INTRODUCTION:

Investing in commercial real estate often involves partnering with others. In South Africa, investors typically structure such arrangements via a co-ownership (holding the property in undivided shares) or through joint ventures (JVs)—which can be contractual partnerships or co-shareholders in companies. Each structure has unique legal, tax, and operational implications. This article summarises the key differences, pros and cons, and legal considerations.

• Co-Ownership (Undivided Shares): Each owner holds a defined undivided share in the entire property, with equal rights of use. The Alienation of Land Act requires any sale of a share to be in writing and signed. Without an agreement, co-owners must act jointly. Co-ownerships are governed by the Deeds Registries Act and common law.
• Joint Ventures: Can take the form of contractual JVs, partnerships, or (most commonly) shareholding in companies as the special purpose vehicles for the investment or development. A JV company holds the property, and investors hold shares in the company. These are governed by the Companies Act, partnership principles, and JV agreements/Shareholder Agreements.

PROS AND CONS COMPARISON:

MANAGEMENT AND AGREEMENTS:

A Co-Ownership Agreement should cover, inter alia:

• Cost contributions and revenue sharing
• Decision-making and authority
• Use and occupation
• Exit procedures and pre-emptive rights

A JV Agreement or Shareholders Agreement should outline, inter alia:

• Governance and board structure
• Capital contributions
• Profit distribution
• Buy-sell clauses and dispute resolution

EXIT STRATEGIES AND DISPUTE RESOLUTION:

• Co-Ownership: The common law remedy of actio communi dividundo allows any co-owner to apply to court for division or sale if there’s deadlock. Courts generally honour this unless a JV agreement restricts it temporarily.

• JV Company: No actio Exit options are governed by contract—e.g., rights of first refusal, buyouts, or shotgun clauses. Courts may intervene under the Companies Act in extreme cases.

Both models benefit from dispute resolution clauses (mediation, arbitration) to manage breakdowns amicably.

TAX IMPLICATIONS:

• Transfer Duty: Co-owners pay duty on title transfers. JV companies may avoid duty on share sales (for commercial property).
• Income Tax: Co-owners taxed individually. Companies taxed at 27%, dividends at 20%.
• Capital Gains Tax (CGT): Individuals pay CGT once; companies may face double tax if proceeds are distributed.
• VAT: Commercial rentals may require VAT registration. JVs often simplify VAT treatment through one entity. JV’s can register as such for VAT in terms of Section 51 of the VAT Act.

Courts favour agreements that clearly define exit and control rights and enforce reasonable contractual arrangements.

CONCLUSION:

There is no one-size-fits-all structure. Co-ownership suits simpler, short-term investments where flexibility is valued. Joint ventures, especially via companies, are better for complex or long-term projects requiring structured governance and limited liability.

Whichever structure is chosen, a well-drafted agreement is essential. Legal and tax advice at the outset can prevent costly disputes and ensure a profitable and well-managed commercial property investment.

By Eunice Davey (Director) | Corporate and Commercial Department