Many purchasers are solely guided by estate agencies who have comprehensive template sale agreements but there are instances where the parties, and specifically the purchaser, will benefit greatly if they seek the advice of an admitted attorney or conveyancer.

We are frequently briefed by purchasers of immovable property who need to consider litigation as a result of flaws in an agreement of sale of immovable property or because they did not consider certain important aspects. A purchaser needs to check a number of aspects in relation to the property to be purchased (hereinafter referred to as “the property”):

The written agreement: A sale agreement dealing with the purchase of immovable property is not valid and enforceable unless reduced to writing and correctly signed by all the parties involved.

The purchase price: Never pay the purchase price or a part thereof to the seller before the property is transferred into your name. The seller could die, become insolvent or might not even own the property.  It is normal to pay part or all of the purchase price to the transferring attorneys before transfer, who will invest the monies in your name until transfer takes place.

The Title Deed: Obtain a copy of the title deed of the property to see whether there are any restrictive title conditions.  

Building restrictions on the property and on the neighbours’ property: Make sure of any building restrictions on the property, as well as on the neighbouring properties.  Also, check to what extent the neighbour may build in such a way as to impact on the view from the property, which may detract from the value of the property.  You will need advice on the zoning scheme, building boundaries and height restrictions for neighbouring properties.

Survey diagrams: Always check the registered survey diagrams for the property and make sure that you know exactly where the property begins and ends.  We often see situations where the physical features present on the property (such as fences) are not aligned with the actual boundaries of the property.  

Description of the Seller: It is very important to describe the seller correctly.  Ask an attorney to do a Deed’s Office search on the property to see in whose name the property is registered in the Deed’s Office.

• Trusts: If the Seller is a trust, you must ask the agent or your attorney/conveyancer to obtain a copy of the trust deed, letters of authority and proof of address and identity number for each trustee. Valid trustee resolutions need to be secured to sell the property to you.   
• Company or close corporation: If the seller is a company or close corporation(cc), obtain an up-to-date company search and secure all the company/cc/cc documents for the company as well as the details of the shareholders/members.  If a company/cc is deregistered this needs to be rectified first before you purchase the property. If the company/cc is finally deregistered then it cannot enter into a valid agreement with you. You need to seek legal advice in this regard.  Valid company/cc resolutions need to be secured to sell the property to you.
• Individual: If the seller is an individual, obtain and verify a copy of the seller’s identity document and proof of address.  Check the seller’s marital status and marriage regime. If the seller is married in community of property, the seller’s spouse will also need to sign. Make sure the seller is still alive, otherwise you may have to deal with the Executor of the estate.

Description of the property: The property must be described properly.  The title deed will show the correct property description. Also make sure how large the property is. If there are any expropriations this may impact on the property description.

Giving occupation of the property: Ideally one should not take occupation of the property until the property has been registered into the purchaser’s name.  The purchaser could however take occupation prior to transfer by agreement with the seller and pay occupational rental.   You need to know how much that will be and reach agreement on that amount.

Giving possession of a property: Possession and risk passes automatically on transfer unless the contract says otherwise. Ask your attorney/conveyancer to explain the difference between taking occupation and passing possession of the property. You need to know and understand when the risk and profit in the property sold will pass from the seller to the purchaser.

Ask an expert to prepare an inspection report: We recommend that the purchaser calls for a proper property inspection report. This should be done by an experienced expert, before any sale is concluded.  The expert should report on all defects in the property and photograph them before the parties conclude the agreement. Alternatively, the agreement should be made subject to such a report being provided within a set period of time, with a further provision that the purchaser may withdraw from the agreement should the report be unsatisfactory.

Transfer duty or VAT: Make sure you understand whether VAT applies to the transaction or not. Under normal circumstances transfer duty is payable but if VAT applies to the transaction, the purchaser will have to pay VAT on the purchase price instead of transfer duty. In certain circumstances, the transaction could be zero-rated, for example when both the parties are registered for VAT and the sale involves the sale of a going concern.

The voetstoots clause: This clause usually provides that the property is sold “as is” / “voetstoots”, including all conditions and servitudes mentioned in the current or prior title deeds and including all such conditions and servitudes that may exist in regards thereto and in the condition and to the extent such as it now lies.  Such a clause indemnifies the seller against liability for any defects, latent or otherwise in the property and against any loss/damage suffered by the purchaser by reason thereof.  The clause also normally provides that if the property has been erroneously described by mistake, that error will not be binding upon the parties.  It is very difficult for a purchaser to escape the operation of this clause, as the purchaser would usually have to prove fraud i.e., actual knowledge on the part of the seller of the defects and failure to inform the purchaser with the intention to deceive.  Purchasers should keep a record of all disclosures made to them, whether by the seller of the agent. These days it has become necessary for the sale agreement to be accompanied by a “property condition report”.  The contents of this report are very important.

Leases: It is also very important to ask whether there are any leases in place in relation to the property. This is because if there is a lease in place, the property is sold subject to a lease.

Businesses: Check if any business is being run on the property.

Rates and Taxes: Ascertain the outstanding rates and taxes on the property. They will be paid or guaranteed prior to transfer but you do not want that aspect to delay the sale. The Municipalities require payment in advance prior to issuing a rates clearance certificate to allow the transfer to proceed.

• Agent’s commission: Make sure the parties agree on who the estate agent is and that there is not a competing claim from another agent.    
• Electrical and Gas compliance certificate: The seller is required to deliver an electrical and gas compliance certificate (if there is a gas installation).  It is very important to inspect all the electrical and gas installations properly.
• South African pest control registered inspector: At the same time, it is a good idea to have the property inspected by an inspector duly registered with the South African Pest Control Association or a qualified entomologist.  All accessible timber on the property must be inspected for infestation by wood destroying beetles, termites and in the Western Cape fungi.  Although not a legal requirement, it is ideal to have this in the agreement. Suspensive conditions: If there are suspensive conditions inserted in the agreement, you need to appreciate that the agreement will not become enforceable and final and binding, until these suspensive conditions are fulfilled. 
• Deposits: Be careful of clauses that say that the deposit is not refundable. There is legislation that will assist (for example, the Conventional Penalties Act) but take great care on this issue.
• Address for service of legal documents: It is very important to have the seller nominate an address for service. We prefer to not use postal addresses. Choosing an email address is common but ask for a read and/or delivery receipt.
• Judicial proceedings: With regard to judicial proceedings, we recommend that the purchaser insist on private mediation and/or arbitration. There are excellent alternate dispute bodies that will oversee this, such as AFSA. Make sure that the clause is drafted properly and will survive the declaration of invalidity of other parts of the agreement. 
• Valuations: Many purchasers confuse the difference between zoning and different categories imposed by the Municipality for rating purposes based on the way in which the property is used.
• A property zoning is a list of rights that dictates what the property can legally be used for.  A property zoning is determined by the applicable town planning scheme and the best way to find out what zoning applies to the property, is to secure a zoning certificate from the local authority. 
• The Municipality may in Terms of Section 8 of the Local Government Municipal Property Rates Act No. 6 of 2004 determine categories of rateable property uses within their jurisdiction to determine how rates should be calculated.  
• Municipalities must for example, describe properties as residential, industrial, business/commercial, agricultural, mining, properties owned by an organ of state and used for public services, public service infrastructure properties, properties used for public benefit organisations and use for public benefit activities and properties used for multiple purposes.  The latter category is interesting because the Seller may, for example, own a farm but on the farm, have guest house activity and in addition to that have a farm store.  Therefore, the Municipality may determine different rates on the property depending on how the Seller uses the property. Even though the Seller’s farm is zoned as an agricultural property the Municipality may still charge rates on a commercial basis for those portions used for commercial activity.
• Strangely enough, if the seller’s property is used for an unlawful purpose (e.g. a guest house on a farm without the necessary permissions) the Municipality may charge the seller rates for that unlawful use, but it does not make the use legal from a zoning point of view (in other words, do not assume that just because the seller is paying rates on a guest house it means that the operation of the guest house is lawful).
• Many rural properties are rated by Municipalities as residential properties because they are not in fact used as agricultural properties but rather used as “lifestyle” properties.  To determine this question whether the property is zoned for agriculture or not, the practice tends to be to ask for registration with SARS as proof that the seller is earning income from the property as an agricultural property.
• Regarding zoning, one should refer to the Spatial Plan and Land Use Management Act, 16 of 2013 together with what is known as the SPLUMA Regulations. At local Government level one usually has a By-Law dealing with Municipal Land Use Planning which is an important source document.
• Unfortunately, we have seen that some purchasers of property rely on the rating categories imposed by the Municipality to conclude that their property is zoned for a particular use which is not applicable to that property.  Great care should be taken to find out what the true zoning is of the property and what the different rateable categories are. 
• In addition, the purchaser should find out what the Municipal valuation is of the property. 
  
• It is a good idea to ask your agent or an independent valuer to advise on a valuation of the property and to let you have some comparative sales.
  

Costs: Make sure you know what it is going to cost you to take transfer of the property. If you are registering a bond, find out what the bond fees will be.

Entire agreement: It is imperative that there is a clause in the agreement that the agreement as it stands is the entire agreement and that there are no other clauses other than what is contained in the agreement which shall be considered binding on both parties unless amended in writing.

This list is not exhaustive. You may need to check water rights and many other issues. If you need assistance please contact us on www.mpc.law.za or Plettenberg Bay: (044) 533 1101or Knysna (044) 3825 333. Author: Perino Pama: ppama@mpc.law.za // 072 38 197 38.