Introduction

Estate agents and conveyancers need to be on guard when they hear the word “trust” in relation to a transaction for the sale of immoveable property. While a transaction involving a trust need not be something to steer clear of, careful attention to detail is necessary and all bases must be covered as is evidenced by recent case law. Importantly, the provisions of Section 2(1) of the Alienation of Land Act (Act 68 of 1981) need to be understood. Section 2(1) reads –
‘No alienation of land after the commencement of this section shall, subject to the provisions of section 28, be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority.’ It is on the issue of who is duly authorised to represent a trust that problems often arise.

Cautionary tales from recent case law:

1. Sub-minimum number of trustees

In the case of Land and Agricultural Bank of South Africa v Parker and others 2005 (2) SA 77 (SCA) the trust deed regulating the trust in question stated very clearly that there was, at all times, to be a minimum of three trustees in office and that whenever the number of trustees fell below three the remaining trustees were to appoint a further trustee. In this case when the third trustee resigned the remaining two failed to appoint someone in his place. During the period that there were only two trustees in office these trustees entered into a number of agreements on behalf of the trust which agreements were consented to by both trustees. The argument was therefore levied that these transactions were valid on the basis that the trust deed required the majority of trustees to consent to the entering into of transactions and agreements and as two out of three had so consented the majority requirement was fulfilled. This argument was rejected however because of the fact that there were only two trustees in office at the time and not the required number of three. This case therefore emphasises the common law rule that a sub-minimum of trustees cannot bind a trust. Any contracts or agreements entered into during this time are therefore entered into at a time that the trust lacks the capacity to be bound and are therefore void ab initio.

In relation to the transfer of immoveable property this case emphasises the need for estate agents to ensure that the signatories to a deed of sale are duly authorised to represent the parties to that deed of sale. In the case of a trust where the Letters of Authority list certain trustees and all of these trustees have consented to the appointment of a signatory this does not mean that due authorisation has been confirmed. The estate agent needs to take the verification process one step further and read the trust deed to ensure that the minimum number of trustees are in office. If the deed of sale is signed by someone authorised by the trustees at a time that a sub-minimum of trustees are in office then the contract for the sale property will be void on the basis that the trust lacked the capacity to act or be bound and therefore had no capacity to authorise anyone to act on its behalf.

2. Delegation of trustee’s powers

The case of Hoosen and Others NNO v Deedat 1999 (4) SA 425 (SCA) dealt with the question of whether a trustee could delegate his powers through a power of attorney to a non-trustee. The court held in this case that the powers of a trustee could not be delegated to a non-trustee where the trust deed did not specifically allow for this, which in this case it did not. If a trust deed does specifically allow for delegation then such delegation will be valid. Once again, the estate agent, when faced with a signatory claiming to be authorised by a power of attorney, will need to check the trust deed to ensure that the delegation of powers is allowed.

3. Notification to all trustees of decision-making

The case of Steyn and Others NNO v Blockpave (Pty) Ltd 2011 (3) SA 528 (FB) is authority for the principle that all trustees must act together when making decisions affecting the trust. While a majority vote may be necessary as per the trust deed, this does not mean that the trustees who do not make up the majority do not need to be informed of the decisions that will be taken. Essentially this means that where a particular trustee has been left out of the decision-making process he or she can claim that the transaction authorised by the remaining trustees is void on the basis that there was no notification of a decision to be taken or involvement by him or her in the decision-making process. In order to avoid a situation like this the estate agent should request proof of a resolution signed by the majority as well as evidence that the trustees who did not make up the majority were informed that the decision was going to be taken.

4. Written authority and ratification

In the case of Thorpe v Trittenwein 2007 (2) SA 172 (SCA) the issue of the signature of agreements for the sale of immoveable property was dealt with specifically. In this case it was held that a trustee acting alone and without the authorisation of his co-trustees could not sign an offer to purchase immoveable property. Written authority is required by section 2(1) of the Alienation of Land Act and if same cannot be proven then no authority exists and the trust will not have been bound by the signature of the trustee. Essentially this case is authority for the fact that if no written authority exists the transaction becomes void ab initio. Its status as being void ab initio means that it cannot be ratified by the signature of a written authorisation to act after the fact. The written authority therefore must have been granted prior to the signature of the deed of sale by the duly authorised trustee.

Conclusion

As per Scott J in the Thorpe case, “Those who choose to conduct business through the medium of trusts … do so no doubt to gain some advantage, whether it be in estate planning or otherwise. But they cannot enjoy the advantage of a trust when it suits them and cry foul when it does not.”
Choosing to enter into transactions to buy or sell immoveable property using a trust vehicle puts a heavy burden on the buyer or seller, as the case may be, to ensure that all steps are correctly taken so as to avoid the situations outlined above. A heavy burden is also placed on the estate agent who has to ensure that all steps have been taken before an offer to purchase or deed of sale is signed. While a conveyancer will check that everything has been done accurately, it is usually too late for him or her to save the situation where a transaction is legally void.

The lessons to be learned from the cases mentioned above are that authority must always be verified by referring to the trust deed and making sure that the minimum number of trustees are in office and, in the case of a power of attorney being used, that same is allowed by a specific provision in the deed. Further, proof that all trustees have either been involved in or informed of the transaction is necessary and finally, authority of the signatory must be in writing and must not have been given after signature as ratification is not possible.

Where a conveyancer discovers a problem, such as a sub-minimum of trustees, the transaction can be saved where all parties agree that an opportunity will be given to the trust, be it seller or purchaser, to get its house in order. In such a case further trustees will need to be legally appointed and further Letters of Authority issued by the Master of the High Court. A new resolution authorising a signatory to a deed of sale will need to be taken and then a new deed of sale will need to be signed by that duly authorised signatory. In the case where the trust is the purchaser the situation may well arise where the seller chooses to accept other offers and the purchaser will have lost out. Litigation may also arise where the seller has suffered damages due to the misrepresentation by the signatory hence the need for caution to be taken by all parties.

References:

Cases:

    1. Hoosen and Others NNO v Deedat 1999 (4) SA 425 (SCA)
    2. Land and Agrcultural Bank of South Africa v Parker and others 2005 (2) SA 77    (SCA)
    3. Steyn and Others NNO v Blockpave (Pty) Ltd 2011 (3) SA 528 (FB)
    4. Thorpe v Trittenwein 2007 (2) SA 172 (SCA)

Legislation:

1. The Alienation of Land Act, 68 of 1981

Written by: Luise Ostler, Schoeman-Tshaka Attorneys – Cape Town