In a couple of articles prior to this one I discussed asset protection through family trusts, and estate planning. This article gives insight to those who would want to purchase a property in Zimbabwe — immovable property. I am going to look at what is involved in the process of purchasing the property as well as the costs associated with the process.
The first step to acquiring a property is to want to have one, and gathering the financial resources towards the cost of acquisition — commonly the purchase price. Whenever you intend to buy a property, it is important after identifying the property to investigate on the genuineness of the property that has been offered for sale. This process is called a due diligence exercise. Due diligence is defined by Wikipedia as:
“… the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.”
In carrying out a due diligence when purchasing a property, normally the objective will be to:
- Verify that the property being sold in reality exists. There are so many instances where people were sold non-existent properties. In order to do this, be sure of the description of the property that is being sold, and the current owner of the property.
- Establish the legal status of the property that is being sold. It is important to know if the piece of land sold has an owner, if so who is the person owning the land in question. Once you know the owner of the land in question, it is then easy to probe further questions on Seller in order to assess the saleability of the property. I know of instances where some people were sold land that cannot be sold as it was State land, others were sold houses that belonged to deceased estates without authority from the executor or the family or worse still, as is most common these days — vacant land belonging to an unfamiliar person is just being sold because it has been lying there undeveloped for some time.
- To understand better, it is only the owner of a property who has power to sell it. If any person purports to sell any property that does not belong to them, they must have legal authority from the owner to sell the property either in form of a mandate, in case of an estate agent or attorney or a power of attorney.
- It is a good idea to always know who the owner of a property is, and if by all means possible make personal contact with the owner as part of the verification (due diligence) process. Where an estate agent is involved, you can still do a verification on the owner — there are instances where you may deal with a bogus agent or a legal practitioner. You will notice on many occasions that the estate agent would require you to do your own verifications so that you do not hold them liable in the event that the property is not genuine.
- Another purpose of a due diligence is to get validation from relevant bodies that the land in question has no issues. At this stage, besides validating that the land belongs to a certain individual, you are now checking on rates arrear status, penalties if any, status of council lease on that land, whether or not there are any pending payments etcetera. It is critical to know these because there are a number of motivations for people to sell of their assets — including running away from issues connected with the property.
Once the verifications have been done, logically you should then consider costs ancillary to the purchase of the property. I will highlight these costs in point form. These costs may vary however, other than the costs of the property verification exercise, I highlighted the most common below as follows:
The costs of drawing up an agreement of sale. Where the seller has employed an estate agent, the costs may be borne by the purchaser depending on what is agreed upon.
- Estate agent’s fees at 5% of the purchase price are paid for by the seller of the property because an estate agent is by law, an agent of the seller and not the buyer. This may change however where the buyer is the one who instructed the agent on his behalf.
- Capital gains tax is always paid whenever an owner of a property disposes of the property. In terms of the Capital Gains Tax Act, this is the obligation of the Seller at law, however there are some agreements where the purchaser may agree to meet this cost. It is important for a purchaser to read the agreement of sale quite seriously so as to understand who is responsible for what cost. I must stress the point that capital gains tax is paid in a normal disposal of a property which has been held as an asset. However, where the property is being sold by a developer who is in the business of selling stands or in any scheme of profit making, the tax payable is no longer Capital Gains tax but value added tax. Again, it is the duty of the seller to pay these taxes. It is not an issue for the purchaser to pay for the taxes, if they agree, what is not good is for the purchaser to pay out of ignorance.
- Once tax is paid, the next step in a transfer of ownership is the payment of either a council cession fees or stamp duty at the deeds office to process a title deed. Stamp duty is payable by the purchaser at a sliding scale rate from 1% to 4% of the purchase price. In addition, when processing title deeds, the purchaser has to know that they will also pay an attorney — a conveyancer, fees for processing the title deeds at the deeds office. The fees are set by the Law Society of Zimbabwe at a fixed tariff and are payable at a rate between 3% and 4% of the purchase price or 3% of the value of the property, whichever is the greater. The purchaser pays transfer fees unless otherwise agreed by the parties. In a case of new land development, deduction fees are payable to the surveyor general’s office and are calculated according to size of the land.
- City council rates/bills also have to be cleared before a change of title into your name may be processed. The practice of the councils is that the arrear rates are payable by the seller, whilst the advance rates are the responsibility of the buyer. Currently advance rates are projected four months ahead to ensure that the council bills account is in credit during the projected period of the transfer process.
In whose name do you register the property?
I would say there is no wrong or right approach to this — it all depends with the set up in a particular business or family. Where the property is acquired as a result of the effort of a couple — husband and wife, it is best, courteous and reasonable approach is to have joint ownership to the property. For most ladies out there, joint ownership does not come through a verbal promise or mere wish, it starts from the agreement of sale. Both names must appear in the agreement of sale. It is the agreement of sale that acts as foundational or source document for all the following paperwork for the property. If you did not sign off the agreement of sale for the family property, be sure that you are not a joint owner.
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Properties can also be registered in the names of your children. I would caution, however that do this only when you are sure that the property is wholeheartedly meant to be the child’s own and exclusive property. This article is not meant to be exhaustive or legal advice but produced and shared for public benefit. Should you need specific advice on acquiring a personal property, it is good to seek professional advice.
Do not do this to settle personal scores because there could arise more complications with the property. For instance, whenever you want to deal with this property whilst the child is a minor, you have to get authority from the High Court. Other challenges arise as the child becomes of age - I have come across a number of parents desperate after children refuse to cooperate with ‘their’ properties. You must always appreciate that this possibly worsens as the child is married to a new found love. A worst case I witnessed is where a single mother registered the house in the son’s name, and when he married they agreed with the wife to evict the old mother from the house into the streets. The court expressed sadness to the fact that the property was the son’s so it could not assist when there was an eviction order from the ‘owner’, the son!
A property may also be registered in a family trust or a company. Again, the most effective way for a couple, to ensure a balanced control of the property is that both are founders, if possible, both are co-trustees, and beneficiaries. Everything must be transparent. As to how trusts operate, and how you would register the property in a trust, I have dealt with this comprehensively in my articles available online. To register a property under a trust, the trustees would have to do a resolution to purchase first, then to appoint their representative for the registration process. The title deed would then be registered in the name of the trust or the company as case may be.
Majachani is the Senior Partner at Alex F AND Associates, he can be reached on 0712553454 or [email protected]