There is a common misconception among Purchasers, Sellers and commercial agents that if the Seller and Purchaser party to a property transaction are VAT vendors, the transaction qualifies as a going concern. This is not always the case.
The purchase and sale of property
Most Sellers of commercial and industrial property are registered for VAT. There are distinct advantages for these property owners to be registered for VAT. If a VAT registered entity purchases
It follows that if the Seller is a Vendor, but occupies the property itself, the transaction cannot be a going concern. At least 50% of the lettable area must be let to a third party tenant. If the Seller occupies say 55% of the lettable area and leases out the balance, it will not qualify as a going concern. SARS regularly calls for copies of leases to verify this.
It also follows that if the Purchaser occupies the property on registration of transfer, and does not keep the tenant on, it will also not qualify as a going concern. The Purchaser must be buying the Seller’s letting enterprise and continue with this after transfer. There is no minimum time requirement for the tenant to be in occupation after transfer. If the Purchaser gives the tenant notice after a month or two, it will still qualify as long as the tenant was in occupation, and paying rental plus VAT thereon to the Seller, on registration of transfer.
The Seller must be charging VAT on the rental for it to qualify as a going concern. Residential property (other than a Guest House), is exempt from
If you are unsure as to whether the proposed transaction will qualify as a going concern, ask us for advice before signing the agreement. Agreements can only be changed after signature if both parties thereto agree, and it is advisable to obtain the correct advice up front
This article is not intended to provide legal advice; it is for general information purposes only and to provide a general understanding of the law. It is advisable that advice relating to the specific circumstances of your matter be sought from an attorney before acting upon the content of this article. This article is written at a particular point in time and accordingly may not always reflect the most current legal developments, legislation and/or judgments which may be applicable from time to time. The author and/or Rushmere Noach Incorporated are not responsible for any errors or omissions in the content.