private Companies and Close Corporations
When it comes to sales of immovable property there is not much difference between Companies and Close Corporations. It is important to know that each is known as a juristic person and is a separate entity from its shareholders and is capable of holding a property in its own right. The basic differences between a Company and a CC are the following:
- A company has a number of shareholders whereas a Close Corporation has a number of members. Each can have as few as one shareholder/member-only, but a CC may not have more than 10 members.
- A Company has to comply with numerous laws regarding the operation of its business. The laws affecting a CC are far less imposing. A CC is, in reality, a very simple company that places very few obligations on its members.
- The shareholders are largely exempt from any liability for the Company’s debts whereas a CC’s members are more vulnerable towards the CC’s debts. A CC has to be described as such with its CK number on all its invoices, etc., otherwise, its members can be held personally liable for its debts.
- A loan may not be taken out by a Company to assist a prospective shareholder to purchase any of its shares (Section 38 of the Companies Act) but, in terms of Section 40 of the Close Corporation’s Act, a CC may give such a loan provided it does not inhibit the CC from its ability to pay its debts and provided its other members’ consent to the transaction.
There are a number of advantages in having a property registered in the name of a Company or Close Corporation instead of the name of a private individual. If the member (Company shareholders will also here be referred to by this term for easy reference) has a property registered in his own name and he gets into financial difficulties he will have no protection against his creditors. If the property is registered in the name of a juristic person, however, his creditors will not be able to attach the property to liquidate his debts. This protection usually only exists against third parties, namely suppliers, contractors, and other such parties or people with delinquent claims, such as those who have suffered damages as a result of any action taken by a member or employee of the CC, etc., on behalf of the corporation. Second parties, such as the CC’s bank or another immediate financial subsidiser, will invariably require a persona suretyship from all the CC’s members for the CC’s debts and they will be personally liable to this extent. The CC’s protection is in the world of daily business, not in the acquisition of capital to sponsor its activities.
A Company is registered by what is known as a Certificate of Incorporation while a Close Corporation’s registration is confirmed by its Founding Statement commonly known as a CK1 or CK2 document. When selling property to such a corporation it is essential to obtain a copy of its respective registration document. This establishes its existence and correct identity (banks, when giving loans, even require an accounting officer’s certificate that it has not been liquidated or deregistered at any time).
Your sale agreement will also not be valid unless the signatory is properly authorised by a resolution of all the shareholders/members who must sign it in full to confirm the signatory’s right to execute the sale. The provisions regarding the authority of a member to sign on behalf of a CC are much more relaxed than those for a Company but, to be sure you will face no problems later, it is wise to get all the members to sign your sale contract or a resolution authorising just one of them to sign it.
One of the problems frequently encountered in selling properties to Companies is the need for the Company still to be registered. Often your buyer wants to sign as a nominee for a Company to be registered. This can delay your transfer as most banks will not entertain an application by a Company for a loan until they are furnished with a copy of the Founding Statement which will only be issued when the Company is registered. Also, your Buyer may drag his heels in getting the Company registered. (Close Corporations can no longer be registered with CIPIC)
The real danger here is the possibility of liability for double transfer duty. In times past the Receiver used to allow a nominee 30 days to nominate the relevant Company but this was changed when the Transfer Duty Act of 1949 was amended in 2003. Section 16 of the Act now provides that the nomination of the juristic person must be made, and written ratification of the nomination by the Company must be furnished, on the same day that the offer to purchase is accepted or a sale agreement concluded. This is very impractical, but it is the law and, if the confirmation takes place even a day or two later, both the nominee and the juristic person will become liable for transfer duty. It is best to conclude your final sale contract with the Company as the actual purchaser.
Avoid nominee transactions.
- Deeds of Sale of Member’s Interest
On the resale of any property, the member need not give actual transfer of the property by can simply transfer his shareholding or member’s interest, as the case may be. In the case of a CC, it is not necessary to draw a normal sale agreement of the property. An agreement known as a Deed of Sale of Member’s Interest will be drawn. The great advantage here is that no transfer duty needs to be paid by the Buyer. Please note, however, that this does not apply to residential property. In 2002 the definitions of “property” and “transaction” in the Transfer Duty Act were amended to include what is now defined as a “residential property company”, that is a CC or Company in which at least 50% of the value of its assets constitutes residential property. You can no longer transfer the share in such a company and save transfer duty. What follows in this section applies only to business, industrial and agricultural properties owned by CC’s or Companies.
A disadvantage of originally having such a property registered in the name of the CC is that transfer duty has to be paid at a flat rate of 8% of the purchase price. The property thereafter, however, can be sold by itself again and again without duty being payable provided it is the only asset of the CC. A transfer of the member’s interest (the shareholding in the CC) alone takes place. This document should only be drawn by an attorney or the CC’s accounting officer. It is essential that it be properly drawn as it takes the place of a normal sale contract and you will know how important it is that it be fully correct.
In a normal transfer, it is very easy to synchronise registration on the same day that payment is made of the purchase price and any new bond is registered. They all take place simultaneously. This is not so easy with a sale of member’s interest, however. The reason is that the transfer of member’s interest takes place in the office of the Registrar of Close Corporations while the registration of any new bond is recorded in the office of the Registrar of Deeds. Simultaneous lodgement and registration cannot be arranged in such circumstances. It is important therefore to know how the transaction can and should be properly concluded.
Your conveyancer in this case will as in normal transfers be faced with the probable registration of a new bond in the name of the CC applied for by its new members. It often happens that the parties agree that the new members will simply take over the liability under the existing bond and, perhaps, pay a further consideration as the balance of the purchase price. Some banks, however, frown on this practice as it does not give them the opportunity to properly sound out the new buyers. They will usually require any existing bond to be cancelled and a new bond applied for by the new members as if a normal transfer was taking place. This gives the bank an opportunity to enquire as to the financial stability, etc. of the new members who will become, effectively, the new beneficial owners of the property. Their creditworthiness and viability as sureties will be fully investigated.
Officially the prospective Buyers cannot apply for a loan in the CC’s name until they actually receive the transfer of the member’s interest. Such a loan will be essential, however, and in all cases where a cash sale cannot be arranged, to get around this they are allowed to apply as the beneficial owners of the member’s interest in terms of the Deed of Sale, alternatively as successors in title to the member’s interest. A copy of the sale agreement will have to be supplied to the relevant bank and you will also have to furnish its normal requirements such as the proof of income of the new members.
Furthermore, a Conveyancer cannot transfer the member’s interest until the purchase price is fully secured. For this reason, it is common practice to register the mortgage bond first and, as soon as possible thereafter, the cession of member’s interest. To protect all parties the guarantees to be issued will be made payable on the Conveyancer’s advice, not only that the bond has been registered, but also that the transfer of member’s interest has taken place. This may all sound highly complicated if not confusing, but if you are not certain about the procedure, your Conveyancer will be able to handle the matter on your behalf.
It is not wise to draw a normal sale contract selling the property with a provision that a Deed of Sale of Member’s Interest will supplement it as is often the case.
What if one of the parties later refuses to sign the second contract? If your Sellers and Buyers want to transfer the member’s interest and not the property it is better to draw a property Deed of Sale of Member’s Interest right from the start.
A clearance certificate will not be required but some provision will have to be made to ascertain the date of the Buyer’s liability for assessment rates, etc. Your conveyancer will charge a substantial fee for all his work which will supplement the transfer fee and normal mortgage bond fees will also apply. The Conveyancer’s fee should not be more than the normal transfer fee which would otherwise be charged for the transfer of the property.
A word of extreme caution, however, is needed here. When you transfer a property it is easy to ensure that nothing but the property is being transferred. A close corporation, however, can have other assets and liabilities. A transfer of a member’s interest also transfers each and every debt of the CC. You have to be very careful to ensure that the only asset the CC has is its property and that there are no other debts for which the CC remains responsible. When you transfer property through a Deed of Sale of Member’s Interest, you effectively transfer all the baggage that goes with it. Unknown creditors of the CC can still thereafter attach the CC’s property to settle their debts. The moral of the story? You need to advise your Buyers against taking transfer of the member’s interest alone unless you can be certain that the CC has no hidden debts.
The Deed of Sale of Member’s Interest can contain a normal clause making provision for the payment of Agents commission in the same form as in a normal sale contract. It will be payable on execution of any bonds to be registered together with the registration of the relevant CK2 form.
- Trusts and other Juristic Persons
Trusts are similar to CC’s in that they are treated generally as separate juristic persons (although, strictly speaking, a Trust is not a “person” – only its beneficiaries are). Once again, a Trust can only be held liable for its own debts and the personal creditors of the creator of a trust cannot attach the Trust’s property to liquidate the founder’s debts. The same protection against creditors applies to prospective Buyers here.
Some of the differences between a Trust and a Close Corporation as far as immovable property is concerned are the following:
- The Trustees of a Trust act only in a fiduciary capacity for the beneficiaries of the Trust whereas the members of a CC act directly in their own interests.
- The Trustees do not own the Trust which exists for the benefit of its beneficiaries. (The founder of the Trust and its Trustees can be nominated as beneficiaries, however, although the trustees may not be the sole beneficiaries as then no actual fiduciary capacity exists). The members of a CC are, however, its owners and the CC exists for its own benefit.
- Transfer duty for Trusts is currently the same as for a natural person.
- If a member of a CC dies, his interest in the CC and therefore in any property the CC owns will become liable for estate duty as if he owned it himself. If a trustee passes away, however, the value of any property in the Trust will not become liable for estate duty.
- Trusts also attract a high capital gains tax.
When selling to a nominee for a trust to be formed you are faced with the same potential delays and problems as mentioned for Companies as well as the danger of double transfer duty mentioned earlier. Avoid nominee sales.
There are other associations that are similar to CCs and Trusts, such as churches, welfare organisations, Rotary clubs, etc. Many of these are registered as associations, not for gain, commonly known as Section 21 Companies. These do not have shareholders or members holding percentage shares like those of normal companies and CC’s. Their members are only numbers for voting purposes and other similar functions and, if the association was ever to be disbanded, its assets would have to go to a similar association and cannot be awarded to its members. Most of these are exempt from transfer duty in cases where the property is purchased purely for ecclesiastical or other gratuitous purposes. Much more could be said here about juristic persons, but the aspects mentioned here are those you will usually be faced with when selling property to CCs, Trusts, and other organisations.