A written agreement must be drafted and signed. A verbal sale agreement in respect of immovable property is unenforceable and void in South Africa. The following are some important clauses to be borne in mind:
DESCRIPTION OF THE PROPERTY AND PARTIES
The property and parties must be properly defined, so as to be capable of identification from the very wording used in the agreement.
UNFAIR CONTRACT TERMS PROHIBITED
In terms of the Consumer Protection Act (68 of 2008), or “the CPA”, unfair contract terms are to be prohibited in deeds of sale to which the Act applies. Note that it is still ambiguous as to whether the CPA applies at all to residential property sales, as a seller in these “once off” private sales, may not be deemed to be a supplier selling goods in his/her ordinary course of business, as defined in the Act. Where the CPA does apply, each case will be determined on its merits as to what is deemed to be fair or unfair contract terms. Notwithstanding the above, the general view is that Section 49 of the CPA should be taken cognisance of in all cases– and provision should be made that any waiver of liability, assumption of an obligation, or waiver of a right is drawn specifically to the attention of both parties to the agreement in a conspicuous manner.
PURCHASE PRICE & PAYMENT
- The price offered must be clearly stated, written both numerically and alphabetically.
- Sellers normally do and should require the payment of a deposit, which shows good faith, and the financial ability on the part of the purchaser and also provides security for the seller to cover its losses should the purchaser breach the agreement. As a purchaser, it is advisable to stipulate that the deposit be held in trust in an interest-bearing account, for the purchaser’s benefit pending transfer by the conveyancer [and dealt with in accordance with Section 86(4) of the Legal Practice Act].
- The balance of the purchase price is normally secured by a bank guarantee, usually coupled with a mortgage bond to be registered over the property. The seller’s conveyancer must make sure that guarantees are provided timeously, and the purchaser must ensure that the contract provides sufficient time to arrange finance and provide guarantees.
LEGAL PRACTICE ACT
Section 86(4) of the Legal Practice Act (28 of 2014) allows legal practitioners to invest client monies in a separate trust savings account where there is an underlying transaction with an explicit mandate from the client to do so. 5% of the interest earned will automatically be paid monthly to the Legal Practitioners Fidelity Fund by the bank (which has been approved by the LPFF). In addition, the Act requires an attorney who receives written instructions from a client, to set out the intended scope of the engagement with clarity and in writing, including estimated costs for the services to be provided.
FATCA
In order to invest funds, the requirement of disclosure of world-wide tax registration is required in terms of the US Foreign Account Tax Compliance Act, and an Inter-Governmental Agreement (IGA).
OCCUPATIONAL INTEREST
Where occupation takes place on a particular date and transfer takes place after the date of occupation, occupational interest is paid at an agreed amount for the period of occupation until transfer. In most cases this is paid by the purchaser, who may take occupation prior to transfer being registered. The terms should be stipulated in the deed of sale. In some cases, it is the seller who is the one who has to stay on in the property he or she has sold and where transfer has been registered. In this case, the seller will be required to pay occupational interest to the purchaser. In general, on occupation, risk passes to the purchaser. Clauses dealing with occupational interest and risk (who is at risk while the purchaser is in occupation) should be included in the deed of sale.
COMPLIANCE CERTIFICATES
The contract of sale is required to include clauses which deal with the Electrical, Beetle, Gas and Plumbing Certificate (where applicable). The City of Cape Town: Water Amendment By-law, 2018 provides that the seller must, before the transfer of a property, submit a plumbing Certificate of Compliance from a registered plumber (who must be registered with CoCT), certifying that any water installation (including alternative water connections) conform to the by-law and any National Building Regulations and Standards. Conveyancers attending to the transfer of a property are required to ensure that the requisite compliance certificates are received well before registration at the Deeds Office.
ELECTRIC FENCE REGULATIONS
Regulation 12 of the “Electrical Machinery Regulations” require that you have an “electric fence system certificate of compliance” if you install, add to, or alter an electric fence after 1 October 2012, or where there is a change of ownership of the premises on which the system exists, if the change of ownership takes place after 1 October 2012.
DISCLOSURE OF LISTED INVASIVE SPECIES
The National Environmental Management Biodiversity Act (10 of 2004) requires that the seller of an immovable property must, prior to the conclusion of the relevant sale agreement, notify the purchaser of such immovable property, in writing, of the presence of listed invasive species on the property. The obligation and the duty to remove could be negotiated between the seller and the purchaser.
BUILDING PLANS
The seller must ensure that all the buildings and structures on the property are approved by the relevant local authority. Before a seller places his home on the market for sale, he should make sure the approved plans reflect the buildings and structures on the property. It is best practice to include a clause in the sale agreement which deals with the building plans specifically. The clause may state that the property is sold subject to the condition that plan approval is obtained and provided to the purchaser prior to transfer, or that the purchaser acknowledges the absence of approved plans and accepts the liability for the risks associated therewith expressly. The seller cannot rely on the voetstoots clause to protect him in the event that plans are not approved, and he fails to disclose, as this will be deemed to be a latent defect known to the seller.
OCCUPATION CERTIFICATE
An Occupation Certificate is a requirement in terms of the National Building Regulations and Building Standards Act (103 of 1977), and is issued by the local authority. It ensures that, a building is fit for human occupation, by stating that the roof has been inspected by a truss installer or engineer and is safe, that the plans were properly approved, that all drainage and plumbing work has been certified, that the windows were approved by a Glazing Certificate, that there is an electrical certificate of compliance, that any zoning or similar amendments have been completed, that an engineering completion certificate from a structural or civil engineer stating the property is safe, has been issued, and that, if the property has a thatch roof, that a Fire Certificate has been obtained. The Occupation Certificate is essential, whe applying for insurance on a property, or for a home loan / mortgage bond.
PROPERTY DISCLOSURE REPORT: CONSUMER PROTECTION
While it has always been best practice for sellers to provide a property defects disclosure document as part of the sale agreement, the Property Practitioners Act (22 of 2019) makes this obligatory. The Regulations provide the prescribed form for the report. It must be signed by all relevant parties and forms an integral part of the agreement. The sale agreement should expressly state which of the parties will be responsible for the costs incurred to correct any defects listed in the report. A property practitioner must not accept a mandate unless the seller has provided him with a fully signed mandatory disclosure, in the prescribed form. The property practitioner must provide a copy of this form to any prospective purchaser who intends to make an offer for the purchase of the property. Failure to comply may result in the property practitioner being held liable by an affected consumer, and the Regulatory Authority may take action against a property practitioner or impose an appropriate sanction.
THE FICA CLAUSE
Cash transactions and FICA:
The Financial Intelligence Centre Act (38 of 2001), as amended, provides that Accountable institutions (AI’s), which include attorneys and estate agents, are required to file a report with the Financial Intelligence Centre in regard to any cash transactions involving domestic and foreign notes and coins, and travellers cheques above R50 000 or an aggregate thereof (i.e. smaller amounts that when taken together at the same time amount to over R50 000). In addition, the transferring attorney and the estate agent are required to request certain documents from both the seller and the purchaser, in compliance with FICA. If applicable, the bank, and the bank’s attorneys granting the bond will also require documents, some of which are listed below:
Natural Person
- Identity document(s) and Income tax registration number (latest tax return submitted to SARS and VAT number – where applicable)
- Proof: marital status: marriage certificate, antenuptial contract, divorce orders, consent papers
- Either a utility bill (water or lights), or a levy account that is addressed to the natural person at his or her residential address, not older than 3 months
Estate agent
- VAT details, income tax details of agency and agent involved in the transaction
Trust
- Verification of all authorised Trustees and Beneficiaries (income tax, identity numbers and proof of residential addresses not older than 3 months)
- Letters of authority to act as Trustes and copy of the Trust Deed
- Resolution authorising Trustee to act on the Trust’s behalf in the property transaction
- Income tax and VAT number (where applicable), of the Trust
- For bond registrations, the financial institution may require financial statements and/or personal suretyship from the Trustees
Company/Close Corporation
- Verification of all Directors and shareholders/members (income tax, identity numbers and proof of residential addresses not older than 3 months)
- Memorandum of Incorporation/Founding Statement (and amended where applicable)
- CoR 39 Certificate (Certificate of Director amendments)
- Resolution authorising Director/Member to act on entity’s behalf in the property transaction
- Income tax and VAT number of the company/CC (where applicable)
- For bond registrations, the financial institution may require financial statements and/or personal suretyship from the shareholders/members
Companies and CC’s
- For bond regisrations and transfers, a Factual Findings Report of the Auditor/ Independent Reviewer/Accountant, and Certificate For A Transfer for a company/CC/ signed by the Directors/members (whichever is applicable).
AI’s are required to conduct greater and enhanced due diligence when dealing with persons who are “prominent and influential domestically”, or are “foreign prominent public officials” (or their immediate family members, or known close associates). These lists are not exhaustive and are intended to give an idea of the required documentation for FICA compliance.
DEVELOPER’S RIGHT OF EXTENSION
A right of extension, in terms of Section 25 of the Sectional Titles Act (95 of 1986), allows the developer of a sectional title scheme to reserve a right in its favour, to erect further phases to the development, within a stipulated period and for its personal account, further buildings or extensions on a specified section of the common property, and to divide these buildings into sections. This clause should be specifically dealt with in the deed of sale. The purchaser needs to be advised and made aware as to whether the developer has or does not have a right of extension in terms of the sale agreement.