The rate of VAT for commercial property transactions will be the rate applicable on the date of registration of transfer of the property in the Deeds Registry or the date that any payment of the purchase price is made to the seller, whichever occurs first.
If a deposit is paid and held in trust by the transferring attorney this payment will not trigger the time of supply as it is not regarded as payment of the purchase price at that point in time and under normal circumstances remains in trust until date of transfer.
If the seller allows the purchaser to pay the purchase price over a period of time the output Tax and input Tax of the parties are calculated by multiplying the tax fraction at the original time of supply by the amount of each subsequent payment, as and when those payments are made.
A practical example would be as follows :
A Vendor sells a commercial building and issues a tax invoice to the purchaser on 10 January 2018. If the property will only be registered in the deeds registry after the 1st of April 2018 (the date on which the increased VAT of 15% will apply) and payment will be made by the purchaser’s bank or transferring attorney on the same date, then the time of supply will only be triggered at that later date or registration and VAT must be charged at a rate of 15%.
The question which is validly asked is whether a rate specific rule will apply if I sign a contract to buy residential property before the rate of VAT increased but payment of the purchase price and registration will only take place or on the 1st of April 2018?
The answer to the aforementioned would be that VAT will only be payable at a rate of 14% and not 15% as this rate specific rule overrides the rule as aforementioned and which applies to non-residential immovable property.
The rate specific rule applies only if :
- You have entered into a written agreement to buy the dwelling that is a residential property before 1 April 2018;
- Both the payment of the purchase price and the registration of the property in your name will only occur on or after 1 April 2018;
- The VAT inclusive purchase price was determined and stated in the agreement of sale.
Residential property includes :
- An existing dwelling together with the land on which it is erected or any other real rights associated with that property;
- So-called plot and plan deals with a building package for a dwelling to be erected;
- The construction of a new dwelling by any vendor carrying on a construction business.
In the case of Tudor Hotel Brasserie & Bar Pty Ltd vs Hencetrade 15 Pty Ltd the lessee was evicted from the leased premises by the lessor as a result of failure to make payment of the rental.
The lessee admitted failing to pay rental but claimed that it had not been given vacant possession of the entire premises as a portion of the rental premises had still been used by the lessor for the storage of goods and based thereon it did not have unencumbered occupancy of the whole property and was entitled to withhold rental based on the legal principle of Reciprocity.
The last mentioned principle operates where both parties to an agreement have an obligation to each other. If one party has not yet performed its obligations, the other party may raise a defence that its obligation to perform has not yet arisen because of the party’s lack of performance.
The lessee in this instance argued that the lessor was not entitled to cancel the lease and evict the lessee as it was not required to make payment of the rental until vacant possession had been provided to it.
Ordinarily if a lessee were deprived of beneficial occupation, it would be entitled to a remission of rental or damages proportional to its reduced use and enjoyment of the property.
Unfortunately for the lessee there was a clause in the rental agreement which stated “all payments in terms of this lease shall be made on or before the 1st day of each month without demand, free of exchange, bank charges and without any deductions or set-off whatsoever.”
The aforementioned clause in the rental agreement was the only contractual term that justified the lessor’s actions and had it not been in the rental agreement it would justify the lessee’s retention of at least a portion of the rental representing the part of the rental premises of which the lessee did not have beneficial occupation.
A VALID CANCELLATION REQUIRES MORE THAN STATING THAT ANOTHER IS IN BREACH OF THE AGREEMENT
In the case of Smith and Another vs Patsalosavis and Another.
Mr and Mrs Smith (hereinafter referred to as “S”) were the owners of a main house with a cottage on the property. Whilst they were staying in the main house they rented out the cottage to Mrs Patsalosavis (hereinafter referred to as “P”).
The rental was based on the understanding that P would effect improvements to the cottage and pay the monthly consumables and monthly tax in return for occupancy of the cottage. The dispute however arose when the local authority was not satisfied that improvements effected by P to the cottage complied with the NHBRC standards and applicable zoning provisions.
This was further substantiated by two notices by the local authority delivered to S. S then brought an application to Court asking for the eviction of P and included a statement that they have cancelled the agreement.
- The Court held that as long as the rental agreement subsisted between P & S, S could not evict P;
- It became evident that the two notices from the local authority did not contain any detail describing in which respects the building did not comply with the required standards and the allegation by S that the non-compliance related to the improvements made by P were found to be without substance;
- Correspondence between S & P clearly stated that the agreement would be cancelled if P did not remedy her breach and as the ambit of the alleged breach could not be determined the Court could not make a finding in this regard and had to come to the conclusion that the agreement was never formally cancelled and declined the application for eviction with costs.
MUST A RIGHT OF FIRST REFUSAL (PRE EMPTIVE RIGHT) IN RESPECT OF LAND REALLY BE IN WRITING?
In the case of Mokone vs Tassos Properties CC and Another.
Mrs Mokone (Mokone) entered into a written lease agreement with Tassos Properties CC (Tassos), from which premises Mokone conducted a liquor store. Clause 6 of the lease agreement gave Mokone a right of first refusal / pre-emption).
After the effluxion of the initial period of one year, the parties orally agreed to extend the lease for a further year and the front page of the written rental agreement was endorsed by Tassos to read “extended till 31/5/2014 monthly rent R5 500-00” and signed by one of Tassos’s representatives.
In 2010 Tassos entered into a deed of sale with Blue Canyon CC to purchase the property and the property was subsequently transferred to Blue Canyon CC. Mokone notified Tassos in writing that she was now exercising her right of pre-emption and tendered payment of the price that Blue Canyon paid for the property, when Tassos refused to accept the aforementioned, Mokone initiated action against Tassos and Blue Canyon in the High Court to set aside the sale and transfer of the property and compel a sale to her.
The High Court held that when a lease is renewed without any further terms and conditions only the terms that are incidental the lessee and lessor relationship are renewed and the terms considered collateral to the relationship are not, unless the parties indicate a clear intention to renew them as well.
Mokone was initially refused leave to appeal to the Supreme Court of Appeal and the matter was referred to the Constitutional Court who came to the following finding.
- The common law rule that only collateral and not incidental terms are renewed unduly favors lessors and it was unreasonable to expect ordinary lay people to be able to draw a distinction between terms that are collateral and incidental;
- Extending a lease without stipulating anything more causes all terms of the lease including terms that are collateral and incidental to the lease to be extended and confirmed the pre-emptive right of Mokone to be intact and duly executed.
DOES THE ABSENCE OF APPROVED BUILDING PLANS AND AN OCCUPATIONAL CERTIFICATE RENDER A LEASE INVALID?
In the case Wierda Road West Properties Pty Ltd (Wierda) vs SizweNtsalubaGobodoinc (SNG)
Wierda owned a property that was leased by SNG. Wierda undertook as part of the rental agreement to refurbish the rental premises. During the course of the refurbishment it was discovered that there were not building plans in respect of a new wing added to the property by the previous owner, nor was there any occupational certificate for such portion.
The approval of the building plans and the issuing of the required occupational certificate took a substantial period of time due to technical difficulties and NHBRC building requirements. During the aforementioned period the offices became too small for SNG and the vacated the premises without notice to Wierda.
Although they indicated to Wierda that the reason for the vacation was that they were seeking new premises their defence in Court was that had they known of the absence of building plans and the occupancy certificate they would never have signed the agreement and the absence of the aforementioned rendered the lease agreement void.
The High Court found the lease agreement to be valid but unenforceable due to the contravention of Section 4(1) and 14(1) of the National Building Regulations and Building Standards Act which stated that “the owner of any building or any person having an interest therein erected or being erected with the approval of a local authority who occupies or uses such building or permits the occupation or use of such building unless a certificate of occupancy has been issued in respect of such building … is guilty of an offence.”
Wierda took the matter on appeal and the Supreme Court of Appeal found that the aforementioned legislation introduced Penal Sanctions which were adequate if contravened and there was no justifiable basis that it intends to render private contracts such as leases contravening these sections to be invalid.
In the light of the aforementioned it is clear that the absence of building plans and/or certificates of occupancy will not render a private deed of sale or lease invalid or unenforceable but will subject the parties to the penalties imposed by the Act and be classified as an offence.
AGREEMENT OF SALE STANDARD WARRANTY BY PERSONS SIGNING
ON BEHALF OF A TRUST
In the case of Goldex 16 Pty Ltd (Goldex) vs Capper and Another (Capper)
Goldex entered into an agreement of sale with Des Property Trust (the Trust) represented by Capper, however Capper as well as Iprotect Pty Ltd were the appointed trustees of the Trust and there was no written authority given to Capper to enter into the deed of sale on behalf of the Trust.
The Trust did not comply with its obligations in terms of the deed of sale and was subsequently in breach of the agreement and Goldex approached the Court to claim compliance with the provisions of the sale agreement from Capper as trustee of the Trust and in his personal capacity as there was a clause in the agreement stating that should a purchaser act as a Trustee for an existing trust he is duly authorized to act as such and that he binds himself as surety as co-principle debtor on its behalf.
The Court however held that where a trust has more than one trustee, the Alienation of Land Act requires the signature of all trustees or at least a written authority of the other trustees to conclude a transaction on behalf of the Trust, in absence of which the agreement will be of no force and effect, irrespective of what the agreement of sale might have indicated to the contrary.
As the Trust Deed did not authorize Capper to enter into agreements for the alienation of land on behalf of the Trust and there was no written authority in this regard there was a non-compliance with the statutory requirement of Section 2(1) of the Alienation of Land Act 68 of 1981 rendering the sale agreement of no force and effect and equally the claim that Capper was personally liable or stood surety for the Trust had to fail.