Purchasing immovable property through an instalment sale agreement

By 27th November 2023Real Estate
Purchasing immovable property through an instalment sale agreement

If you are in the market to purchase immovable property but have been unable to successfully obtain a mortgage bond from a financial institution to finance the purchase price, the option of entering into an instalment sale agreement with the Seller may just be the alternative solution you need.

Before you can proceed with this option, it is essential for the Seller and Purchaser to know what are the legal requirements that need to be satisfied to ensure that you have a valid, binding and enforceable instalment sale agreement.

Applicable Legislation?

As a point of departure, the Alienation of Land Act 68 of 1981 (“Act”) is the applicable statutory legislation that applies to the sale of land by way of instalments. In essence, an instalment sale agreement can be defined as a written agreement entered into between the Seller and Purchaser, which provides that the purchase price for the immovable property or land concerned, and can be paid by the Purchaser in more than two instalments, over a period of more than two years.

To qualify the above definition, section 6 of the Act finds application here. The said section goes into great detail by expressly stating what terms and conditions need to be included in the instalment sale agreement for it to be considered legally compliant and aligned with the provisions of the Act. Once the Seller and Purchaser have fleshed out these terms and formalised them in writing, it will be execution ready.

What happens once I have entered into the Instalment Sale Agreement?

Once the Seller and Purchaser have executed the instalment sale agreement, section 20(1)(a) of the Act immediately comes into effect. This provision places an obligation on the Seller to ensure that the instalment sale agreement is recorded against the title deed of the immovable property in the prescribed manner, by the Registrar concerned, within 90 days. From the outset, this obligation is placed on the Seller to ensure that the instalment sale agreement is registered within the time period stipulated above.

However, in practice, this responsibility is typically handed over by the Seller to the intended transferring attorney, given that the transferring attorney will be familiar with the process and procedure that applies when recording an instalment sale agreement in terms of section 20 of the Act.

Suppose the Seller has failed to register the instalment sale agreement – what then? In that case, the Purchaser has the right to either cancel the instalment sale agreement within 14 days and restitution will need to take place or alternatively, the Purchaser can take steps to cause the instalment sale agreement to be recorded at its own instance.

Purpose of having the Instalment Sale Agreement recorded at the Deed’s office?

In short, it is for the protection of the Purchaser, mainly for two reasons. First being, given that the purchase price is being paid over a period of more than one year, it is essential to ensure that all the instalment payments will be used to settle any existing mortgage bond (if any) that the Seller has registered against the property.  The objective is to ensure that at the time registration of transfer of the property takes place, the existing mortgage bond will be cancelled, thus ensuring that the Purchaser can take free and encumbered title and ownership of the property.

The second reason is to ensure that the Seller does not sell the property to any third party, without the Purchaser’s knowledge. Suppose the Seller attempts to sell the property, in that case, the Deeds Office will immediately pick up that an instalment sale agreement has been registered against the title deed in favour of the Purchaser and thus not allow any registration of transfer to take place to any third party unless the instalment sale agreement is cancelled. Proof of such cancellation would need to be provided to the satisfaction of the Registrar concerned.

Key Take-Aways

There have been many cases that have come to our attention where the Purchaser was not aware of the legal requirements that apply under these circumstances. Consequently, the Purchaser received the short end of the stick because the Seller either failed to ensure the recording of the instalment sale agreement or took complete advantage of the Purchaser by subsequently cancelling the instalment sale agreement for frivolous reasons after the Purchaser paid a substantial amount to the Seller already.  The conduct of the Seller left the Purchaser with no option but to pursue the Seller legally for the repayment of all the monies, without receiving the transfer of the property.

In a follow-up article, we will be specifically dealing with the remedies and options available to a Purchaser who has entered into an Instalment Sale Agreement that was not registered against the title deed.

For more information on what we can do to assist you, please don’t hesitate to contact BBP Law Attorneys.



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