TRIPARTITE AGREEMENTS: ALIVE AND WELL OR DEAD AND BURIED?
We’re often asked whether it is possible to on-sell a property before the property has been transferred to the purchaser, thus circumventing the need to transfer the property twice (from original seller to purchaser, and then from “middle-man” purchaser to end-purchaser). This would involve a tripartite agreement between the three parties, which is best illustrated by the following scenario:
A sells his property to B for R2 million rand and before registration of transfer takes place, B sells the property to C for R2,5 million rand. In an effort to fast track the transfers and in order to avoid paying double transfer duty, the three parties agree that the sale between A and B will be cancelled and A will sell directly to C for R2,5 million and B will extract his share of the gain/profit of R500 000.00 without the need to take transfer and to pay transfer duty.
SARS, THE DEEDS OFFICE AND TRIPARTITE AGREEMENTS
Tripartite agreements are dealt with in terms of section 5(2) of the Transfer Duty Act which was amended specifically to prevent the scenario set out above. The effect of this is that you cannot avoid the payment of transfer duty by entering into a tripartite agreement and attempting to do so is unlawful. SARS will insist on the full transfer duty being paid for both transactions i.e. from A to B and from B to C in the above example.
Furthermore, section 14 of the Deeds Registry Act states that deeds are to follow the sequence of their relative causes which, simply put, means that you cannot skip a step in a transaction and registrations must take place in their sequential order.
In light of the above two legislated sections, tripartite agreements are effectively a thing of the past. Beware of being led to believe otherwise and, as we so often advise, seek assistance from one of our attorneys before you sign anything!
- On June 17, 2022