Meumann White Inc

  1. LEGAL REQUIREMENTS FOR A VALID SALE AGREEMENT IN RESPECT OF IMMOVABLE PROPERTY:

 

  • The Alienation of Land Act 68 of 1981 prescribes the legal formalities with which a contract of sale for immovable property must comply.
  • Section 2(1) of the Act provides that such a contract will only be valid if it is:
  • Contained in a deed of alienation; and
  • SIGNED by the parties thereto (or alternatively by their agents, acting on written authority).

 

SUMMARY:        In order for a sale agreement in respect of immovable property to be valid it needs to be in writing and signed by the parties thereto (or alternatively by their agents acting on their written authority). A failure to meet these two requirements will result in the transaction being void.

 

  1. SIGNING A SALE AGREEMENT:

 

  • Globally, as well as in South Africa we have seen a significant rise in the usage of electronic signatures when signing contracts. The primary reasons for this is that they are seen as being more efficient, cost-effective and environmentally friendly than their “wet-ink” counterparts.
  • In South Africa electronic signatures are governed by the Electronic Communications and Transactions Act 25 of 2002 (the “ECTA”).
  • Broadly speaking the ECTA provides that data linked to or associated with other data may serve as a form of signature and will not be invalid simply because it is in electronic form.

BUT

  • It is important to note that notwithstanding the above, and the fact that the ECTA provides for the recognition of electronic signatures, Section 4(4) of the Act states that:

“This act must not be construed as giving validity to any transaction mentioned in Schedule 2”

  • Schedule 2 of the ECTA then lists the following transactions:
  • An agreement for the alienation of immovable property as provided for in the Alienation of Land Act;
  • An agreement for the long-term lease of immovable property in excess of 20 years as provided for in the Alienation of Land Act;
  • The execution of a Will or Codicil; and
  • The execution of a bill of exchange.

SUMMARY:        Whilst electronic signatures can be utilised to legally sign contracts in most transactions, and the ECTA provides a framework to given the usage of same, they cannot be used in respect of contracts for the sale of immovable property.

 

  1. COMMERCIAL TRANSACTIONS:

 

When looking at commercial property transactions need to distinguish between the sale of shares in an immovable property owning company and the sale of a business which owns immovable property.

  • Sale of Shares:
  • When purchasing shares in a company the purchaser is acquiring ownership of the company itself, including inter alia its assets and liabilities.
  • If the company is a property owning company there is no formal transfer of the ownership of the underlying property itself, but only a change in the ownership of the company.
  • Therefore a contract for the sale of shares in a property owning company DOES NOT constitute an agreement for the alienation of immovable property as provided for in the Alienation of Land Act.
  • As a result of the above such a contract can be signed electronically, as it is not specifically excluded in terms of Section 4(4) of the ECTA read with Schedule 2 thereof.
  • Sale of Business:
  • When purchasing a business, the purchaser is acquiring the assets of the business, which includes inter alia any immovable property which it owns.
  • When preparing a sale agreement in respect of a business provision needs to be made for the transfer of ownership of each individual asset owned by the company in question.
  • This means that there must be a sale agreement which makes provision for the sale of any immovable property owned by the business to the purchaser thereof, and the property itself must then be formally transferred to the purchaser.
  • Therefore a contract for the sale of a business which owns immovable property does constitute an agreement for the alienation of immovable property as provided for in the Alienation of Land Act (NOTE this is provided that the immovable property forms part of the sale).
  • As a result of the above such a contract cannot be signed electronically, as it is specifically excluded in terms of Section 4(4) of the ECTA read with Schedule 2 thereof.
  1. CASE LAW

When discussing electronic signatures in the context of immovable property transactions there are two interesting cases to bear in mind.

  • BORCHERDS V DUXBURY:
  • Eastern Cape High Court decision – Single judge ruled that an agreement for the sale of immovable property signed by the seller utilising “docu sign” was valid.
  • In making his finding the court stated that it was clear that the seller, in affixing his signature and initials to the offer, was signing same as contemplated in Section 2(1) of the Alienation of Land Act and had the intention of being bound to the contract. Therefor the judge found that the contract was valid, despite the fact that it had been signed electronically.
  • NB – COURT CLEARLY MADE THE WRONG DECISION: The judge was incorrect in his ruling that the contract was valid, in the ruling failed to take into account the provisions of Section 4(4) of the ECTA read with Schedule 2 (the judgment fails to even make reference to these sections of the legislation).
  • The interesting point raised in this case it that it highlights the discrepancy between the clear intentions of the parties (ie. It was not in dispute that the seller had indeed accepted the contents of the contract and intended to be bound thereby), and the failure of the parties to comply with specific legal requirements set out in the relevant legislation.

 

  • SPRING FOREST TRADING 599 CC v WILBERRY (PTY) LTD (Contract in question was a lease that was shorter than 20 years and therefore could be signed electronically)
  • In determining whether a lease agreement entered into between the parties had been cancelled, the judge found that a lease can be validly cancelled by the exchange of emails between the parties thereto.
  • Important point highlighted was that the names typed at the end of emails constituted electronic signatures.
  • NB the lesson learned in this case is that when drafting contracts which are capable of being signed electronically one should consider including the following clause:

“No variation, alteration or consensual termination may be given effect to by way of electronic data messaging”.

  • Such a clause will prevent the parties from unwittingly amending the terms of the contract in what may be misinterpreted by them as being general conversation.

Article by David Campbell

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