A reader planning to pay for a property he is buying from a friend in instalments wants to know what the legal requirements are for a sale of this nature.
He also would like to know what aspects he should consider during the negotiation and drafting of a contract.
For various reasons, the parties have discussed the possibility of the payment being made in instalments rather than approaching the bank for a mortgage bond.
See the reader’s question here.
The reader says the seller is fairly casual in respect of the envisaged sale and is not even concerned if the contract between them is in writing or not.
However, the buyer feels he would be at considerable risk, considering the amount of money involved, should there be no formal contract, regardless of their friendship.
The reader is correct in that an agreement for the alienation of fixed property must be in writing according to the Alienation of Land Act.
The act sets out an extensive list of requirements for the sale of land on instalments. Some aspects are negotiable, while others are of a technical or formal nature.
To begin with, the reader should negotiate the purchase price of the property, together with the interest payable in respect of any balance of the purchase price.
The instalment payable, and its frequency, should also be negotiated and agreed. However, the reader is not restricted to paying only the instalment amount and may pay greater amounts if he has the finance.
As the property will still have to be transferred, the amount payable for that should also be calculated.
While the purchase price is substantial, the transfer duty and fees may also be considerable. Accordingly, the estimated amount payable on transfer should also be recorded.
As with a normal transfer, the parties should record when the reader is entitled to possession and occupation of the property.
Some thought should be given to the date of occupation. Recording it to coincide with the transfer may be the most sensible to both parties so as to avoid transfer without occupation.
For example, if the date for occupation is recorded as being only an approximate time for transfer of the property, this may not take into account the fact that our reader is entitled to accelerate payments.
That would allow him to take early transfer of the property, in which case the seller may not be practically able to give occupation.
Because an instalment sale may take place over an extended period, the parties should consider aspects such as insurance on the property in the interim as well as maintenance and improvements.
The latter two aspects are important as the reader may subsequently take occupation of a property which has not been maintained and requires extensive reparation work.
Alternatively, it could happen that the seller has made certain changes that the reader, as the purchaser, is not happy with. He should also question what remedy is available to him to prevent the owner from merely selling the property to a third party.
Assuming the parties properly fulfil the provisions of the act, the sale will be recorded in writing.
Furthermore, the act states that the seller is obliged to record the contract against the title deed of the property, which can be viewed by the reader.
Such a recordal will prevent the sale and transfer of the property without the knowledge of the reader.
The recordal is important due to it potentially avoiding litigation by the reader in an endeavour to recover money already paid should the seller be unscrupulous enough to attempt to sell to a third party.
It should be emphasised that the reader is entitled to make larger payments than the recorded instalments.
But it is also important that the reader is aware that he may tender the full outstanding amount payable under the contract and claim transfer of the land against the tender of such payment.
Naturally, the interest payable by our reader to the seller is curtailed in such an instance.
Due to the potential for dispute and the amount of money involved, it is recommended that the reader takes formal advice on the preparation of a contract for the purchase.
This will help to properly record the various provisions related to their agreement.
Also, as certain formalities subsequent to the contract are required, it may be preferable that a professional is tasked with ensuring compliance, rather than the parties being responsible for that and failing to do so.
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