Fractional Concerns

Concerns re fractional ownership sales - Legal implications
We have noted with concern the current tendency to promote, so called "fractional ownership" sales as something other than time share or share block sales.

FRACTIONAL OWNERSHIP consists of shares in a company which owns an exclusive upmarket property and although the number of shareholders invited to part with their money are limited to only 12 or 13 persons per company the implications are still severe.

1. Such shareholding grants the shareholders rights to use the property of the company and hence this falls within the provisions of the SHARE BLOCK CONTROL ACT (Act 59/1980). Section 4 is quite clear:
   
   Presumption as to operation of share block scheme by company
   
   For the purposes of this Act a company shall be presumed to operate a share block scheme if any share of the company confers a right to or an interest in the use of immovable property or any part of immovable property.
   
   
2. The shareholders enter into an agreement in terms of which their usage of and rights to the Company's property is regulated and controlled. This is a typical property time sharing scheme within the provisions of the PROPERTY TIME - SHARING CONTROL ACT (Act 75/1983). The definition of a Property time sharing scheme (Section 1.xiii) and time-sharing interest (Section 1.xxiii) provides for any scheme in terms of which any right or interest in the exclusive use or occupation of accommodation during determined periods of a year are offered for sale.
   
   
3. Sales of shares in a Share Block Company attract VAT and if the seller is registered for VAT this must be provided for.
   
   
4. Any agreement not complying with the provisions of the Share Block Control Act is VOID and agreements not complying with the provisions of the Property Time Sharing Act are VOIDABLE.
   
   
5. Parties not complying with the provisions of the mentioned two Acts are in any event committing an offence.


The biggest problems currently experienced with these fractional ownership sales are the ignorance of purchasers as to the legality of the sale (it is possibly void in any event) as well as to the financial affairs and management of the Company.

The Company in all probability initially financed the acquisition/improvement of the property through a mortgage bond and this obligation is not necessarily disclosed to the Purchaser of shares. All these concerns are adequately addressed by the Share Blocks Control Act.

We believe it is imperative that all Deeds of Sale of "Fractional Ownership" comply with the provisions of the said Acts before consideration can be given to financing the purchase of a share block.

The shares can be pledged to a BANK and the purchaser's rights under the use agreement can be ceded to the BANK as security for the repayment of the finance.

Corrie de Jager
Snyman de Jager Inc