News & Updates

A NOMINATION CLAUSE – CAN I INSERT ONE IN MY OFFER TO PURCHASE, AND HOW WOULD THIS WORK?

Aug 1, 2022

Purchasers often elect to sign an offer to purchase citing their name or nominee. The idea behind this is that the ultimate Purchaser will not be the person who signed the agreement, but rather a person or entity nominated by him. This can still be achieved in law, but there is a strict set of rules that must be complied with in order for the offer to purchase to become binding when a nomination clause is included.

WHY WOULD A PURCHASER INCLUDE A NOMINATION CLAUSE?

Usually a Purchaser would make use of a Nomination Clause when the identity of the ultimate purchaser is to be concealed prior to conclusion of the agreement. For the reasons that follow, a Nomination Clause is not a good idea when the person signing the offer to purchase is still deciding who the ultimate purchaser will be: the purchaser (who will ultimately take transfer of the property) should be known at the time that the agreement is being negotiated and an offer is to be made.

HOW MUST A NOMINATION BE EXERCISED?
In terms of section 16 of the Transfer Duty Act a person who signs on behalf of a nominee must disclose the name and address of his principal on the same day on which the agreement is accepted. The effect of this is that if an agreement is accepted/concluded at 4pm, the name and address of the nominee must be provided to the Seller before midnight on the same day.

WHAT IF A NOMINATION DOESN’T TAKE PLACE IN TIME?
In this instance the person who acted on behalf of the nominee will, in accordance with section 16(2),be deemed, unless the contrary is proven, to have acquired the property for himself/herself.
A further problem arises in that when the nomination is not made in time, double transfer duty may be payable as there will be seen to be two transactions – the first from the seller to the agent who signed the agreement (with the intention to nominate a third party) and the second from the agent to the nominee.

CONTRACTING ON BEHALF OF A COMPANY TO BE FORMED
The situation with regard to purchasing on behalf of a company to be formed is different from the above, and is specifically provided for in the Companies Act 2008. Only one transaction is deemed to take place provided:
1. The company to be formed is intended to be the ultimate transferee
2. The contract will be ratified by the company, and is ratified subsequent to its formation
3. The provisions of section 16 have been complied with.

From the above you will note that there are a great many technicalities to consider if a nomination clause is to be included, or if you intend to contract on behalf of a company to be formed. As always, we invite you to make contact with one of our attorneys before you sign on the dotted line!