Did you know you can buy a home on instalments, without a bond? That is, of course, if the seller is willing to sell on such terms. Here's how it works.
Factors such as the decline in property sales due to global economic pressures; the strict loan criteria imposed on parties by the National Credit Act; the high cost of transfer fees and bond registration fees; and the prevalence of purchasers with adverse credit records have resulted in a rise in properties being purchased by way of instalment sale agreements.
WHAT ARE INSTALMENT SALE AGREEMENTS?
An instalment sale agreement in respect of immovable property is an agreement in terms of the Alienation of Land Act 68 of 1981,(the Act).
The purchase price in respect of a property is paid to the seller by way of more than two instalments over a period of longer that one year.
The instalments payable is ideally sufficient to cover the seller’s bond repayments.
The period in which the instalments are to be made can be anywhere between 12 and 60 months, and the seller may require an initial deposit.
WHAT MUST THE AGREEMENT CONTAIN?
An attorney drafts the agreement which meets the requirements as set out in Section 6 of the Act which requires that the agreement be in writing and signed by both parties.
Details of the Seller;
Details of the Purchaser;
Address of Seller;
Address of Purchaser;
Description and extent of the property;
The purchase price and rate of interest payable;
The date of payment of first instalment;
The date of payment of subsequent instalments;
Transfer duty payable;
Date of occupation;
Date of passing of possession;
Details of conveyancer;
Final date of payment.
WHAT ABOUT EXISTING BONDHOLDERS?
Once the contract has been signed the attorney will inform the exiting bondholder, if any, of the conclusion of the contract.
The bondholder has no right to refuse the conclusion of the agreement.
The bondholder will be requested to provide a certificate within 21 days of the request, which indicates and confirms the amount and interest required by the bondholder for the discharge of the bond.
The contract will lapse if the amount in terms of the certificate exceeds the purchase price.
HOW AND WHEN DOES REGISTRATION OF THE AGREEMENT TAKE PLACE?
The agreement is registered against the title deed of the property at the Deeds Office in terms of Section 20 of the Act.
This process is referred to as “recordal” of the contract and must be done within 90 days of signature of the agreement.
Recordals prohibit the seller form registering further bonds over the property or selling it to another unsuspecting buyer.
Payment of the instalments only commence once the agreement has been registered against the title deed of the property.
WHAT ARE MY RIGHTS AND OBLIGATIONS?
The purchaser is liable for transfer duty and costs, which is to be paid to SARS within six months from date of conclusion of the agreement.
The seller retains ownership of the property until the property is paid off.
The purchaser takes occupation of the property on an agreed date and pays the seller occupational rent.
The purchaser shall hold a preferential claim in respect of the property if the seller’s estate becomes insolvent.
Transfer of the property in the name of the purchaser only takes place at the end of the agreement period. The purchaser may however take transfer sooner if the purchase price is secured.
The purchaser is entitled to sell the property at any time during the existence of the agreement, on condition that the purchase price is secured and paid on the transfer date.
WHEN IS THE NATIONAL CREDIT ACT (NCA) APPLICABLE?
The NCA will be applicable to an instalment sale agreement if interest, fees or other charges are charged.
If the purchaser is either a natural person or a juristic person with an asset value or annual turnover not exceeding 1 million Rand.
WHAT ARE THE ADVANTAGES OF THIS TYPE OF AGREEMENT?
Sellers have a better chance of selling the property, as no bond is required by purchaser;
The purchaser is responsible for maintaining his future property, and will do so to increase its value. The seller is therefore relieved of this duty.
The seller will receive a passive income in the form of occupational rent and instalments which will significantly improve his cash flow.
The Purchaser’s chances of owning immovable property improve significantly as no bond is required.
CONCLUSION:
Because large sums of money exchange hands and to ensure that your agreement complies with the Alienation of Land Act, it is recommended that you do not implement an instalment sale agreement without the assistance of an attorney.
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