Article courtesy of Law Dot News | Property – Property Transfer

The Transfer Process in a Nutshell

“Don’t wait to buy real estate. Buy real estate and wait.” (Will Rogers)

Spring is in the air and, as the annual uptick in property sales kicks in, let’s address two questions commonly asked by both sellers and buyers who are unsure about exactly what happens after they sign their sale agreement:

1. How does the transfer process work?
2. How long does it take before the seller gets paid and the buyer becomes the new registered owner?

Let’s begin with this simplified “in a nutshell” flowchart of the transfer process:

How long does it all take?

How long is a piece of string? If everything goes swimmingly and the bureaucratic stars truly align in your favour, the total timeframe from signing the sale agreement to popping the champagne could be as little as eight weeks. On average, however, it’s safer to work on no less than ten to 12 weeks, and possibly a lot more.

What could delay things? This is a complicated process involving a disparate array of role-players and a host of opportunities for unforeseen delay. Some of the more common sources of delay (and frustration!) centre on bond approval, bank processes, SARS and municipal delays, clearance certificates and repairs, lost title deeds, intervening public holidays, and Deeds Office backlogs. But the list really is endless.

Bottom line: you need professionals in your corner to protect your interests and to move the process along as quickly as possible. We’re here to help!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property – Building Plans

Why Buyers Should Ask for Building Plans

“No person shall without the prior approval in writing of the local authority in question, erect any building in respect of which plans and specifications are to be drawn and submitted in terms of this Act.” (National Building Regulations and Building Standards Act)

Here’s a nightmare scenario for a buyer – you move into your new dream home, and only then find out that your lovely little office/spare bedroom extension has no approved building plans. The municipality says the seller’s building works were unapproved and unlawful – you must demolish the extension.

How can you guard against that happening to you?

Planning permission is legally required before building

Firstly, local authority planning permission is a legal requirement before any building works, renovations or extensions can take place. You will need to check with your local municipality what its particular requirements are, and what “minor” works are exempt from this requirement in your area.

Without municipal permission, you have an unlawful structure on your hands – a recipe for disaster.

The problem for a buyer is that, once the transfer is through and you are the registered owner, it is to you as buyer that the municipality will look to obtain any outstanding building authorities and plans, to pay any penalties for non-compliance, and possibly even to demolish the unlawful structures.

The seller isn’t obliged to supply proof (and plans) to you, unless…

Your risk as buyer is that the seller is only obliged to supply proof of planning permission and approved plans to you if that is specifically required by the sale agreement. Ideally ask for plans before you even put your offer in, otherwise insist on a clear clause in the agreement requiring the seller to produce the plans before transfer. It’s the only way to avoid the risk of having to rectify unlawful structures.

Make sure it is clear that the seller (not you) must get and produce the plans

A 2023 High Court decision addressed a claim by buyers who had at the negotiation stage noticed newly erected buildings in respect of which they were advised that building plans were at the ‘approval stage’ with the municipality. Accordingly, the sale agreement provided that the sale was subject to approval of building plans by the municipality.

What the deed of sale did not specify was who had to get the plan approval – was it the buyer, or the seller?

The Court ultimately declared the seller responsible for obtaining the plans on the basis that by default only a landowner can apply for approval and plans, but that victory for the buyer came only after a hard-fought court battle – avoid all that delay, cost and dispute with an upfront clause clearly putting the obligation on the seller.

When you have the plans, check them against all structures

Plans in hand, check that all the buildings and structures actually on the property tie in with the municipal approvals and plans. It’s not uncommon to find plans are outdated or inaccurate. Sometimes regulations have changed, sometimes owners chance their luck or have just overlooked the need to keep plans updated as renovations and extensions take place. And whilst the municipality may accept “minor” deviations from plans, you should be sure of what is acceptable and what isn’t before you take transfer. First prize here of course is updated “as-built” plans showing the construction as it exists after completion – you’ll probably need them anyway if you do renovations down the line.

Sellers – why should you have the plans ready to offer them to the buyer?

The other side of the coin of course is that as a seller, even though you aren’t legally required to do so, it makes a lot of sense to have on hand copies of all building approvals and plans before you sell –

• As a sales tactic you can now reassure prospective buyers that all structures are lawfully constructed.
• You will avoid delay if the bank granting the buyer a mortgage bond decides it wants copies of plans as part of its approval process. That’s exactly what happened in the High Court case discussed above, delaying transfer substantially.
• You will also be reassuring yourself that all necessary approvals and plans were in fact obtained at the time of construction. If it turns out for example that you or a previous owner inadvertently dropped the ball in that regard, a disaffected buyer will try to pin all the blame on you.  You might even be accused of fraudulently concealing a lack of plans – in which event the standard “voetstoots” (“as is”) clause won’t protect you. There’s no risk of any of that if you have the actual plans on hand from the start.
• In any event the “Mandatory Disclosure Form” that you must attach to the sale agreement specifically requires you to certify that the necessary consents, permissions and permits were obtained for any additions/improvements etc. Attaching the actual approvals and plans is the best way to cover you in the event of any dispute down the line.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property Buyers & Property Sale Agreement

Property Buyers: The Danger of Not Doing Your Financial Homework

“Look before you leap” (wise old proverb)

Don’t let the excitement of buying a property blind you to the necessity of doing your homework before you agree to anything. Look before you leap!

It’s not just a matter of buying the right property at the right price – make sure that your finances (and particularly your cash flow situation) won’t stop you from fulfilling the financial obligations your signature on the sale agreement binds you to.

Otherwise, you could find yourself in the same unenviable position as the property buyer recently ordered by the High Court to pay substantial damages after she couldn’t pay the required deposits.

Three sales, and the seller claims damages

• A trust sold a property to a buyer for R750,000.
• The buyer failed to pay the two required deposits totalling R280,000, the trust cancelled the sale and put the property up for resale.
• It resold the property for R500,000 and sued the buyer for its R250,000 loss on the sale, plus the estate agent’s commission of R22,500 it paid for the new sale.
• The buyer fought the claim on a variety of grounds, none of which found favour with the Court. It ordered the buyer to pay, in addition to legal costs on an attorney and client scale, a total in damages of R235,875. That’s a figure seemingly arrived at by the Court by taking into account an amount of R40,000 already paid in by the buyer, which presumably leaves the buyer down a total of just under R280k plus two sets of legal costs.

Important lessons for buyers and sellers

1. Buyers: Before you sign…Of course, the big lesson here for buyers is to make sure they can comply with the terms of the sale agreement they sign, with particular emphasis on their ability to make payments as and when due.
2. And sellers: Before you sign…Sellers on the other hand will want to avoid all the risk, delay and cost that the trust in this case was put to by investigating upfront the financial position of all potential buyers before accepting any offer. Make sure also that the terms of your sale agreement protect you adequately in the event of any default by the buyer.
3. Seller: Mitigate your damagesOur law requires that if you want to sue for losses you incur as a result of someone else’s breach of contract (or wrongdoing), you must first take reasonable steps to minimise your losses.As the Court put it: “… the mitigating rule is a rule where a breach of contract has occurred. The innocent party cannot merely sit back and allow their losses to accumulate; the party must take reasonable positive steps to prevent the occurrence or accumulation of losses. The rule does not require the innocent party to do anything more than a reasonable person could do under the same circumstances. Reasonable expenses incurred in carrying out the mitigation steps may be claimed as additional damage suffered. The onus of proving what steps could reasonably have been taken, or that the expenses incurred were unreasonable, rests on the party in breach.” (Emphasis added)As the seller, therefore, be sure to actively seek alternative buyers, use professionals to assist only as reasonably necessary, and accept only a reasonable resale price. In this case the evidence had established that the trust had acted reasonably both in reselling the property at the price it did, and in using the services of an estate agent to do so.

As always, agree to nothing without professional advice!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property

Owning Property Jointly – The Rewards, The Risks, and The Remedy

“Co-ownership is the mother of disputes” (old Roman law maxim)

There can be big advantages to owning property jointly but be aware of the risks and take steps to lessen them before you put pen to paper.

The problem comes if there is a falling-out with your co-owner. Perhaps you come to blows on your usage of the property, or on the incurring of expenses, or on whether it is time to sell, or perhaps you are splitting from each other entirely. That could be a business partnership terminating, or a marriage ending in divorce, or (as in the case we discuss below) a failed romantic relationship. Our courts must regularly resolve bitter joint-ownership disputes between ex-spouses, ex-friends, ex-colleagues, siblings, and close relatives – none of whom dreamed they might ever come to blows when they first hatched plans to buy property jointly.

If a dispute does arise, how will you resolve it? And if you split up, who keeps the property? Or do you sell it jointly, and if so how, and when? How will the bond and other property debts be settled?

The good news is that by and large the risk of dispute can be reduced with a bit of foresight and planning. Preferably with professional advice and assistance – this is after all likely to be an important asset in both your estates.

Let’s have a look at a recent High Court case to illustrate –

 

A breakup and a fight

 

• A couple in a “romantic relationship” co-habited in a house of which they were the joint registered owners in undivided half shares.
• When the relationship broke down irretrievably, the partners were unable to agree on a method of ending the property ownership. One partner moved out and the other, after changing the locks, applied to the High Court for an order terminating the joint ownership and appointing a receiver/liquidator to sell it.
• The other party fought this application, contending that the couple had, in addition to being in a personal relationship, also been in a “universal partnership” which still existed.

 

A co-owner can normally insist on partition of the property at any time

The general rule in our law is this: “No co-owner is normally obliged to remain a co-owner against his will.” Thus “every co-owner of property may insist on a partition of the property at any time. Even if there is an agreement to constitute perpetual joint ownership, the co-owner may demand partition at any time. If the co-owners cannot agree on the way the property is to be divided, then the Court is empowered to make an order which appears to be fair and equitable.”

That opens the door to a wide range of options for the court, but often it means an order for sale of the property (possibly by public or private auction) and division of the net proceeds between the joint owners.

 

But is it “bound” or “free” co-ownership?

But it’s more complicated than that. Our law recognizes two types of co-ownership –

 

1. In a “free” co-ownership, the co-ownership is the only legal relationship between the co-owners. In this event, the rule above applies – either joint owner can insist on division at any time.
2. In a “bound” co-ownership however “there is a separate and distinct legal relationship between them of which the co-ownership is but one consequence. Co-ownership is not the primary or sole purpose of their relationship”.

In this event, the co-ownership can only be dissolved when the primary relationship is terminated. In this case, the party opposing the court application said that no order of division could be made until the “universal partnership” between the parties had ended.

The Court found that there had indeed been a universal partnership in existence, in other words that this had been a case of “bound” co-ownership. But it also held (on the facts) that both the romantic relationship and the universal partnership had ended when the parties stopped living together. The romantic relationship was the ‘tie’ between the parties and when it came to an end, any situation of bound co-ownership became a free co-ownership to which the “end at any time” rule applied.

The result – the Court ordered the joint ownership terminated and appointed a receiver and liquidator to sell the property, pay all the property debts, and divide the proceeds between the parties.

 

The remedy

So the risk is finding yourself in the same unhappy position as the ex-partners in this case, having to ask the High Court to sort out your dispute for you.

Happily however there is a simple remedy. Before you buy property jointly, have a professional draw you a full agreement setting out (at the very minimum) –

 

• The nature of your relationship. In a co-habitation scenario you should probably also have a full “co-habitation” agreement, whilst a business scenario should be linked to your existing arrangement.
• The best vehicle for co-ownership – for some, a simple “let’s put the house in both our names” will be enough, for others a company or a trust may be better.
• Who will own what percentage of the property.
• Who will contribute what to the costs of purchase and to the property expenses and upkeep.
• Who will have what use of the property.
• What will happen if one or both of you wants to leave the relationship, dies, or is incapacitated.
• And so on – every situation will be unique.

If the parties in this case had put such an agreement in place, they might well have saved themselves the stress, wasted time and legal costs of a protracted and complex dispute. The liquidator/receiver’s charges for selling the property and paying out their shares to them will no doubt rub a lot of salt into all those wounds.

A final thought: Having a formal contract in place is not a forecast that things will go wrong between you – on the contrary, it should greatly reduce the risk of any dispute or unhappiness arising in the first place.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

 

© LawDotNews

 

Article courtesy of Law Dot News | Property – Signing a Deed of Sale

12 Questions to Ask Before You Sign That Deed of Sale

“Knowledge is power” (old proverb)

Whether you are buying or selling property, remember that it is too late to ask questions after you sign the Deed of Sale (often called a “Sale Agreement” or “Offer to Purchase”).

“Knowledge is power” rings particularly true when it comes to any form of process with significant legal consequences, so here are some of the important questions you should ask upfront, before you commit to anything –

 

1. What do all the terms and conditions (particularly the legal-speak bits) in the Deed of Sale mean in practice?
2. Are my rights adequately protected and my risks minimised by the terms and conditions?
3. What costs will I have to pay, and when?
4. Is there anything in the Title Deed or local municipal laws and zoning restrictions that may impact me (as a buyer)?
5. Do I (as buyer) have a copy of the plans, and have all extensions and alterations been authorised by the local authority?
6. What defects have been disclosed in the Mandatory Disclosure Form, is a home inspection report worthwhile (and permitted by the deed of sale), what is the legal position around voetstoots clauses and patent and latent defects, and does the Consumer Protection Act apply to this sale?
7. As a buyer, have I checked for practical issues like local fibre availability, crime levels, security, school feeder zones, fixtures and fittings to remain, work-from-home practicality, buy-to-let possibilities etc?
8. Are there tenants (or other occupants) in the property, and if so what is their status and what does the deed of sale say about when they will vacate?
9. When does the buyer take possession and occupation? (Careful here, possession and occupation are two different concepts in law)
10. What arrangements have been made for date of transfer and payment of occupational interest, rates and taxes, levies, municipal service charges and the like?
11. In a residential complex: As a buyer, what Rules and Regulations will I be bound to, is there a danger of a special levy being levied, and do the latest financial statements for the Body Corporate or Homeowners Association show a healthy financial situation?
12. Have I as seller appointed my choice of conveyancer (transferring attorney)?

A final but vital thought here – whether you are buying or selling property, a lot of your money will be at stake here. Get professional advice before committing yourself to anything!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

 

© LawDotNews

 

Article courtesy of Law Dot News | Buying and Selling Property

Buying and Selling Property: Who Pays What Costs?

“Risk comes from not knowing what you’re doing” (Warren Buffett)

Don’t risk not knowing what you’re doing when you either buying or selling property. Avoid nasty shocks by budgeting properly for the costs you will incur – some of them can be substantial, and some are less obvious than others.

The checklists below are of necessity not exhaustive and you would do well to take specific professional advice and to get cost quotes before you finalise your financial planning.

 

The costs you will pay as buyer

In the excitement of buying a house (particularly if it’s your first one!) it’s easy to underbudget and forget all the amounts of money you will have to pay over and above the purchase price.

One suggestion is to budget for costs totaling up to about 10% of the purchase price, but here’s a list to help you with your own calculations (ignore any items that don’t apply to your purchase) –

 

• Transfer duty (a government tax payable to the state via SARS unless the sale is subject to vat). You will pay on a sliding scale depending on the purchase price and beware – this can be a substantial cost!
• The applicable transfer fees that the conveyancers will charge for their services in handling the transfer (you must pay these before transfer)
• Deeds Office fees
• Bond registration fees charged by the bank’s attorney
• Bond/Home Loan initiation fee payable to the bank (the bank may also require you to take out a home loan protection life policy)
• Occupational interest, if payable when you move in before the transfer takes place
• Pro-rata rates, municipal charges and levies (some payable in advance)
• If you are buying into a complex (sectional title or Homeowners Association) you may be liable for body corporate or HOA levy clearance fees in addition to pro-rata levies
• Don’t forget other costs like moving costs, redecorating, telephone and internet connections, water and electricity deposits etc
• Also remember to budget for your ongoing monthly costs of property ownership – rates, levies, municipal services, insurance (building and contents), security, building maintenance and the like.

 

The costs you will pay as seller

Again, ignore any of these items that don’t apply to your particular sale –

 

• Estate agent’s commission (don’t forget the vat component)
• Certificates of compliance – electrical, water, gas, electric fence, and the like. Provide also for the possibility of repairs and upgrades to ensure compliance with regulations
• Bond cancellation fees (be careful here to give the bank enough notice to avoid having to pay an early termination penalty as well)
• Rates and levies
• If you live in a complex, there may be other fees payable to your body corporate or Homeowners Association.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

 

© LawDotNews

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Article courtesy of Law Dot News | Property Act

How the Property Practitioners Act Affects You as a Property Seller, Buyer, Landlord or Tenant from 1 February

“… a property is an asset to enhance economic activity, growth and development…” (extract from preamble to the Property Practitioners Act)

The Property Practitioners Act (“PPA”) finally comes into effect on 1 February 2022. It has major ramifications for everyone involved in the property industry, but in this article we’ll concentrate only on aspects of particular importance to property sellers and buyers, and to landlords and tenants.

The PPA’s full definition of “property practitioner” is long and complex with some grey areas still to be clarified, but for our purposes let’s just note that estate agents and agencies, property auctioneers, property managers, bond originators and the like all fall into the definition.

We turn now to some of the more important changes which will impact on you from a practical perspective from 1 February –

New mandatory disclosures by sellers and landlords

It has always been best practice for sellers and landlords to make full written disclosures of any property defects or deficiencies known to them to prospective buyers and tenants, and to attach a list to the agreement of sale/lease. As regards residential leases, the Rental Housing Act already provides for both incoming and outgoing joint inspections.

Now for both sale and leasing the PPA provides that no PP can accept a mandate without a “mandatory disclosure form” which must be provided to any prospective buyer or tenant, signed by both parties and attached to the sale agreement/lease. The form published in the new Regulations refers to sellers only so it is unclear (at date of writing) what form landlords are supposed to use but the form requires sellers to answer a series of questions (and certify the answers as correct) relating to defects (structural and other), to disclose any boundary line disputes/encroachments/encumbrances, to certify that the necessary consents and permits were obtained for any additions/improvements etc, and to disclose any historical structure/heritage site issues. There is also a catch-all “Additional Information” section.

The form specifically states that it is not a substitute for any inspections or warranties so buyers/tenants should still insist on these in their agreements, but it does provide proof of any disclosure or non-disclosure of defects or deficiencies (there is a presumption against disclosure if no form is supplied).

Sellers and landlords will want to tread with care here and, importantly, they are not the only ones at risk of being sued here – a buyer/tenant can hold the PP liable for not complying with these requirements. 

When commission isn’t payable (and can be clawed back if already paid)

Commission is normally payable to a PP by the seller in a sale, or by the landlord in a letting arrangement. The PPA provides for two situations in which a PP cannot earn commission or any other payment, and in which you can claim repayment (on pain of prosecution for failure to repay) if you have already made payment –

• Estate agents have always had to hold a Fidelity Fund Certificate (FFC) in order to trade, and the PPA clarifies that in order to act as a PP, it is not enough for just the agency itself to hold an FFC – FFCs must also be held by all employed PPs and (if the agency is not a sole proprietorship) also all directors (if a company), members (if a close corporation), trustees (if a trust) and partners (if a partnership). Another safeguard is that the conveyancer handling the transfer is now obliged to obtain a certified copy of the PP’s FFC before making any commission or other payment.
• Another situation in which a PP cannot claim commission is if there is any breach of the requirement not to “enter into any arrangement, formally or informally, whereby a consumer is obliged or encouraged to use a particular service provider including an attorney to render any service or ancillary services in respect of any transaction of which that property practitioner was the effective cause.” This is presumably an attempt to curb the paying of referral fees to PPs for recommending or requiring use of a particular service provider, such as perhaps a particular transferring attorney, bond originator, compliance certification service etc, but at the end of the day as a seller or landlord your best interests are served if you insist on using your own professional advisors – the choice is yours and yours alone.

Other things to know about

• The Property Practitioners Regulatory Authority (“PPRA”) which replaces the Estate Agency Affairs Board, will enforce a Code of Conduct applicable to all PPs, and will provide mediation and adjudication services in the event of any disputes arising.
• As regards costs of documentation – sale agreements, leases and mandatory disclosure forms “must be drafted by the developer or seller, as the case may be, for his, her or its own account” (there is no specific mention of landlords).

As always with property transactions, there is just no substitute for specific professional advice and assistance here!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property

Buying Property from a Company – Should You Buy the Shares or the House?

“There is never a wrong time to buy the right home” (Anon)

You find the house of your dreams, agree on the price and get ready to put pen to paper. The house is in the name of a company, and you are offered a choice – either buy the house out of the company or take over the company (which owns the house and nothing else) by buying the shares and thus avoid the delay and cost of a normal property transfer and registration in the Deeds Office.

What should you do? There are a host of both practical and legal factors to consider before deciding. Holding property in a company can come with significant advantages, but there can also be major disadvantages, so professional advice specific to your own circumstances is a no-brainer here.

Some of the many factors you should consider are –

• Tax and estate planning considerations. These are complex and no two cases will be identical, but consider the higher capital gains tax rates payable by companies (and the annual exclusion and “primary residence exclusion” of R2m for individuals), the differential income tax rates, possible VAT considerations, your own estate planning circumstances (including the estate duty angle) and the like.
• Asset protection. Particularly if you run your own business or are in a profession at significant risk of litigation, it may be important to you to protect your major assets (like your house) from possible attack by creditors. Any assets held in your own name will be a natural target if you run into financial problems, whilst those held in another entity like a company or trust will generally be much harder to attack. Complicated multi-level structures such as having a trust owning your company’s shares have generally fallen out of favour for a variety of reasons, but you may still be advised to consider one in your particular situation.
• Joint ownership. Joint ownership of property comes with its own set of risks and issues, and depending on your needs you might be advised to address them with a company/shareholder structure.
• Costs and simplicity. Running a company comes with extra costs (accounting/auditing, statutory costs etc), formalities and responsibilities, getting a bond in your own name is likely to be a simpler process than taking it in a company, and so on.
• The hidden risks. When you buy a company’s shares you get the company as it is, with all its assets and liabilities. If the seller is in any way unreliable, you could find yourself losing the house to an undisclosed company liability that suddenly crawls out of the woodwork. Suretyships are a particular danger here – there is no central register of suretyships you can refer to, and it is common for groups of companies and other entities in particular to sign cross-suretyships without necessarily keeping a record of them all. These are risks that can be largely managed with proper advice and due diligence, but a residual whiff of doubt is inevitable.
• Other factors. There will be many other aspects to consider, depending on your circumstances and needs, and on the company in question.

Transfer duty – you pay it either way!

As a buyer you can never lose sight of all the costs you will incur in buying a house, and the “big one” is normally transfer duty. It’s essentially a government tax, payable by you as buyer (unless the property sale is subject to VAT), and it can be a lot of money.

Do not however fall into the old (and surprisingly still-common) trap of thinking that by buying the company you avoid paying transfer duty. That was indeed a commonly used loophole in decades past and it is still sometimes referred to. But in reality that all changed many years ago, and (subject to what is said below) you should budget to pay transfer duty as set out in this table –

Source: SARS “Budget Tax Guide 2021”

So for example if you buy a house for R3m you will pay R146k in transfer duty. Or R916k on a R10m house. Finding a way to avoid or reduce such a cost is an attractive proposition, and indeed until 2002 it was a common way for buyers and sellers to save transfer duty and to instead pay only ¼% “Securities Transfer Tax” – a huge saving.

That loophole closed however many years ago – on 13 December 2002 to be precise – and since then the sale of shares in a “residential property company” (a company with over 50% of its asset value in residential property) attracts transfer duty on the “fair value” of the property. No savings there!

What about “buying” a property-owning trust?

Similarly, before 2002 a common transfer duty avoidance strategy was to hold property in a trust, then to “sell” the trust to a purchaser by substituting him/her as a beneficiary of that trust. That loophole was also closed in respect of beneficiaries holding “contingent interests” in the property – the situation here is a bit more complicated than it is with companies as there are various types of trust you could be dealing with, so specialist advice is essential.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property

When Bond Clauses Sink Sales

“Before anything else, preparation is the key to success” (Alexander Graham Bell)

You sell your house, give the signed sale agreement to your attorney, and wait to get paid out as soon as the property is transferred in the Deeds Office. What could possibly go wrong?

Quite a bit as it turns out, but perhaps the most frequent “sinker of sales” is a failure by one party or the other to meet a “suspensive condition” (often also referred to as a “condition precedent”).

As our courts have put it “a suspensive condition suspends the operation of all obligations flowing from a contract until occurrence of a future uncertain event. If the uncertain future event does not occur, the obligations never come into operation.” In other words, there is no binding sale at all until all suspensive conditions have been met.

The bond clause

A very common suspensive clause in property sale agreements, where the buyer cannot pay the purchase price in cash, is the “bond clause” making the sale subject to the buyer obtaining a “bond approval” from a financial institution (usually a bank). The bank loans the money to the buyer against the security of a mortgage bond over the property.

The bond clause is of course an essential escape route for you if you are a buyer needing to raise a loan. As a seller on the other hand you want the clause tightly drawn to stop the buyer using it as an excuse to pull out of the deal if the dreaded “buyer’s remorse” should set in after the sale.

For both parties it is essential to ensure that the clause is properly drawn to reflect clearly and correctly what you are both agreeing to. Preparation is key here! Our law reports are replete with bitter and expensive disputes over bond clauses, many of them avoidable had the parties proactively sought legal assistance before signing the sale agreement.

What should be in the bond clause?

In broad terms a bond clause will provide that the sale agreement is suspended until the bank approves the bond, and that the agreement will lapse if approval is not given by the date and in the amount specified in the clause.

Beyond that, make sure that there are no grey areas around what the deadline is or around what exactly will constitute “bond approval”. What format must it be in? Is it enough that an approval is granted, or must it be communicated to the seller before deadline? Is the bank’s offer to the buyer subject to the National Credit Act and if so on what basis can the buyer reject the offer? Is it enough to specify that the bond approval should be on the bank’s “usual terms and conditions”?  What if the buyer rejects a reasonable offer from the bank in order to get out of the sale? And so on…

As a seller, if you are concerned about your buyer not being able to raise the required finance, consider adding a “72-hour clause” to the sale (ask your attorney for advice on this).

As a buyer, consider specifying the maximum interest rate at which you will accept the bank’s offer of a loan, or you could find yourself tied to unaffordable bond repayments.

Each case will be different, and our courts will always look at the specific wording of each particular case. So make sure the clause is specifically tailored to protect both parties in your respective circumstances.

Amending or waiving the bond clause

What if the buyer can’t get an offer from a bank by due date or in the required amount or (if the buyer specified a maximum interest rate as suggested above) at the required interest rate?

If that happens, the parties can agree to vary the agreement – perhaps to give the buyer more time to raise the bond, or to change the amount of the bond. Just remember that that must be done in a written, signed agreement before the due date. After the due date the whole agreement will have lapsed and there will be no contract left to amend.

Alternatively as a buyer, you have the option to “waive” the bond condition. You can do so unilaterally (i.e., without the seller’s agreement), provided again that the agreement hasn’t already lapsed, and provided that nothing in the agreement prevents such a waiver.

Importantly, you can only waive a suspensive condition where it is for your “exclusive benefit”. A bond clause will usually qualify in that it is normally there purely to protect you from being tied to an agreement you cannot afford – but perhaps avoid any possible doubt by specifying that in the clause.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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