1. Introduction

In transactions where immovable property is sold or transferred, it has been generally accepted that the transfer of immovable property would require two elements, namely:

1.1. A Sale of Land Agreement; and

1.2. Registration of the deed of transfer in the deeds office.

In terms of the first element, the Sale of Land Agreement, it was further generally accepted that, in the event that the Sale of Land Agreement were to be defective or invalid for a certain reason, transfer of the immovable property could not be validly established.

Recent decisions of our courts have, however, indicated that we may need to review what we thought we knew about the transfer of immovable property.

2. Theories in respect of the transfer of immovable property

In respect of the transfer of immovable property, two schools of thought exist around the element of Sale of Land Agreement for the transfer of property, namely the Causal Theory and the Abstract Theory.

In terms of the Causal Theory, notwithstanding the fact that transfer of a property has been registered in the deeds office, in the event that a Sale of Land Agreement is found to be defective or invalid, transfer of ownership of such immovable property could not have been validly established. Therefore, the validity of the transfer of the property from one person to another is wholly dependent on the conclusion of a valid Sale of Land Agreement.

In respect of the Abstract Theory, in the event that the parties to a Sale of Land Agreement had the intention to transfer the property from one person to another (the so called “Real Agreement”), and registration of the transfer of the property has been registered in the deeds office, transfer of the immovable property has been validly established and ownership has passed from one person to another, irrespective of whether the Sale of Land Agreement has been found to have been defective or invalid for any reason.  

3. The approach of our courts

In the case of Legator McKenna v Shea and Others 2010 (1) SA 35 SCA, the court stated that the Abstract Theory is applicable in South Africa. As such the court confirmed that, provided that the parties to a Sale of Land Agreement had the intention to transfer the property from one person to another, as such a Real Agreement, and registration of the transfer of the property has been registered in the deeds office, transfer of the immovable property has been validly established.

The court stated that the existence of the Real Agreement would be dependent on the presence of two factors, namely the intention of the transferor of the property to transfer ownership and the intention of the transferee to become the owner of the property.

4. Implication of the Legator McKenna-case

The Legator McKenna-case confirms that the formation of a valid intention at the conclusion of the Sale of Land Agreement to transfer ownership from one party to the other party is the absolutely essential element during the conclusion of a Sale of Land Agreement. In the event that registration of the transfer of the property has taken place in the deeds office and the Sale of Land Agreement is found to be defective or invalid for any reason, the transfer of ownership would still be valid provided that the Real Agreement between the parties stand based on a valid intention to conclude the transfer of ownership.

It will, therefore, be of cardinal importance to ensure that parties to a Sale of Land Agreement have the authority to form an intention with the other contracting party.

An example would be the case where a company sells a property without the individual signing the Sale of Land Agreement being authorised by way of resolution to enter the Sale of Land Agreement. Obviously, the validity of the Sale of Land Agreement can be questioned in such a case, but in the event that a resolution was passed providing the individual signing on behalf of the company with the authority to attend to the same before the registration of the property in the deeds office, a valid intention will have been formed before registration of transfer and the Real Agreement will be valid, despite the invalidity of the Sale of Land Agreement. As such, transfer of ownership could validly be affected by registration in the deeds office and the validity of the Real Agreement would save the transfer of ownership from attack on the basis that the Sale of Land Agreement is invalid.

Similarly, in the event that a trust is the buyer or the seller of immovable property and the trustees enter into the Sale of Land Agreement without being duly authorised at the time of conclusion of the Sale of Land Agreement, the Sale of Land Agreement may be invalid due to the lack of authority of the trustees. If, however, such trustees are furnished with the necessary authority after the conclusion of the Sale of Land Agreement and before the registration of transfer in the deeds office, a valid intention will have been formed before registration of transfer and the Real Agreement will be valid, despite the invalidity of the Sale of Land Agreement and transfer of ownership would have been validly affected by registration in the deeds office.

The abovementioned scenarios could also be applied in the event of a spouse, married in community of property, entering into a Sale of Land Agreement without the consent of his/her spousal partner. Obtaining the consent of such spousal partner before the registration of transfer in the deeds office will form a valid intention before registration of transfer and the Real Agreement will be valid, despite the invalidity of the Sale of Land Agreement.

Furthermore, in cases where a Sale of Land Agreement may be invalid due to other defects in the Sale of Land Agreement, such as the purchase price not being readily ascertainable or an inadequate property description, the mere fact that the Sale of Land Agreement is invalid does not necessarily invalidate the subsequent transfer of ownership in the deeds office. In each case, consideration must be given as to the intention of the parties and whether a valid Real Agreement was established before the registration of transfer in the deeds office.   

Phillip Kruger

Legal Advisor, Johannesburg