Author : Roz Wottesley
Original article: Personal Finance Magazine: November 2013
Doing the Deed!!
When you find a property to buy, or a buyer for a property you are selling (or, in some cases, both at the same time) you launch a transfer-of-ownership process that involves not only estate agents and their agency support systems, but as many as three attorneys for each transaction, plus their support staff.
This can be a little daunting – particularly for first-time buyers, but certainly not exclusively for them. Even experienced buyers and sellers forget what happens between the much-wanted agreement and the consummation of the deal at the Deeds Office; like women who have given birth, they focus on the outcome and banish memories of the process.
Transfer is one of those necessary evils that buyers and sellers set in motion and then hope to ignore. All they know is that it is carried out by a conveyancer, who marches to the drum of the Deeds Office and requires various – not insignificant – sums of money from time to time.
So, how does transfer work, and exactly how large are those sums of money?
Role of the conveyancer
The written agreement to purchase may be drawn up by an estate agent or an attorney, but once that agreement has been signed by both parties, the law calls for a specialised conveyancing attorney (in other words, one who specialises in property law and the registration and transfer of property) to take the matter through to registration of the transfer of ownership.
The first lesson of transfer is that, in the vast majority of cases, the seller appoints the conveyancing attorney, although the buyer pays his or her bill – an anomaly that is contractual rather than regulatory, according to James Phillipson, a director at law firm STBB Smith Tabata Buchanan Boyes in Cape Town.
There is nothing to stop the buyer negotiating with the seller to appoint his or her own attorney – for example, if he or she is buying a very high-priced property and can arrange a reduced fee, Phillipson says. However, in ordinary circumstances, the seller has the privilege of appointing the conveyancer, because the transfer process puts the seller at greater risk than the buyer. The buyer’s financial commitment is a fraction of the seller’s, and a buyer who gets early occupation of the property and pays occupational rent (interest) might actually want the transfer process to take as long as possible.
Buyers should note that transfer duty must be paid within six months of the date of sale, if they want to avoid penalties imposed by the government for late payment. So, if registration of transfer is planned for a date beyond six months, buyers will have to pay the transfer duty before the six-month period expires.
Experience is the first requirement of conveyancing attorneys, Adrian Goslett, chief executive officer of estate agency RE/MAX, says.
“While the transfer procedure is usually without incident and should be a smooth process, conveyancing is a complex series of tasks, so choosing an attorney who is well versed in the property transfer process will ensure that minor problems don’t become major issues.
“For the most part, the legal fees are based on the value of the property, so the amounts charged are fairly similar from one law firm to the next, so why not choose an attorney who specialises in property transfers and who has the required experience? Especially as this is one of the main influences on the length of time the transfer process takes,” he says.
The Law Society of South Africa issues conveyancing fees guidelines and recently reviewed them for the first time since 2009. The new guidelines increased bond registration fees by 20 percent, transfer fees by an average of 10 percent and certain other conveyancing costs by 10 percent, effective from March 1, 2013 (refer to the table, link at the end of the article).
Although the conveyancing attorney is the lynchpin of the transfer process, he or she is usually not the only lawyer involved. If mortgage bonds are part of the deal, the seller’s bank will appoint its own attorney to cancel the seller’s bond, and the buyer’s lender will appoint a bond attorney, who prepares the new bond agreement for registration. And yet another attorney enters the picture if the buyer wishes to place his or her deposit in the safekeeping of his or her own lawyer, as the buyer is entitled to do.
All these threads have to come together at the right time if transfer is to take place without a hitch. The conveyancer knows all about the contract and how to make it stick, but the estate agent knows the parties to the contract, their circumstances and – most importantly of all in many cases – the property.
Role of the estate agent
The estate agent can play a major role in facilitating a smooth transfer process, says Corinna Lowry, who has been selling million-rand homes for Seeff in Sandton, Johannesburg, for 12 years.
Agents in South Africa earn commission of between five and 7.5 percent, paid by the seller – even at the very lowest level, more than double the 1.5 percent that is typical in the United Kingdom.
Clearly, they are required to do a lot more than show houses and coax two parties into an agreement on the price. The signing of the offer to purchase by both parties is a big stepping-stone for the agent, and Lowry knows only too well that that is no time to take her eye off the ball.
“We can never, ever take anything for granted. We have to monitor the process, liaise with all concerned, keep the buyer and the seller informed of progress, and follow through at every stage,” Lowry says.
It takes just one missing link in the chain of events to threaten an otherwise good deal, she says.
One sale on which she worked on behalf of a wealthy overseas client almost fell apart over unpaid electricity bills. Utility bills must be fully paid up before transfer can take place, but when the conveyancing attorney required the documentary evidence, he hit a snag. Not only was there none, but further investigations revealed that there was no electricity meter on the property; it had been removed by the council as a penalty for unpaid bills, Lowry says.
“How do you get the bills paid in a situation like this? The council did eventually find a record of the meter being removed. The seller had to pay a large fee to have a new meter installed, and we joined the general queue for new meters. It took many visits – at one stage, every second day for around a month – and befriending one of the staff to remind the council that a sale was pending and the meter installation was urgent.
“When the meter was eventually installed, we had to go back twice to photograph the new meter to show the readings, before the council would estimate the costs for the rates clearance amount. In the end, transfer took a year! The buyer could have backed out at any time and the seller was frantic.
“It took an enormous amount of my time to resolve the problem and reassure the parties. The estate agent usually has more at stake than the lawyer and can put in that sort of legwork to hold things together. It also demonstrates that an experienced agent can add a lot of value if things go awry.”
Mechanics of transfer
Transfer is designed to satisfy the requirements of several pieces of legislation: the Financial Intelligence Centre Act (Fica), the Transfer Duty Act, the Value Added Tax Act and the Municipal Property Rates Act, Goslett says.
This is what should happen once both parties have signed the offer to purchase:
- The seller appoints the conveyancing attorney, who may be someone of his or her choosing, or someone recommended by the estate agent.
If the seller chooses the attorney, he or she may be expected to justify the choice. Lowry cites the example of a seller who wanted an inexperienced friend to benefit from his business and paid the price: 10 days later, when Lowry checked on how things were progressing, the attorney was blissfully ignorant of the documentation awaiting her attention.
“She did get going after that, but it is an important task of agents not to let things lie,” Lowry says.
However, if the conveyancer doesn’t perform, adds Phillipson, the seller has the right to switch … “always subject to the conveyancer being paid for work done so far – if any”.
He points out the important principle that, although the conveyancer works for the seller, he or she has a duty of care to the buyer, because the buyer is not represented.
“For example, if the seller fails to meet a suspensive agreement before registration, the conveyancer can decide to withhold some of the purchase price to ensure that the buyer is not prejudiced.
“On the other hand, in one of those exceptional cases when conflict arises between the parties, the conveyancer should advise the buyer to get independent legal advice. I would have to say, ‘I can’t advise you; I have to look after the seller’s interests first’.”
Phillipson also suggests that sellers choose conveyancers with local knowledge.
“If you are buying a property out of town, for example, choose an experienced local conveyancer, and preferably one who comes recommended by someone in the property business, such as the estate agent. Estate agents have a vested interest in ensuring the conveyancer is competent, but they should really recommend more than one person, so you have a choice.
“A local conveyancer also knows how to get things done … he can go and get the rates clearance certificate from the council himself, because he knows people. Most conveyancing processes can be done online, but a lot of people are not that familiar with technology and it may be more efficient to do it the old-fashioned way.”
- If a deposit is part of the deal, there will be a deadline for payment to a third party. In most cases, the deposit is held in the trust account of the conveyancing attorney, but the buyer may also entrust it to the estate agency or, if the seller agrees, to his or her own attorney.
Phillipson says that agreements of sale should provide that any monies invested on behalf of the buyer (deposit and/or balance of purchase price) are invested in an interest-bearing account for the benefit of the buyer, and an interest rate should be indicated (approximate, because interest rates do change).
Money not invested remains in the attorney’s business account, and all interest in attorney business accounts goes to the Attorneys Fidelity Fund managed by the relevant law society.
- Meanwhile, the conveyancer studies the contract, conducts a Deeds Office search to ensure he or she knows of any mortgage bonds or interdicts against the property and calls for the original title deed – from the bank if there is a mortgage bond on the property, or from the seller if it is not bonded.
Goslett says the buyer should prepare for the transfer by gathering the following documents:
* Proof of address (not older than three months);
* A certified copy of his or her identity document;
* Income tax number;
* Declaration in respect of marital and solvency status;
* If the buyer is selling a property to fund the purchase, particulars of the attorney who is transferring
that property for the buyer; and
* Particulars of the mortgage bond granted.
Sellers must have the following documents ready:
* Proof of address;
* Certified copy of identity document;
* Income tax number;
* Declaration of marital and solvency status;
* Particulars of bond holder (account number);
* Valid electrical wiring certificate;
* Valid electrical fencing compliance certificate (if relevant);
* Valid gas compliance certificate (if relevant);
* VAT declaration (if applicable);
* Beetle-free certificate (Cape provinces and KwaZulu-Natal only); and
* Valid plumbing certificate (Western Cape only).
Phillipson says both parties need to have their tax affairs in order to avoid the risk of substantial delays. “The parties should also be aware that they need to prepare the information and documents listed above shortly after signing the agreement of sale.
“Unnecessary delays occur when sellers and buyers do not provide the documents and information required by the conveyancers. The conveyancing process can’t actually start until such time as the conveyancer is in possession of Fica documents for both seller and purchaser.”
- If necessary, the buyer will have proceeded with a mortgage bond application as soon as the offer was accepted. The purchase agreement usually allows 20 to 30 days for confirmation of the bond.
Phillipson says: “It does take that long to get bond approval. Once the bond has been granted, the conveyancing attorney calls for guarantees for the balance of the purchase price, which may take up to 10 days. The bond attorney provides a guarantee of the amount of the loan, and the purchaser provides the guarantee for the rest.”
The bond attorney draws up the bond agreement, ensuring that all the bank’s requirements are met, and sees that it is signed by the buyer and that the buyer pays the costs (registration of the bond, the conveyancing fee, VAT and disbursements).
- Cancellation of the seller’s mortgage bond is done by the conveyancer and the cancellation attorney working on behalf of the bank. The latter furnishes the conveyancer with the amount still outstanding on the bond and the conveyancer ensures that the seller is in a position to pay that amount. He or she then draws up the necessary documents for the seller to sign and sends the documents and a guarantee for the outstanding amount to the bank. Ultimately, the conveyancer also pays the bank, once the transfer has been registered.
- Once the conveyancer has all the transfer documents together, he or she is ready to lodge them with the Deeds Office. The following documents are essential to every ordinary property registration:
* The original title deed. If this is not available, a duplicate of the original has to be
applied for before lodgement at the Deeds Office.
* A transfer duty receipt from the South African Revenue Service (SARS).
* The seller’s power of attorney given to the conveyancing attorney to perform the
* A rates clearance certificate from the council.
* The new deed of transfer signed by the conveyancer.
* If the property is sectional title, confirmation from the body corporate that the levies
have been paid. In some cases, there is also a condition in the title deed requiring the
consent of a homeowners’ association before transfer can take place.
If there is anything unusual about the property, other documents may be needed. For example, a subdivision of the property would call for proof of the subdivision, a copy of the drawing from the surveyor-general’s office and a Regulation 38 (of the Town Planning and Townships Ordinance 15 of 1986) certificate signed by the council showing that an application for services, electricity, water and sewerage has been approved.
The transfer documents are lodged with two sets of mortgage bond documents:
* Consent to mortgage bond cancellation and old bond documents; and
* Documents for the new mortgage.
- If the Deeds Office examiners find that everything is in order, the conveyancer is given notice a day in advance of registration, so that the fees due to the Deeds Office can be paid the same day.
- Registration usually takes about 10 working days from the date on which the transfer documents were lodged at the Deeds Office. At that point, the mortgage bonds are cancelled or registered and ownership of the property finally passes to the purchaser from the seller. The new title deed is delivered to the conveyancing attorney, who delivers it to the new mortgaging bank, or in the absence of a bond, to the new owner.
Registration is also the trigger for payment, and the conveyancer presents the payment guarantees and draws up the final accounts according to the agreement of sale. It is also time for the person who has been working on this transaction for longer than anyone – the estate agent – to be paid his or her commission.
What can go wrong
Although two months is the expected timescale for transfer, it is always possible to hit one of many snags along the way – some avoidable, but some not.
Phillipson says the unavoidable ones tend to be delays in the issuing of transfer duty receipts and rates clearance certificates, often because of system changes at SARS, or strikes or go-slows at city councils.
A common avoidable problem is title deeds going missing, Phillipson says.
“Both individuals and banks lose them, which can add a month to the transfer process, because the conveyancer has to apply for a copy.
“Many purchasers are under the misconception that transfer duty is payable with the other costs on registration of transfer.
In fact, the amount needed for transfer duty is required at least a month prior to registration of transfer.
“Another source of delays is suspensive conditions in contracts.
For example, undertakings by the seller to carry out certain repairs before transfer: a broken gate, a faulty pool filter, a broken window, and so on. Purchasers should ensure these things are done before transfer takes place; it is much more difficult to hold a seller to these conditions after registration has taken place. Damp-proofing is a particular problem, for example. It is easy to patch in the short term, but difficult to fix in the long term. We had a case recently in which the seller confirmed that damp had been dealt with, but it returned before transfer took place. Faulty showers and toilets are another typical issue. When a deal is imminent, sellers agree to these conditions lightly, full of good intentions and believing they will be simpler than they are.
“Here again, the estate agent can add a lot of value. The agent knows the house well and can be the eyes of the conveyancer while he is in an office dealing with the contractual side of things,” he says.
HOW TRANSFER DUTY IS CHARGED
Government levies a tax on property transactions called transfer duty, explains James Phillipson, a director of STBB Smith Tabata Buchanan Boyes. The tax is paid when a property is transferred into your name. When you buy vacant land, you pay transfer duty on the value of the land only, but if you buy an existing home, the transfer duty is based on the value of the land and the building.
Transfer duty is charged on a sliding scale depending on the price of the property, says Phillipson – the more expensive it is, the higher the transfer duty. (Since February 23, 2011, transfer duty for individuals, companies, close corporations and trusts, the same Transfer Duty scale is used, as follows):
Based on the Purchase Price of the Property: [and as at: 1 March 2020]
|Value of property||Rate|
|Up to R 1 000 000||0%|
|R1 000 001 – R1 375 000||3% of the value above R1 000 000
|R1 375 001 – R1 925 000||R11 250 + 6% of the value above R 1 375 000
|R1 925 001 – R2 475 000||R44 250 + 8% of the value above R 1 925 000
|R2 475 001 – R11 000 000||R88 250 +11% of the value above R2 475 000
|R11 000 001 and above||
+ 13% of the value exceeding|
R11 000 000
note: all of the amounts are added together...
As an example:
Total Transfer Duty on a Purchase Price of R 2 350 000 =
less tha R 1 000 000 = nil
from: R 1 000 001 – R 1 375 000 [is an amount of: R 375 000 @ 3%] = R 11 250
from: R 1 375 001 – R 1 925 000 [is an amount of: R 550 000 @ 6%] = R 33 000
from: R 1 925 000 – R 2 350 000 [is an amount of: R 425 000 @ 8%] = R 34 000
Total Transfer Duty on a Purchase Price of R 2 350 000 = R 78 250