You sell your property for a good price and, with the deal in the bag, you start daydreaming about how to spend the proceeds. Then – disaster of disasters – you realise that in the excitement of the sale you forgot all about VAT.
It’s an easy mistake to make, and a recent High Court case of Gerber v Naidoo and Another (3048/2015)  ZAECPEHC 11 shows just how costly it can be.
“Oops, we just lost R221k”
The facts in this case were as follows –
- The liquidators of a close corporation in liquidation sold a property to the buyer for R1,8m.
- The sale was vatable, in other words the sellers would have to account to SARS for VAT on the purchase price.
- Clearly the sellers intended the sale to be VAT exclusive so that they would receive the full R1.8m net of VAT. Indeed the bank holding a bond over the property, in giving its consent to the sale (a condition of the sale), specified that the offer price must exclude VAT.
- Unfortunately for the liquidators, the sale agreement itself was silent on this point, and our Value Added Tax Act specifically provides that any price charged by a vendor is deemed to include VAT. So, if you make the same mistake as the liquidators and don’t specifically provide in the sale agreement that the buyer will pay VAT on top of the purchase price, the buyer only pays the stated price. No more and no less.
- The buyer, when presented with a pro-forma invoice for VAT on the sale price, refused to pay it – and eventually asked the High Court to order the liquidators to pass transfer to him against payment of just the R1,8m.
- The liquidators asked for “rectification” of the contract to reflect the “true” agreement and the “common intention” of the parties to exclude VAT from the price. The Court however refused rectification, holding that no such common intention had been proved; and anyway, the liquidators should have formally applied for rectification, and hadn’t done so.
- The end result – the close corporation in liquidation must transfer the property to the buyer and loses the R221,053 VAT which it owes SARS. The liquidators clearly have some explaining to do to the bondholder.
Don’t make the same mistake!
As always, when it comes to big contracts, and property sales in particular, sign nothing without legal advice.
Jack Crook, Director at DotNews, is well known to law firms as the author of LawDotNews since 2005. Jack’s legal qualifications (LLB Lond and LLB Rhod) are supplemented by many years of practical experience in law, in marketing his own firm, and in helping other small and medium sized professional firms to prosper by using simple, low-cost, effective marketing strategies. © LawDotNews