Installment Sale & Immovable Property

In terms of the Alienation of Land Act 68 of 1981 (the Act), a seller and purchaser may come to an agreement whereby the purchaser buys the seller's property and pays the purchase price in two or more instalments over a period of time and registration of transfer of ownership to the purchaser is delayed until the purchase price has been paid in full.

Which requirements must be met for it to qualify as an Instalment Agreement?

The agreement must be in writing, contain all the information stipulated in section 6 of the Act and be signed by all parties/their authorised representatives;

There must be more than 2 instalments payable;

The instalments must be payable over a period exceeding 1 year;

The date of registration of transfer may not be later than 5 years from date of conclusion of the agreement;

The property must be used mainly for residential purposes and agricultural land is expressly excluded;

The seller may not be the State, the Community Development Board, the National Housing Commission or a Local Authority;

The Agreement must be recorded with the Registrar of Deeds by way of an endorsement against the title deed of the property.

What are the parties' statutory obligations in terms of an Instalment Agreement?

The seller has to provide the purchaser with a copy of the agreement within 30 (thirty) days, failing which the purchaser may request a copy in writing from the purchaser and if the seller remains in default for more then 14 days after such request, the purchaser shall not be liable for the payment of any interest (if applicable) from date of conclusion of the agreement until the date upon which he receives a copy of the agreement.

If the property is bonded the seller must, within 30 days after signature of the agreement, provide the purchaser a certificate issued by the bondholder reflecting the total settlement amount, including interest and the interest rate applicable;

The purchaser must notify the bondholder about the conclusion of the agreement and provide his contact details and address to enable the bondholder to issue notice to the purchaser in case of the bondholder's intent to institute legal proceedings against the seller on the mortgage bond;

The seller is obligated to provide the purchaser with a statement of account, not later than 12 months from the date of conclusion of the agreement and thereafter within 30 days of the end of each successive 12 month period;

The seller shall record the contract at the relevant Deeds Registry within a period of 3 months from the date of the agreement if the land is registerable, or upon which the land becomes registerable;

Should the seller fail to record the contract within the specified period, the purchaser has the choice to cancel the contract or apply for the recording of the contract at the Deeds Registry himself.

Transfer Duty is payable by the purchaser within 6 months of the conclusion of the contract, failing which penalties and interest will accrue.

What is the effect of the recording of the contract at the Deeds Registry?

The property may not be transferred unless the transferee is the purchaser, or an intermediary to the purchaser, or the recording of the contract has been cancelled;

It is possible for the seller to register a bond over the property against which the contract has been recorded, provided the ranking clause in the bond makes reference to the contract;

If a bond is registered after the recording of the contract, the Bank is deemed to have consented irrevocably and unconditionally in favour of the purchaser to the release of the property or discharge of the bond and therefor lodgement of the Bank's consent is not required with the transfer of the property, although the bond will have to be lodged for endorsement in respect of the release or cancellation when the property is transferred;

If the property is sold in execution as a result of the insolvency of the seller, the purchaser has a preferential claim to the proceeds of the sale, which claim shall only rank below that of any Bank whose bond was registered prior to the recording of the contract.

Can the recording of the contract at the Deeds Registry be cancelled?

If a contract was recorded at the Deeds Registry and is terminated for any reason, the recording of the contract must be cancelled;

Only the seller has the capacity to apply for the cancellation of the recording of the contract;

The application for cancellation is in the form of an affidavit which reflects the reason(s) for the cancellation;

If the cancellation is due to breach of the terms of the contract by the purchaser, the seller must declare that the provisions of section 19 of the Act, which prescribes the method of notification by the seller to the purchaser of the breach, have been complied with;

Cancellation of contract may attract Transfer Duty and a Transfer Duty receipt or exemption certificate must accompany the application.