FRAUD IN LAND TRANSACTIONS
Fraud is fraud, and that includes land transactions where the purchaser tries to get away with paying less transfer tax, or even none, than is due to the government. Land transactions designed to defraud government are not only invalid but illegal.
This is the essence of the judgment handed down on 19 September 2019 by the Supreme Court (the Court) of Uganda in the case of Betty Kizito v David Kizito Kanonya and others.
The Court affirmed an earlier position of the High Court that a buyer is not a bona fide purchaser where a buyer inserts a lower purchase price on a transfer form than the amount actually paid, in order to defraud government of revenue.
Since a transaction of this nature is illegal, a title deed acquired in such circumstances would be void because of fraud. The Court went on to observe that this principle applies even where land is acquired in exchange for something other than money, such as another piece of property.
When completing transfer forms, purchasers have been known to insert a money figure that turns out to be less in value than the property for which land was exchanged. That amounts to fraud that would invalidate the transaction.
The Supreme Court’s ruling has removed all vagueness around the question of the correct, valid completion of transfer forms. Only the ‘true/ actual consideration’ will do in a land transaction and anything less will nullify it.
Furthermore, the judgment makes it clear that falsely declaring on a Consent Form in a land transaction that land is undeveloped, in order to evade taxes and defraud government, also amounts to fraud and invalidates the transaction.
These developments should be of interest to banks, property brokers, land registry officials and others involved in land transactions (both sellers and buyers) as otherwise valid land transactions now risk invalidation on account of under declaration of consideration.
Government may soon make it harder to commit land fraud by requiring that valuation reports be issued for all land transactions. This is already a requirement for high-value transactions, as well as share transfers in the Companies’ Registry, and ensures there is proof of the actual amounts involved.
The latest judgment also underlines how all parties to a land transaction must check the declarations made on transfer forms or consent forms. Often, the party that is not paying the stamp duty, usually the seller or a financer, may overlook such details. They can no longer afford to do so as this raises the risk that the transaction will be invalidated down the line.
Going forward, it might even be necessary to ensure that parties to a land transaction provide written guarantees that transfer and consent forms are correctly, lawfully completed.