Trouble with trusts

Trouble with trusts

Whether or not 2014 lives up to the forecasts of accelerating strength in the property market, you need to know that your sale or purchase of land will be invalid unless it complies strictly with these legal requirements –

    1. The sale must be recorded in a written agreement of sale, and
    2. The sale agreement must be signed by both seller and buyer, either personally or by an agent authorized in writing to sign on that party’s behalf.

The twist with truststrusts
There’s an additional twist to be borne in mind when one of the parties is a trust – trustees must act in accordance with the requirements of the trust deed, and where they are required to act jointly (which will be the case unless the trust deed provides otherwise), a trustee acting alone must be properly authorised to do so by the others before he/she signs the agreement.

The farm sale that failed
Not checking for such trustee authorisation can be disastrous – witness the recent High Court matter of Jansen NO and Others v Ringwood Investments 87 CC(59771/2009) [2013] ZAGPPHC   in which a trust had bought a farm for R13,5m and paid a deposit of R2m to the seller. When the trust failed to raise a loan for the balance of R11,5m and the sale fell through, the seller refused to release the buyer’s R2m deposit pending formulation of a damages claim against the buyer.

The trust as buyer sued the seller for return of its R2m, pointing out that only one of four trustees had signed the sale agreement, and that the signing trustee had no joint resolution or written authority from the other trustees to do so as required in the trust deed. Thus, argued the trust, the sale agreement was invalid and its deposit must be refunded.

“Trust me, I’m a trustee”
The Court agreed with the trust and declared the whole sale void. The result – the seller has lost control of the R2m deposit which it must repay to the trust (thus losing its “possession is nine-tenths of the law” advantage), it is lumbered with the costs of the legal action, and it must start all over again if it wants to sue the trust for damages.

Don’t make the same mistake as the seller. Don’t trust a trustee’s declaration of authority. If you sell land to or buy land from a trust, sign nothing until your attorney –

1.Has checked the trust’s deed,

2.Has confirmed that all formalities required by the trust deed have been complied with, and that whatever authority the signing trustee/s require/s from the other trustees (normally a resolution signed by all trustees) has indeed been given, and

3.Has been given written proof of such authority (oral authority being “no authority at all”). Note: this authority must be in place at the time that the sale agreement is signed – an unauthorised sale is invalid from the start, and cannot be ratified retrospectively.

Trustees – your personal risk
There’s also a warning for trustees here, with the seller in this case threatening to sue not only the trust, but also the signing trustee personally for R2m for “having falsely represented in the sale agreement (under his signature) that he was duly authorised whilst he was not.”

As a trustee, make sure that you never act outside your powers – if you do, you risk personal liability not only to the trust and its beneficiaries, but also to third parties.

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