Buying and selling of property by a trust

02 Oct 2006

Particular care should be taken when dealing with agreements for the sale or purchase of immovable property by a Trust. It is a tricky business, with a number of factors playing a role. Managing partner of strb Smith Tabata Buchanan Boyes and Property24's legal expert Andy McPherson clarifies the issues.

Trustees may enter into a sale agreement for the purpose of buying or selling property on behalf of a Trust only once they have been duly appointed by the Master of the High Court. The Trust Property Control Act states that any person who has been appointed to act as a Trustee of a Trust after 1988 may only act in that capacity once he or she has been duly authorised, in writing, by the Master.

This written authorisation takes the form of Letters of Authority or a Master's Certificate. It is imperative for a property professional when dealing with the sale or purchase of a property by a Trust to obtain for themselves and keep on record a copy of the Letters of Authority of the Trust in order to verify both the names of the duly appointed Trustees as well as the fact that they have been duly authorised by the Master to act in that capacity. Any Offer to Purchase or agreement of sale signed by a Trustee or Trustees before they have been appointed in writing by the Master is void and unenforceable.

It is important to ascertain whether or not the Trustees have the power to buy and sell property on behalf of the Trust. The powers of the Trustees are set out in the Deed of Trust or, in the case of a testamentary trust, the will of the deceased, which is the document in terms of which the Trust is established, and the Trustees are confined to the powers set out in this document.

Trustees may only purchase or sell property on behalf of the Trust if the power to do so is specifically granted to them in the Trust Deed. It is therefore important for the property professional to obtain a copy of the Trust Deed to ensure that the duly appointed Trustees are in fact permitted to buy or sell a property on behalf of the Trust. In cases where the Trustees are not specifically given the power to sell property, the conveyancing attorney will not be able to pass transfer of the property in the Deeds Registry as it is the conveyancer's duty to investigate and certify to the Registrar of Deeds the fact that the Trustees have the power to sell property under their administration.

The Deed of Trust also stipulates how decisions of Trustees are to be taken. For example, certain Trust Deeds require that all decisions of Trustees be taken unanimously while other Trust Deeds require only that a majority of the Trustees then in office must agree to the purchase or sale by the Trust. In a situation where the Trust Deed requires a unanimous decision of the Trustees, for example, and only three of four Trustees sign an agreement of sale to buy or sell a property owned by the Trust, the agreement will not be binding on the Trust and the sale itself will be unenforceable. It is therefore important for the property professional to satisfy himself or herself as to the number of Trustees required to sign the agreement. To avoid any possibility of error, it is advisable to have all of the Trustees sign the agreement of sale or, alternatively, obtain a Resolution signed by all of the Trustees of the Trust in terms of which they agree to buy or sell the property.

If only one Trustee is going to sign the agreement of sale and/or the conveyancing documents required to give effect to the transfer of the property, he or she must be authorised to do so by a Resolution which has been signed by all of the other Trustees.

In view of the fact that Trustees cannot enter into agreements until they have been issued with Letters of Authority by the Master, it should be noted that no person may enter into an agreement "on behalf of a Trust to be formed", as is possible in the case of companies and close corporations. Such an agreement is void. Unlike in the case of companies and close corporations, the Trust must already be in existence at the time the agreement is entered into.

In situations where the Trust requires a mortgage bond, the power of the Trustees to mortgage Trust property must, as with the power to buy and sell property, be specifically provided for in the Deed of Trust. The commercial bank granting the mortgage bond will require a copy of the Trust Deed as confirmation of this power. The bank will also usually require that an individual or individuals stand surety for the loan on behalf of the Trust.

On the sale of property, Trusts are subjected to the highest rate of Capital Gains Tax. 50% of the net gain must be included in the Trust's taxable income for the year in which the property is disposed of and is then subjected to income tax at a flat rate of 40%.

If you have a question or comment for Andy McPherson, email him here.

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