In terms of the new Companies Act, the position of those buying a property on behalf of a company yet to be formed is now more precarious.  If the company on whose behalf they act is not subsequently incorporated or rejects the agreement drawn up by its representative, that individual will be held liable for the purchase or the contract penalties as set out in the contract document.

If the company is incorporated but fails to ratify the agreement in writing or rejects the agreement but fails to notify all involved within three months of its being incorporated it will under the new law be deemed to have accepted the contract.

The person concluding the agreement will only be discharged from liability if the company ratifies the agreement in terms of Section 21 of the Act.

The lesson to be learned, says Clarke, is that anyone planning to buy a property through a company to be formed should familiarise himself with the new Companies Act and keep strictly to it or he will be in trouble.

Clarke also draws attention to announcements which could have serious effects on the ownership and/or transfer of properties:

The Companies and Intellectual Property Commission (CIPCO, formerly known as CIPRO) has revealed that recently over one million companies were deregistered or are in the process of being deregistered by them for failing to submit their annual returns.

A significant number of SA properties are held in companies and that quite often this company has been set up only for this reason.

If, due to negligence or some other cause, the property holding company has been deregistered by CIPCO, it will have immediately lost its status as a legal entity.

This, says Clarke, could mean that any agreements entered into by the company while it was registered are possibly invalid and open to questioning. 

Furthermore, the company can no longer enter into any legal agreements such as the buying, selling or transfer of property.

Worse still, all the company’s assets (including the property) pass to the State and the “owners” (no longer recognised in law) may have to get State permission to work with or dispose of them.

Clarke advises all who hold property in a company and who have any doubts about whether their corporate governance or judiciary duties have been in complete compliance with the law to transfer the property to a natural person.