Nomination Clause In Agreement

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Escaping the undesirable consequences of appointment clauses The removal or limitation of appointment rights may be an unfair term. What are the consequences of a land buyer appointing a nominee in accordance with an appointment clause contained in the contract: what are the rights and obligations of the nominee? An appointment clause in a real estate sales contract often seems like a very good idea in complex business structures, but the undesirable consequences can arise from the Transfer Duty Act 40 of 1949 (“Act”). Notwithstanding the VAT status of a business, it is possible that a sale of real estate transactions is subject to transfer tax and not VAT, either because the seller is not a registered SELLER of VAT, or because the sale of real estate is not in the seller`s normal business and therefore attracts a transfer tax. In this context, we will examine some of the undesirable consequences and possible solutions arising from the use of appointment clauses. With regard to Article 5(2)(a) of the Act, it is stated that “where a transaction which has been the subject of an acquisition of ownership is cancelled or dissolved by the operation of a resolvable condition prior to the registration of the acquisition in a register of documents, tax shall be paid only on that part of the consideration which has been or will be paid to the seller: and to any paid consideration paid by the buyer for or in respect of the cancellation. provided that in the event of cancellation or termination of such transaction, such property is entirely returned to the seller and that the original purchaser has waived all rights and has not received or receives any consideration resulting from such cancellation or dissolution.┬áThis means that, notwithstanding the termination of a sales contract, transfer tax must continue to be paid on the portion of the consideration paid and withheld from the seller. The contract allowed a replacement or additional purchase buyer. The nominal buyer brought an action for damages for violation of section 52 of the Business Practices Act, section 9 of the Fair Trade Act and negligent misrepresentation. Judd J. considered that the appointment had not given rise to a novation and that the applicant had not become a party to the contract of sale. His Honour also noted that at the time he paid the purchase price and made the transfer, the claimant knew the true rentable area of the land. Consequently, the cause of the claimant`s loss was either an informed decision to pay a price for the property and to make the transfer, or, if the payment was involuntary, because the claimant was induced by its directors, with full knowledge of the actual facts, to make the payment in that case, but he would not have suffered a loss for the appointment.

The loss was caused by the appointment, not by the performances. Judd J dismissed the proceedings. To overcome the possibility of “double taxation”, an alternative clause can be used instead of an appointment clause. Such a clause provides that, if the customer wishes to conclude the contract for the sale of immovable property, the contract for the sale of the property must be terminated at the written request of the buyer (agent) before the purchase price is guaranteed and provided that no obligation of the buyer is in arrears. In such cases, point (a) of Article 5(2) shall also apply. To avoid any delay, the conclusion of the new sales contract must coincide with the termination of the previous sales contract. A buyer nomination creates a second contract between the buyer and the nominee….

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