Titan Law

LEGAL ASPECTS TO CONSIDER IN A PROPERTY SALE AGREEMENT

1. INTRODUCTION

1.1. An agreement of sale is a document drawn up between two or more parties when a person is selling a property to another person. Although verbal contracts are acceptable at law, property sale agreements must be reduced into writing and must specify explicitly the name of the seller and purchaser, the name and description of the property as it appears on the instrument of title, the purchase price of the property and the mode of payment. It is important that an estate agent or legal practitioner to check with the Deeds Office on the correct names of the parties, endorsements, servitudes, restrictions, caveats before drafting an agreement of sale.

1.2. The agreement must also specify the warranties, rights and obligations of the parties, the conditions on which the property is sold, the applicable law, the resolution of disputes and the manner of termination of the contract.

1.3. There are few challenges in an agreement of sale were the purchase price has been paid or secured. Problems may arise in sale of land by installments. In such instances, there might be of a double or multiple sale by the owner. This exposes the Purchaser since he/she is not a secured creditor nor does he/she have ownership of the property concerned.

1.4. In order to protect the purchaser from this risk, the law provides for what are commonly known as Deeds of Sale which are registrable against the Title Deed of the property to show that the property is subject to an installment purchase agreement.

1.5. Though the allocation of costs in an agreement of sale of property are governed by the specific terms of the agreement itself, there are statutory taxes and duties regulated at law by certain pieces of legislation, depending on the nature of the transaction. These include Stamp duty, rates clearance certificate payment, Capital gains tax and Value added tax and conveyancing fees as regulated under Statutory Instrument 28 of 2020 Law Society of Zimbabwe By-Laws, as amended from time to time. 1.6. An agreement of sale should also contain remedies and rights available to an aggrieved party in the event of breach by the other party, whether through acts of commission or omission.

2. TERMS OF PAYMENT

2.1. In an agreement of sale of a property, one of the most important considerations is the clause dealing with the price or valuation of the property and the method of payment. This clause is regulated by many of the other regulations and Acts dealing with legal tender and currency in Zimbabwe.

2.2. The clause dealing with payment should explicitly state the price of the property concerned and the mode, method and frequency of payments in relation to installment payments. As relates to installment contracts, due regard must be had to Section 11 of the Deeds Registry Act, which states that deeds must follow the sequence of their relative causes. This aspect is dealt with in more detail under the heading “Point of Transfer of title and release of funds”.

3. RBZ AUTHORITY FOR OFFSHORE PAYMENTS.

3.1. In Zimbabwe, the Reserve Bank of Zimbabwe is the overall exchange control authority in terms of the Exchange Control Act. Offshore payments fall under the category of payments that require exchange control approval from the central bank.

3.2. Exchange control is also governed by the Exchange Control Regulations 1996 Statutory Instrument 110 of 1996 and the Exchange Control (General) Order 1996 Statutory Instrument 109 of 1996. In order to repatriate proceeds of sale for a property in Zimbabwe offshore, using foreign or locally obtained free funds, one has to apply for exchange control approval to the Reserve Bank. This application for exchange control approval is usually facilitated through an authorized dealer (financial Institution). 3.3. The Exchange Control Act and its allied regulations prohibit offshore payments without permission from the Reserve Bank of Zimbabwe. Without exchange control approval, an offshore payment from proceeds of a property sale transaction will be regarded as illegal and constitutes externalization of foreign currency.

4.1. Breach of contract is a violation of any of the agreed-upon terms and conditions of a binding and valid contract. In simple terms, breach of contract occurs when a party to a contract fails to honour his or her obligations.

4.2. According to the common law in Zimbabwe regulating contracts and agreements, non-performance of a specific obligation or contravention of a specified warrant or condition or breach of the contract in a purchase agreement. The remedies available to an aggrieved party in this scenario are to sue for specific performance, which relief is ordered by a competent Court asking the contravening party to honour his/her obligation. Another remedy is through cancellation of the contract and to sue in a court of law for restitution, that is, that the party in breach return the innocent party to the position they would have been in had the contract not been entered into.

4.3. In most contracts, the parties agree to the imposition of certain penalties in the event that a party is in breach of contract. The imposition of these penalties is governed under the Contractual Penalties Act which in part stipulates that an aggrieved party can not be entitled to both liquidated damages and a penalty from the party that is in breach. The aggrieved party may only choose one of the remedies, the penalty stipulated in the contract or damages.

5. CONVEYANCING FEES, STAMP DUTY, RATES

PAYMENT, CAPITAL GAINS TAX.

5.1. The term conveyancing fees refers to the costs due to the legal Practitioner and/or conveyancer responsible for drafting the transfer documents and effecting transfer of title from the seller to the purchaser. In terms of Statutory Instrument 28 of 2020 Law Society of Zimbabwe (Conveyancing Fees) By-Laws, the conveyancing fees are 3% of the value of the property or purchase price.

5.2. In terms of our law, stamp duty is payable on the registration of an acquisition of property. The amount of stamp duty payable on a property purchase is calculated in terms of the schedule to Chapter II of the Finance Act (Chapter 23:04). Owing largely to fluctuations and the regulation of legal tender in Zimbabwe, the amount currently payable is as follows:-

5.3. The rates clearance certificate is a document which certifies that all rates payable to a Municipal or Rural authority have been paid in respect of the property being sold. Before taking transfer, a purchaser must pay all the rates payable to the local municipality 3 months in advance.

5.4. Capital Gains Tax is a tax on the actual gains realized from the disposal of a specified asset or on the property that has increased in value. The tax is levied on the capital gain and not on the amount received by the seller. The payment of this tax is governed under the Capital Gains Tax Act. Zimbabwe Revenue Authority (ZIMRA), which determines how much is payable by way of capital gains tax. Currently, the rate is 5% of the value of the property and is paid by the seller. The Conveyancer will deliver the file in person to ZIMRA or lodge the file through the ZIMRA electronic filing system. ZIMRA customer service helps with computation.

6. POINT OF TRANSFER OF TITLE AND RELEASE

OF FUNDS

6.1. After concluding an agreement of sale, the purchaser and s eller sign the transfer documents referred to above, the purchase price is paid to the seller’s agents/lawyers who hold it in trust until transfer has been effected. It is usually f rom these funds that the conveyancer retains capital gains tax before forwarding the net proceeds to the seller.

6.2. The stamp duty is paid upon lodging at the Deeds Office. The copies of the deeds are lodged with the Registrar of Deeds for examination upon payment of the registration fee and the stamp duty. If there are any errors observed by the Deeds Office in form, typographical or in content for amendments/ corrections, Or if the resident property valuer seconded from the Ministry of Local Government and Housing is of the view that the declared sale price does not sound genuine, then he will carry out an onsite inspection. Then the deed is returned to the conveyancer. Once the corrections have been attended to and /or valuation has been carried out and additional duties/ fees based on this increased value have been obtained from the purchaser, the copies are again returned by the conveyancer to Deeds Office for further examination. If there are no more errors the deed is signed (registered) by the Registrar of Deeds or his/her designate. One copy of the deed is filed in the office of the Registrar of Deeds and the second one sent back to the conveyancer for onward transmission to his/her client (the new property owner).

6.3. If a sale of land is intended to be registered against the title deed, the law regulating the registration of installment property purchase agreements requires that such contract must;

a. be a sale of immovable property only. b. must be reduced to writing to be registered. c. Purchase price must be paid in 3 or more instalments. d. Consent of registered owner and Purchaser is required.

6.4. The registration of these installment contracts results in the endorsement of the Title Deeds of the land concerned indicating that the said land is the subject of an installment property purchase agreement.

7. CONCLUSION

7.1. It is apparent that the issues governing the purchase and sale of property are unique as there are also statutory requirements and terms that must be strictly adhered to.

7.2. The hallmark of concise and apt property purchase agreements is due diligence and preparation. Without this due diligence, the risks involved in purchasing property would far outweigh the benefit of being a property owner.