Purchasing property through an Instalment Sale Agreement
The standard definition of an instalment sale of land is as follows:
An instalment sale agreement is an agreement of sale of land as defined in terms of the Alienation of Land Act, 1981 used or intended to be used mainly for residential purposes and in terms of a contract as defined in terms of the Alienation of Land Act, 1981 in terms of which the purchase price is paid to the seller by way of more than 2 (two) installments over a period of longer than 1 (one) year. If the land is not held under a separate title deed at the point of entering into the contract the period of repayment in terms of the contract, may not exceed 5 (five) years.
In our current economic climate the following is the reality most South African property purchasers are faced with:
- Purchasers find it difficult to qualify for adequate funding due to strict NCA loan criteria.
- Purchasers find it increasingly difficult to raise/ save the deposit required by the financial institutions.
- Once the deposit and finance has been secured, most Purchasers are unable to pay the transfer and bonds fees, including transfer duty and initiation fees.
- Distressed Sellers cannot get their properties sold at market related prices and are left with no option but to face foreclosure by the Bank/ Bondholder. Entering into an Instalment Sale Agreement will empower Distressed Sellers to manage their obligations to the Bank without having to foreclose and the Banks no longer face the prospect of having to sell property at a loss.
- In circumstances where Purchasers with adverse credit records are forced to settle for rental options, amid the fact that they may have the financial means to afford monthly bond repayments.
The Alienation of Land Act 68 of 1981 makes it possible to acquire fixed property through an Instalment Sale Agreement. When negotiating the agreement, the parties will be advised on the following:
· The purchase price is to be paid to the seller over a period of time, in instalments, which should ideally be sufficient to cover the seller's bond repayments.
· The purchaser should ideally pay a deposit, sufficient to cover at least the estate agent's commission.
· The agreement is registered against the title deeds in the Deeds Office by way of Section 20 of the Act recordal, registered within 90 days of signature of the agreement. This implies that the seller would not be able to register any further bonds over the property, or sell the property without the consent of the purchaser.
· The current bondholder must issue a certificate in terms of the Alienation of Land Act 68 of 1981 within 21 days from request. The said certificate indicates and confirms the amount that the bondholder requires to be paid for the discharge of the said bond over the property being purchased.
· The payments should be made over a period of no less than one-year.
· Instalments can only be paid once the agreement has been registered against the title deeds of the property.
· Transfer duty and costs should be paid by the purchaser to SARS within six months from the date of conclusion of the sale agreement otherwise the Transfer Duty shall attract penalties calculated at 10% per annum of the amount outstanding towards SARS.
· The seller retains ownership of the property until the full purchase price has been paid, whereafter transfer of ownership will be effected in the deeds office. The Purchaser can elect to take transfer of the property in a shorter period than agreed in the sale agreement, if the full purchase price has been paid.
· Should the purchaser fail to effect any payment in terms of the agreement timorously, all payments made by him, will be forfeited towards damages suffered and the property will revert back to the seller. This is subject to review by a court of law in terms of the Conventional Penalties Act.
· In the event of the seller's estate becoming insolvent, the purchaser shall hold a preferent claim as opposed to a concurrent claim in respect of the proceedsof the sale of the property.
· The Purchaser will be liable for the payment of rates and taxes if so agreed between the parties.
· In the event that the Purchaser takes occupation of the property prior to transfer, he/she is an even better Tenant as he/she is committed to the transaction by payment of capital to the Seller before registration of transfer and tends to take good care of the property as the Purchaser has a vested interest in the property.
This is definitely an avenue to consider, provided that both parties are willing and an attorney drafts a thorough agreement of sale.