Pre incorporation agreements

A particular dynamic prevails during the period before and after the date of incorporation. Before, the developer is in complete control of the development and all decisions relating to the scheme are necessarily made by him alone. During this time he must protect his own legitimate interests in respect of the scheme but he must also make certain decisions which are in the interest of later owners, and which control passes immediately on registration of transfer of the first unit. This article discusses the effect of contracts concluded on behalf of the body corporate, and which formalities should be applied to adopt such contracts.

It is pointed out by the author that the majority of contracts concluded on behalf of owners in terms of management rule 50(2)(iv) may not be binding despite being 'adopted' or 'ratified' at the first general meeting, because the principles of the law of contract do not allow for a contract to be concluded on behalf of an entity that does not exist, and reinforced by s 47(2) of the Sectional Titles Act 95 of 1986:
"No debt or obligation arising from any agreement between the developer and any other person shall be enforceable against the body corporate."

In short, the value of this article is to bring attention to the fact that, in the absence of the correct procedures being followed, null and void contracts are often regarded as binding by owners and trustees.

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