Written by: J’Retha van Rensburg
Date: January 2025
Registration Of Instalment Sales Agreements for Immovable Property In South Africa
Given the current economic climate in South Africa, with its soaring inflation rates, coupled with consumers’ low credit scores, it has become customary to acquire immovable property by way of credit instalment agreements concluded with the sellers. One such method is purchasing property where the buyer pays the purchase price in instalments directly to the seller rather than obtaining a mortgage from a financial institution. These types of agreements, commonly referred to as “instalment sale agreements,” are regulated in terms of the Alienation of Land Act 68 of 1981 and offer buyers the opportunity to acquire their immovable property directly from the seller without having to obtain financing from a financial institution.
Not only does this prevent the consumer from being burdened with stringent bond payments and harsh interest rates, but it also broadens the buyer’s pool, where the seller would previously have been limited to buyers who have to qualify for financing.
This article explores the essential aspects of instalment sale agreements, their legal requirements, and the importance of registering such agreements in the Deeds Office.
What Is An Instalment Sale Agreement?
An instalment sale agreement refers to a contract for the sale of immovable property primarily used for residential purposes, where:
- The property is primarily utilised for residential purposes, and the purchase price is paid to the seller by way of more than 2 (two) instalments over a period of longer than 1 (one) year.
- If the property is not held under a separate title deed at the point of entering into the deed of sale, the period of repayment in terms thereof may not exceed 5 (five) years.
These agreements allow buyers to acquire property while making gradual payments over time, rather than securing upfront financing.
What Should Be Included In The Instalment Sale Agreement?
In terms of the Alienation of Land Act 68 of 1981, the instalment sale agreement must comply with the statutory formalities as prescribed in Sections 5 and 6 of the Act. Although Sections 5 and 6 of the Alienation of Land Act 68 of 1981 prescribe a plethora of formalities, this article shall only discuss the formalities salient to instalment sale agreements. Therefore, the most critical provisions include:
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The parties must be properly described:
- In terms of Section 6(1)(a) of the Alienation of Land Act 68 of 1981, the names of the purchaser and seller, as well as their respective residential addresses,s must be clearly described in the deed of sale.
- Where the seller is not the owner of the immovable property but rather an agent of the owner, Section 6(1)(c) states that the name of the owner of the property must be included in the agreement as well.
2. The property must be properly described:
- Section 6(1)(b) of the Alienation of Land Act 68 of 1981 dictates that the immovable property, being the merx of the sale, must be identified sufficiently and described as such in the agreement, including the extent of the property.
3. The parties must have reached a consensus in terms of the purchase price and the sum of the monthly instalments payable.
In terms of Sections 6(1)(e), (f), (g), and (h), the agreement must clearly provide for;
- The purchase price for which the immovable property is sold, together with any interest which may be levied on such purchase price.
- The amount of each instalment payable in reduction or settlement of the purchase price and interest.
- The parties must also clearly agree on the date that the instalment must be paid.
- As well as the method for payment, cash or electronic fund transfer.
4. The sum of the transfer duty must be clearly set out.
- In terms of Section 6(1)(j) of the Alienation of Land Act 68 of 1981, the value of the transfer duty must be clearly depicted in the agreement, as well as when the transfer duty shall become payable.
- In the case of instalment sale agreements, the transfer duty is payable within six (6) months after the date on which the instalment sale agreement has been concluded, but before the registration thereof in the Deeds Office.
5. Written Format
- The agreement must be in writing and explicitly state that the property is primarily used for residential purposes.
Is An Installment Sale Agreement Registered Anywhere?
Yes! In terms of Section 20(1) of the Alienation of Land Act 68 of 1981, the seller of the immovable property is obliged to ensure that the instalment sale agreement is recorded and registered with the Registrar of Deeds within three (3) months after the agreement has been concluded with the buyer.
What Is The Purpose And Effect Of A Record Of An Installment Sale Agreement?
Recording the agreement serves the following purposes:
- It provides the purchaser with security and peace of mind that the seller will not be able to dispose of the property to a third party.
- It serves as a notification to third parties that the property is the subject of a previous sale.
- It ensures that the seller cannot transfer ownership without the buyer’s involvement.
Thus, should the seller, after entering into the instalment sale agreement with the purchaser, attempt to sell the property to a third party, the transfer of the property will be impossible.
What Are The Options For A Purchaser Where The Deed Of Sale For An Installment Sale Agreement Has Not Been Registered?
In terms of Section 20 of the Alienation of Land Act 68 of 1981, the seller is provided with a period of 90 days to effect the record in the Deeds Office.
If the seller fails to record the deed of sale within either the 90 days or, alternatively, the time period provided for the deed of sale, the purchaser has the right to cancel the sale agreement within 14 days of the expiry of the 90 days. Should the purchaser, however, not wish to enforce such a right, the purchaser can apply to the registrar of deeds to have the deed of sale recorded.
It is critical to note that in terms of Section 26(1)(b) of the Alienation of Land Act 68 of 1981, the seller will not be entitled to receive any “consideration” in terms of the deed of sale until the registration thereof. The term “consideration” is defined in the Alienation of Land Act 68 of 1981 to include the purchase price and interest thereon, but excludes rent or occupation interest constituting reasonable compensation for the use and enjoyment of the immovable property by the purchaser.
Why Is The Registration Of The Deed Of An Instalment Sale Agreement Critical?
The consequence of failing to register a deed of sale is that:
- The monthly instalments, payable by the purchaser, will not become due and owing in terms of the deed of sale until such a deed is registered.
- Accordingly, the seller will not be able to institute any action against the purchaser for failing to settle the purchase price timeously, where the deed of sale has not been registered.
It is thus of paramount importance for sellers to critically analyse the deed of sale to ensure that such a deed is validly effected by recording it with the Registrar of Deeds against the property’s title deed.
When properly structured and registered, instalment sale agreements provide a viable alternative for buyers who cannot obtain traditional mortgage financing. However, these agreements involve complex legal requirements that must be adhered to in order to be legally enforceable. Before entering into an instalment sale agreement, it is crucial to seek professional legal guidance to ensure compliance with the Alienation of Land Act 68 of 1981 and avoid potential pitfalls.
At Burger Huyser Attorneys, our property law specialists can assist with drafting, reviewing, and registering instalment sale agreements to safeguard your interests. Contact us today for expert legal advice tailored to your needs.
Contact Burger Huyser Attorneys, and book a consultation.
To speak to one of our experienced attorneys in South Africa for immediate assistance, contact us on the numbers below:
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