Real Estate Investor Magazine South Africa September 2014 | Page 48

LEGAL

Special Resolution Required
To Sell Property
It is a longstanding imperative of company administration that when property is the sole asset of a company or
a greater part of its assets and the directors acting for the Company, wish to sell it, the shareholders must pass a
special resolution indicating that 75% (this is the default percentage) of the shareholders in the company agree
to the sale.
“This stipulation,” says Garth Watson, a partner in the Cape legal firm Gunstons Attorneys, “is one of which
many company executives overlook.” The crux of the matter, he continued, is that sales which are not authorised
by shareholders in this way may be nullified and thus purchasers may be prejudiced, especially if they are relying
on the terms of the sale agreement which may become void. The directors of such a company selling its property
are, in the absence of a special shareholders resolution, actually prohibited from giving effect to the transfer of the
property.
A Company may have a lower the percentage for the passing of special resolutions of shareholders if its
memorandum of incorporation provides for this. Persons entering into sale agreements with companies selling
property should consult the Companies and Intellectual Property Commission (CIPC) in order to check the
provisions of the memorandum of incorporation to ensure that any required resolutions passed by the shareholders
of the selling company is adequate. Alternatively, and possibly more easily, suitable conditions and warranties
should be included in any deed of sale.

Temporary Vat Relief For
Property Developers
A property developer usually holds residential properties as trading stock and accounts for VAT at a rate of 14%
on the sale of the developed units. The developer is allowed to claim input VAT credits for expenses incurred
making taxable supplies. However, explains Graeme Palmer, Director of Garlicke & Bousfield Inc, when economic
conditions get tough, the developer may be unable to sell the properties and be forced to lease them to cover costs.
Letting of a residential unit is an exempt supply for VAT purposes, so the input VAT credits, such as the building
costs, cannot be deducted. SARS has always taken the position that the temporary letting of residential units by
a developer constitutes a “change of use” and VAT then becomes payable on the open market value of the unit at
the date the property is let. When the unit is eventually sold the developer can then deduct the VAT paid over
at the time the unit was let. But in the meantime payment of the VAT adversely affects the developer’s cash flow.
In January 2012 temporary relief was given to developers in Section 18B of the VAT Act. This allowed developers
to let residential units for a period of 36 months from the date of concluding a lease agreement, without incurring
a VAT liability. However, this relief only applies to developers who intend to sell the properties. If the developer
rents a unit for longer than 36 months he will be deemed to have changed his use and become liable for the VAT.
The temporary relief provided to developers will come to an end on the 1st January 2015.

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September 2014 SA Real Estate Investor

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