By Sanette Viljoen
It often happens that a person buys fixed property by means of an instalment agreement. This person often does not have the capital for a once-off payment or perhaps he does not qualify for a mortgage with a bank. However, if you want to buy a property directly from the seller by means of an instalment agreement, there are various options that you can consider.
Firstly the seller can transfer the house to the buyer and give the buyer registration of the property. The buyer then pays the seller monthly as a mortgage was registered in favour of the seller. Just as a mortgage is normally given by a bank, the mortgage is now given by the seller. The seller now becomes the bondholder and the buyer pays the seller monthly. The property has now already been registered in the buyer’s name and should he not pay the bond regularly, the seller will then foreclose the mortgage and have the property sold by auction.
The second option is where the buyer pays off the seller without the house being transferred in the buyer’s name. In such a case, as soon as the buyer pays the purchase price over a period of more than a year in more than two instalments, chapter 20 of the Alienation of Land Act takes effect.
In short, the Act stipulates that such a deed of sale must be registered against the title deed of the sold property. The purpose of this registration is twofold:
- Firstly, it prevents the seller from transferring the property to a person other than the registered buyer; and
- secondly, it gives the buyer a preferential claim should the seller’s estate be sequestrated.
This protection that the buyer gets upon registration of the deed of sale is of vital importance.
The Act further stipulates that the seller must register the deed of sale within 90 days of the conclusion of the contract. The registration of this instalment agreement or deed of sale against the title deed of the property is the seller’s duty. Should the seller fail to fulfil his obligations the buyer has 14 days time after the seller’s failure to fulfil his obligations to cancel the contract or, as an alternative, the buyer may himself have the contract registered.
Section 26 of the Act goes further to stipulate that nobody may receive a consideration (money) before the contract has been registered. The buyer may therefore not pay his instalments and the seller may not receive payment of the instalment before proof is provided that that the contract has been properly registered against the title deed.
The result of this is that, for as long as the contract has not been registered, it cannot be cancelled on the ground of the buyer’s failure to pay the instalments. The buyer therefore does not have to pay any instalments before the contract has been registered.
This point of departure was recently confirmed in the case of Amardien & Andere v Die Registrateur van Aktes & Andere 2019 (2) BCLR 193 (CC) 2019. The court found that the buyer could not have fallen into arrears with his instalments because the contract had not yet been registered.
Therefore, make sure that your instalment agreement is registered with the deeds office as such registration can protect the buyer.