EMBRACE CHANGE – THE INSTALMENT SALE SOLUTION

The property market has changed and will continue to do so for some time to come.  Our capacity to adapt to these changes will determine the measure of our successes moving forward.

Purchasers find it difficult to access adequate funding due to the strict National Credit Act No. 34 of 2005 loan criteria. Purchasers, more often than not, cannot raise the deposit required by the financial institution and if they do, they sometimes cannot afford to pay the transfer costs and bond registration fees involved.

An effective solution to these problems might be to sell and purchase a property in terms of the provisions of Chapter II of the Alienation of Land Act, No. 68 of 1961 (“ALA”) which provides for an instalment sale transaction.

A seller, prospective purchaser and the agent involved will meet with a Conveyancer to reach an agreement on the following basic terms forming part of an instalment sale agreement:

  • The Purchase price payable;
  • Initial deposit payable (if any);
  • The repayment period of the Purchase Price i.e. the term of the instalment sale agreement.
  • Occupation date and rental payable (if any);
  • Liability for payment of rates and taxes due to the local municipality as well as monthly levies payable to the body corporate;
  • Payment of Insurance premium due; and
  • Payment of Agent’s Commission.

The required contents of an instalment sale agreement are set out in section 6 of the ALA. Apart from the standard terms to be agreed upon between the parties, as set out herein above, the ALA requires that a sale agreement sets out specific terms and conditions governing the relationship between the parties involved.

It is recommended that you do not implement instalment sale agreements without the assistance of a qualified conveyancer.  A conveyancer needs to ensure that the specific transaction falls within the ambit of the ALA and will draft an instalment sale agreement that meets the criteria set out in section 6 of the ALA.

Property encumbered by a mortgage bond

If the property sold in terms of the provisions of an instalment sale agreement is encumbered by a mortgage bond, the Seller shall within 30 (Thirty) days after conclusion of the instalment sale agreement, provide the Purchaser with a certificate reflecting the amount required to cancel the existing bond registered over the property and the bank’s requirements to obtain the release of the property from the mortgage bond.

A Purchaser shall be entitled to cancel the instalment sale agreement if the Seller fails to provide the Purchaser with the abovementioned information or if the amount indicated on the certificate as outstanding to the mortgagee exceeds the purchase price payable by the Purchaser as stated in the instalment sale agreement.

Recording of the sale agreement

A Conveyancer will proceed with the endorsement of the title deed in terms of section 20 of the ALA, once the Conveyancer has received the title deed in respect of the property concerned from the bond holder.

A seller shall be obliged to record the sale in the deeds office in terms of the provisions of section 20 within three months from date of the instalment sale agreement.

A Purchaser shall be entitled to cancel the agreement or alternatively if he elects not to cancel the agreement, be entitled to apply to the registrar of the deeds office concerned to record the agreement in the prescribed manner, should the Seller fail to do so within the prescribed period set out in section 20.

The Purchaser’s rights

Section 13 of the ALA obliges the Seller to provide the Purchaser with a copy of the instalment sale agreement entered into between the parties, free of charge. If the Seller fails to comply with the provisions of section 13, the Purchaser shall not be liable for the payment of interest as provided for in the sale agreement, from date of the conclusion of the agreement to the date upon which the Purchaser receives a copy of the sale agreement from the Seller.

It is important that the Purchaser is informed of his rights to:

  • Accelerate payments in terms of the instalment sale agreement and to claim transfer of the property against simultaneous payment of all the amounts due and payable.
  • The right of the Purchaser to have the sale agreement recorded against the title deed of the property;
  • The rights and remedies of the Purchaser under section 13(2), 16(3), 23 and 27 of the ALA respectively. These are a Purchaser’s right to receive a copy of the sale agreement and annual statements. A Purchaser’s entitlement to change his chosen domicilium citandi et executandi at any given time and mostly importantly a Purchaser’s right to demand transfer of ownership in respect of the property once he has settled more than 50% (Fifty Percent) of the purchase price on condition that the Purchaser shall register a first mortgage bond in favour of the Seller, simultaneously with the transfer of ownership, securing payment of the balance of purchase price still due to the Seller.

It is not only important to ensure that an instalment sale agreement meets the criteria set out in the ALA but to safeguard the parties’ rights should an agreement be declared void or cancelled.

An agreement needs to set out the parties’ right to claim specific performance in terms of the provisions of the instalment sale agreement and more importantly needs to deal with the implementation of a forfeiture clause, stating that a Purchaser will forfeit all his funds already paid should he be in breach of the said agreement, should the agreement provide for this.

No two instalment sales are exactly the same. It is vitally important to use a qualified and experienced Conveyancer to guide you through the process.

Laurika Von Alleman
BLC Associate Attorney

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