Here is a Summary of 2 options available to you when your Purchaser cannot secure a Bond and cannot pay the full Purchase Price before date of Transfer.
The first option is to Register a Contract of Sale of Land. The definition of a “Contract” in this case: Payment of an amount of money in more than 2 installments over a period exceeding a year. Transfer will be passed to the Purchaser only after the balance of the purchase price has been paid in full. A registerable unit that is sold for residential purposes qualifies as "land" under the applicable Act.
The Purchaser is exposed to certain risks:
-The Seller, who remains the owner of the property, might be declared insolvent before transfer. In such a case, the Purchaser will not be entitled to demand transfer and normally would only have a concurrent claim against the insolvent estate for repayment of all the installments already paid.
-The Seller can still register Mortgage Bonds over the property after sale. If the Seller does not have the financial means to repay the loan, the property cannot be transferred.
-The Seller could sell the property to someone else by the same type of contract, with the result that all bona fide Purchasers could suffer serious loss, since the Seller might not be able to transfer the property into their names.
Chapter II of the Alienation of Land Act 68 1981 protects the interests of the Purchaser and limits financial risk.
The contract should contain a cooling off clause, which gives the Purchaser the right to revoke the offer by written notice to the Seller within 5 days of the signature of the agreement. This is however only applicable if the property is sold for R250 000 or less.
The Seller needs to provide the Purchaser with a Certificate reflecting the amount the Mortgagee requires to be paid to discharge his Mortgage Bond.
Interest shall be calculated not more often than monthly, not less than quarterly, on the outstanding balance of the Purchase Price then owing, and such interest shall not exceed the prescribed rate of interest.
The Seller shall send a copy or the Contract to the Purchaser within 30 days of same being signed.
The Purchaser can make payment before the due date; make larger payments than for which the contract provides, or tender payment of the full amount owing and then demand transfer.
If the Purchaser is in breach, the Seller must first send a Letter of Demand demanding that the Purchaser rectify the breach within 30 days, if the Purchaser fails or refuses the Seller can: enforce the acceleration of payment or any other penalty stipulation; terminate the contract; or institute action for damages.
The Seller must record the contract at the Deeds Office within 90 days from the date of the contract, if the land is registerable (which it is).
The Affidavit is drafted in terms of Form A. Documents to be lodged are the Application and Affidavit and the existing Title Deed. The consent of the Morgagee needs to be lodged.
Transfer duty is payable and calculated from date of the contract. Transfer duty is not lodged, but a penalty will apply if not paid within 6 months from date of conclusion of contract.
No person shall receive consideration until the erf is registerable and the contract has been recorded in the Deeds Office. Anyone who contravenes this sections shall be guilty of an offence. The money can be kept by a practitioner in his Trust account; or the Seller can provide the Purchaser with a guarantee by a banking institution or insurer to repay the said amount to the Purchaser if the unit is not registerable and recording has not been effected.
Relief:
Any person who has performed partially or in full in terms of an alienation of land which is:
-of no force and effect;
-has been declared void; or
-has been cancelled;
is entitled to recover from the other party that which he has performed.
The Purchaser may in addition recover:
-Interest on payment that he made ito the Deed of Alienation from date of payment to date of recovery;
-A reasonable compensation for: necessary expenditure in regard preservation of the land or any improvements; any improvement which enhances the market value of the land and was effected by him with the consent of the Seller.
The Seller may in addition recover:
-A reasonable compensation for the occupation, use and enjoyment of the land
-Compensation for any damages intentionally or negligently caused by the Purchaser
A further option would be to register a “Kustingsbrief”.
A Kustingsbrief is a special type of Bond, which secures the Purchase Price or balance of the Purchase Price (PP) due to the Seller of immovable property. This will apply when the Purchaser is unable to secure a loan and the transaction is financed by registering a bond in favour of the Seller in order to secure the PP or balance thereof, with the property as security. It can also be registered in favour of a third party, who advances money for the PP. It must be registered simultaneously with the registration of the property.
Where interest is charged on the balance secured by a Kustingsbrief, the Mortgagee (Seller) must register as a credit provider (especially if the Purchaser defaults and the Seller has to institute action for the recovery of the balance of the PP owing). In the past, a person had to register as a credit provider if he had 100 or more credit agreements or the total value of all loans exceeded R500 000. Now, he has to register if he has one loan of R0,01.
So there are still ways to proceed with the Sale and Transfer of your property, even if your Purchaser is struggling to secure funding.
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