UDZ – The Developer – Example


Developer X demolished an old building which was located on privately owned land and erected a new block of flats consisting of 50 units. Erection of the building was completed on 31 March 2013. The building was situated within a UDZ and construction commenced after the publication of the particulars of the demarcation of the area.  

a) After completion, Developer X sold 47 units and concluded lease contracts with tenants for 2 units and retained the remaining unit. All sale contracts were concluded on 1 April 2013. Some of the purchasers used the units for private residential purposes while others used the units solely for the purposes of their trade.

b) Five-year lease agreements were concluded for units 48 and 49. Developer X chose to deduct the allowance on these units. On the expiry of the lease agreements (31 March 2018), Developer X sold the units to Purchaser Y and Purchaser Z. Purchaser Y, who used the unit solely to operate a fashion design business, made certain additions to the unit. Purchaser Z also made certain necessary improvements to the unit in order to aid an elderly mother but did not use the unit for purposes of trade. 

c) Unit 50 was retained by Developer X for private purposes.


a) The purchasers that acquired their units immediately and directly from Developer X for the purpose of carrying on a trade were entitled to deduct the allowance, since they acquired the units from a “developer”. With these units the 1 000 m2 floor area requirement was inapplicable for the purchasers since the developer had already complied with the requirement. 

b) Since the units were acquired by the purchasers on 31 March 2018 and Developer X had let the units for more than three years, Developer X was not regarded as a “developer” as defined under section 13quat, but as the owner. Consequently, the purchasers did not qualify for an allowance on these units, since they were not acquired from a “developer” but from an owner. Purchaser Y could deduct an allowance on the costs incurred on the new additions, since the unit was used for trade purposes. Purchaser Z used the unit for private purposes (that is, not for purposes of trade), and therefore no allowance under section 13quat could be deducted on the improvements made by Purchaser Z. 

c) Developer X could not deduct any allowance on unit 50, since the trade requirement was not complied with. Developer X would have qualified for the allowance on the demolition costs as well as the development costs incurred on the units let to the tenants, since a trade of letting of property would have been conducted.

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