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WHEN A TRUST IS A PARTY TO A PROPERTY SALE AGREEMENT
One always has to be extremely careful when one of the parties to an agreement is a trust. Consider the following scenario which a client recently presented: He purchased a sectional title unit that from a trust, duly paid the deposit, obtained mortgage bond approval and timeously settled the transfer and bond registration fees. One trustee represented the trust in signing the sale agreement but it appeared thereafter to have grown cold feet and, alleging a dispute with the body corporate regarding outstanding levies, stalled the transaction. The sale was later cancelled by the purchaser because of the impasse and the trust's apparent breach. On the face of it, despite the dispute with the body corporate, one could hold the trust to the transaction as the levy dispute had no bearing on the trust's obligation in terms of the sale agreement to pass transfer of the property to the purchaser. The trust however had, perhaps unintentionally, held back a trump card and could not be held bound to the agreement. We explain below.
What to look out for:
The primary formality for sale agreements relating to land is found in section 2(1) of the Alienation of Land Act. This provision requires that such agreements must be in writing, and signed by the parties thereto or their duly authorised agents. Problems that arise with regards to trusts' compliance with this requirement relate to the powers of trustees to enter into the transaction and how they are authorised to represent the trust.
As a first requirement, it must be checked that the trust deed allows its trustees to purchase or sell property. Further, the Supreme Court of Appeal has ruled that in the case of a trust, a deed of sale signed by one or more of the trustees on behalf of the trust will not be valid unless all the trustees have signed the agreement or have, before entering into the agreement, authorised a trustee in writing to sign the agreement on their behalf. In addition, if the trust deed stipulates that agreements must comply with further internal formalities, those must strictly be adhered to. One cannot later rectify any shortcoming by obtaining the consent or approval of the other trustees afterwards. This is because our law holds that one cannot revive a nullity; if the agreement is not valid at the time of signing, it cannot later be made valid.
Another question relates to identifying who the trustees are that must sign. The Trust Property Control Act determines that a person may only act as a trustee if he/she has been authorised to do so in writing by the Master of the High Court. This is done by the Master issuing the trustee with a Letter of Authority. A person who has not been issued with a Letter of Authority may not validly act as a trustee and any act concluded by such unauthorised person will have no force and effect.
The trump card in the scenario sketched above was the fact that the trustee who signed the agreement did not have a resolution in place authorising him to sign on behalf of the trust. This technicality rendered the agreement void (and meant that the purchaser had to assess whether alternative legal remedies could assist him).
Contact Martin Sheard at www.stbb.co.za or on 021 673 4700 should you require assistance with a property-related matter to that a professional can attend to every aspect of the matter for you and ensure there are no technical loopholes.