Think before you sign: 5 Things to consider before signing a contract
The simple definition of a contract is where an offer by one party is accepted by the other party. These parties are the contracting parties. There will be no agreement between the parties if there is a counteroffer to an offer. However, if a counteroffer is accepted, there is an agreement or consensus between the parties. What are the requirements of a valid contract? There must be a consensus between the contracting parties; The parties must have a legal capacity to enter into a contract; All the formalities must have been met, whether it is contained in the contract itself or by law. For example, the sale of immovable property has to be in writing. However, verbal contracts are valid contracts; Performance as per the agreement has to be possible as well as lawful; There must be certainty in respect of what the parties agree to. As with all contracts, there are certain things that need careful consideration when entering into a contract. Performance: Performance is what each party is responsible for in terms of the agreement. With an agreement of sale, the parties agree that one person will make payment in a specific amount in return for a specific item. Before entering into a contract, it is important to consider whether you will be able to perform in terms of the agreement. Will you be able to pay the purchase price? Will you be able to deliver the thing? Will you be able to provide the service as agreed? When payment is done in instalments, due consideration should be given to the instalment amounts and if the party who is liable for said instalment amounts is able to afford it for the period agreed upon. Interest on repayment plans is another factor that needs careful consideration. Although parties may agree to any amount of interest, it would be wise to agree to a reasonable interest. A credit agreement is a common form of an agreement entered into by parties. Examples of these are credit cards, vehicle finance agreements or mortgage bonds. It is important to establish whether a party offering a credit facility is a registered credit provider in terms of the National Credit Act (NCA). Non-variation: Notwithstanding that verbal contracts are valid contracts, it is wise to have a contract reduced in writing in order to avoid uncertainty. Even written contracts can be uncertain at times. If you have your contract in writing, make sure that it contains a non-variation clause to ensure that all changes to the contract shall only be valid if in writing and signed by both parties. It is important to note that variations of a contract may take place by means of email correspondence. Dispute resolution: Make sure that in the event of a dispute the parties should follow a procedure in order to resolve the dispute. For example, parties can agree to give each other written notice in order to rectify a default within a short period of time after which the aggrieved party can institute legal action against the other party. The parties can agree to proceedings they find more effective In terms of time, costs, and resolution. It is common that parties agree that the magistrates’ court has jurisdiction to preside over a dispute arising from their contract. Domicilium: Domicilium citandi et executandi is the nominated address for accepting notices and processes for purposes of court proceedings. It is important to note that the court may accept that a party has received proper notice of proceedings if there is proof of delivery to the nominated address despite the fact that you may be unaware of said delivery. Do not sign contracts that you do not know or understand the content of. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
The Subdivision of Agricultural Land Act No. 70 of 1970 Explained: Part 3
In this Part 3 of the series on “The Subdivision of Agricultural Land Act No. 70 of 1970 Explained”, we will discuss the procedure on how to apply for the consent as required by the Minister for any actions regarding agricultural land which is prohibited in terms of Section 3 of the Act. This will include the Minister’s imposition, enforcement or withdrawal of conditions by him or her, as well as any miscellaneous provisions. When you want to perform any of the actions which are set out in Section 3 of the Act, you will have to apply to the Minister of Agriculture, Land Reform and Rural Development of South Africa to obtain his or her consent thereto. This application needs to be made by the owner of the land concerned if the action being contemplated relates to the subdivision of agricultural land; the vesting of undivided shares or a part of undivided shares in any other person not already held by a person; leasing of agricultural land for a period of more than ten (10) years or subsequent leases amounting to a period of more than ten (10) years; and selling or advertising a portion of agricultural land. These actions are set out in Section 3(a) to (e) of the Act and are more fully discussed in Part 2 of this series. This application by the owner as referred to above needs to be lodged or submitted at the correct location and it should be in the correct form as determined and required by the Minister. The application also needs to be accompanied by the necessary plans, documents and information if required by the Minister. The word “owner” for this section of the Act has the meaning assigned to it in section 102 of the Deeds Registries Act, No. 47 of 1947. The term “owner” is defined as the person who is registered as the owner or holder of the immovable property and includes the trustee in an insolvent estate, a liquidator or trustee elected or appointed under the Farmers’ Assistance Act, 1935, the liquidator of a company which is an owner and the representative recognised by law of any owner who has died or who is a minor or of unsound mind or is otherwise under disability: provided that such trustee, liquidator or legal representative is acting within the authority conferred on him by law. The Minister may at his or her discretion either refuse such application or grant such application on any conditions which he or she deems fit. Such conditions may also pertain to the purpose or manner in which the land in question may be used for example if the Minister is satisfied that the land in question will not be used for agricultural purposes after consultation with the Administrator of the province in which such land is situated and upon such proposed conditions by the Administrator, then the Minister may grant such an application. Such conditions imposed by either the Minister or Administrator may be enforced, varied or withdrawn by the Minister or the Administrator, upon consultation with the Minister. If such condition is registered against the title deed of such land, the Minister has the authority to direct that such condition be varied or cancelled. In Part 4 of the series on “The Subdivision of Agricultural Land Act No. 70 of 1970 Explained”, we shall further look at miscellaneous provisions in the Act pertaining to succession, general plans or diagrams of the land, registration of servitudes, fees and offences and or penalties. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Emigrating while retaining your property?
The exodus of South Africans to foreign jurisdictions has been well publicised, and due to this, much has been written about the so-called “exit tax” that applies when one ceases to be a tax resident in South Africa, as well as matters relating to foreign employment income earned. However, what is often overlooked is what happens when you emigrate but retain your home in South Africa. The general principle is that when you cease to be a South African tax resident, your home (constituting immovable property in South Africa) will not be subject to the “exit charge”, since that immovable property always remains a part of the South African tax net. This means that should you initially keep your home in South Africa and only sell it a few years down the line, you are only likely to pick up any capital gains tax consequences once you do sell the home. The question arises, however: What is the interaction is between you having used your home as a primary residence whilst in South Africa and you not having lived there after your emigration? It is important to note that the way in which you used your residence whilst not actually living there while aboard is irrelevant for the consideration below. In terms of the Income Tax Act, the first R2 million of a capital gain made on the disposal of a “primary residence” is excluded for purposes of calculating your tax liability. However, since you were not resident in your home for the entire time during which you owned the property, it will not constitute as being your “primary residence” for the entire time. An apportionment must thus be made for the time during which you lived in that residence, and the time you used it for other purposes. Taxpayers are often incorrectly advised that for purposes of the apportionment mentioned above it is the primary residence exclusion of R2 million that must be apportioned on a time basis to determine the capital gains tax exposure. However, paragraph 47 of the Eighth Schedule of the Income Tax Act is clear in that it is the capital gain that must be apportioned on a time basis for the period you were resident and the period in which you were not resident. The gain made in respect of the period during which you did not reside in the property as your primary residence is fully subject to capital gains tax, while the R2 million primary residence exclusion can only be applied to that portion of the gain during which you indeed resided in the property, as your primary residence. Persons who currently reside aboard or intend to emigrate while retaining their property, which they used as a primary residence at some stage, are therefore encouraged to obtain professional assistance when doing the apportionment calculations to ensure that they are not prejudiced in any way (either through the overpayment or underpayment of tax in respect of the disposal of that property). This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Emigrated and selling your house? Beware of withholding taxes
Many South Africans who simultaneously emigrate and cease to be South African tax residents are faced with a situation where the sale of a fixed property has not been finalised by the time they cease to be tax residents. This may result in the unintended consequence of them becoming a non-resident seller of immovable property in South Africa. In terms of South African tax laws, any purchaser who must pay any amount exceeding R2 million to any other person who is not a resident (or to any other person for, or on behalf of, that seller), is required to withhold an amount equal to 7,5% of the amount payable if the seller is a natural person (known as a withholding tax). This is mandated in respect of the disposal by the seller of any immovable property in the Republic. The withholding mechanism essentially acts as pre-payment in respect of any capital gains tax exposure in South Africa. A purchaser is personally liable if they know or should reasonably have known that the seller is a non-resident, which is often the case in scenarios such as described above. If the amount is in fact withheld, the purchaser must pay the amount to SARS before or on the date on which payment would have been made. If an estate agent or conveyancer has assisted in the disposal of property, a purchaser will not be held personally liable if they were not notified of the seller’s non-resident status by that estate agent or conveyancer. If an estate agent or conveyancer should reasonably have known that the seller is a non-resident and fails to notify the purchaser, the failing estate agent or conveyancer is jointly and severally liable for the payment of the amount which the purchaser is required to withhold and pay to the Commissioner. Yet, this amount is limited to the sum of remuneration or other payment in respect of the services rendered in connection with the disposal of immovable property by the seller, or the registration of transfer, whichever applies. An application may, however, be made for a directive that no amount be reduced or withheld by the purchaser if the actual liability of the seller in respect of tax, at the time of the disposal of the immovable property, is less than the amount arrived at by applying the percentage of 7,5%. To request a tax directive for a lower or zero rate of tax to be withheld, the seller must complete an NR03 form and submit it together with the offer to purchase, tax calculation and supporting documentation to nres@sars.gov.za or use one of the other submission methods described on the form. South African taxpayers who plan on emigrating should actively manage this process to ensure that properties are disposed of before ceasing tax residency or ensure that they adhere to the requirements of withholding taxes. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)