Buying a property is one of the most exciting and stressful undertakings an individual can undertake, especially for a first-time homebuyer. This is even more so due to the uncertain economic times we face in South Africa today.
The transfer of property is a long process beset with legalities, and the process can easily become plagued with delays due to the necessity of coordination of the many role players involved. Most Purchasers and Sellers are ignorant about the reasons for the delays in such a process, which can cause confusion and frustration and quickly put a damper on what should have been an exciting event.
This article aims to shed light on the most common reasons for the delay in a property transaction and how this already convoluted process is further influenced by the lingering Covid-19 pandemic.
- DELAYS CAUSED BY THE SELLER AND THE PURCHASER
- The first and most crucial step to any property transaction is the signing of the Deed of Sale. The Deed of Sale usually sets the tone for the entire transaction, especially where there are two or more linked transactions (such as the sale of a Purchaser’s existing property). If one of the transactions is delayed, all subsequent transactions will be delayed. Some transactions can be linked to several further property sales, which require a fine balance and cooperation between various attorneys and other role players.
- Where a Deed of Sale is riddled with inaccuracies or incomplete information, be it due to the fault of the estate agent, the Purchaser or the Seller, it will result in major delays. The Deed of Sale is essential when applying for a bond and the Purchaser may fail to obtain financing due to issues in the Deed of Sale that could have been avoided. Should the bank reject the bond application due to such inaccuracies, the amendment of the Deed of Sale will be required. It is therefore essential that the Deed of Sale be drafted accurately and with the necessary care and diligence by a professional property practitioner or an attorney specializing in property transactions.
- A delay can further be caused by the Purchaser or Seller failing to provide the required personal information, identity documentation or valid FICA documents to the transferring and bond attorneys. Failure by the parties to attend to the signature of the relevant transfer and bond documentation, when requested to do so by the attorneys, can also cause further delays. Due to the Covid-19 pandemic, recent restrictions have been implemented globally to protect the health of individuals, such as the concept of social distancing. These restrictions have, in effect, made it a lot more difficult to arrange for a consultation with parties for the signing of transfer and bond documents, due to the fear of contracting the virus, or parties having to self-isolate for a time after contracting the virus.
- The Seller must provide the transferring attorneys with the original title deed of the property to be transferred unless the property is subject to a mortgage bond, in which case the title deed is generally held in safe custody by the bondholder. Should the title deed be lost or have been destroyed and it cannot be provided to the transferring attorneys, an application will have to be lodged at the Deeds Office for a duplicate title deed. This process is costly and will cause a delay of 2 to 3 weeks (further to any other possible delays).
- CASH SHORTFALL
- Cash shortfalls are becoming a big hindrance to the seamless transfer of a property. This is due to the increase in the legal costs for the purchasing and selling of property, as well as Transfer Duty and other economic circumstances. Purchasers are unaware of all the costs involved in the purchase of a property and therefore do not have the cash funds available to make payment thereof. There can also be a cash shortfall on the side of Seller if the selling price of the property is insufficient to settle the outstanding bond on the property.
- A delay in the process can be expected if the Purchaser fails to pay the deposit amount required or fails to obtain approval for a 100% bond, due to the bank’s lending criteria that changes from time to time. More commonly the problem is that the Purchaser does not have the funds readily available for transfer and bond registration costs, which can create further delays in the transaction.
- A conveyancer will not be able to lodge a transaction for registration in the absence of a Transfer Duty receipt. The transferring attorneys therefore require the transfer costs (which usually also contains the Transfer Duty amount) to pay the Transfer Duty (or VAT, whichever one is applicable) and obtain a Transfer Duty receipt from SARS.
- The Seller, on the other hand, is required to give 90 days’ notice of cancellation of the existing bond to the bond holder. When a Seller neglects, at the outset, to provide such notice to their bank, they may cause the transaction to be delayed with 3 months to avoid unbudgeted cancellation penalties.
- EXTERNAL ROLE PLAYERS
- Transferring attorneys are dependent on external role players, such as SARS, local municipalities and body corporates, to have a property transaction registered.
- Obtaining rates clearance figures from local municipalities seem to be the biggest obstacle that transferring attorneys face. The problem is exacerbated by staff not being able to work remotely, coupled with limited staff permitted at the office at any given time due to the Covid-19 restrictions.
- Failure by the Seller to pay the required clearance figures due to municipalities, or the Seller already being in arrears at the municipality and does not have the funds available to make a payment, can cause a transaction to come to a complete standstill.
- When the attorneys are finally in possession of a clearance certificate, the clearance certificate is only valid for a period of 60 days from the date of issue. One of the issues that came about due to the Covid-19 pandemic, was that many transferring attorneys received clearance certificates from the municipalities prior to the Alert Level 5 lockdown, which meant that the certificates had expired by the time the Deeds Offices were re-opened. This caused frustrating delays for all parties involved as new certificates had to be obtained.
- Similarly, the transferring attorneys upon transfer require levy clearance certificates for properties forming part of body corporates or homeowners associations, that prove that the levies have been paid up to date. The process is tedious and a lack of funds by the Seller can cause unnecessary delays to an already frustrating process.
- It is the Seller’s responsibility to provide the Purchaser with an Electrical Compliance Certificate and, in some cases, a gas or plumbing certificate. These documents can take time to be issued, as in many instances rectifications and repairs must be done before the certificate can be issued and produced to the transferring attorneys. For service providers to do their work they need access to the property for the necessary inspection and repairs, which can easily be refused due to the fear of contracting Covid-19.
- DELAYS BY BANKS AND DEEDS OFFICES
- The bond attorneys are appointed from the bank’s panel to see to the bond registration. The bond attorneys must coordinate with the transferring and bond cancellation attorneys to ensure the simultaneous lodgement of all the necessary documents at the Deeds Office. Once the documents are lodged at the Deeds Office, an internal process is followed for the inspection of the documents.
- Where delays are experienced by any of the three attorneys involved, be it due to the municipality in obtaining clearance figures or a lost or destroyed original bond or title deed, or any other delay, it will have a knock-on effect and slow down the entire transaction process.
- Banks may impose additional requirements which have to be complied with before providing final approval to proceed with the registration of the bond. This may include producing building plans, providing proof of sufficient insurance in the case of sectional title schemes, or even that the purchaser has to obtain life insurance.
- The process for the application of a bond is very stringent and due to most staff members working from home to ensure compliance with the social distancing policies, turn-around times from the banks are also slower than usual.
- Where the original mortgage bond has been lost or destroyed at the hands of the bank, the same process as when a title deed has been lost (as discussed under point 1 above) will be followed, causing a huge delay in the process.
- The internal process followed at the Deeds Office in the past usually took between 10 to 15 working days. However, due to backlogs from the Deeds Offices being forced to close, and some Deeds Offices forced to close again at some later stage to decontaminate their buildings due to positive Covid-19 cases, the process can now take a lot longer. The various circumstances have created major delays in the inspection and registration processes, and we have noticed that as a rule of thumb the process now takes between 3 to 4 weeks from lodgement to registration.
- IN CONCLUSION – WHAT CAN BE DONE TO AVOID THESE DELAYS?
- A few simple things can be done to avoid unnecessary delays in the transfer process and all the role players need to do their part to allow for a seamless transfer process. Sellers should ensure that their rates and taxes and levy accounts are up to date. A further step that a Seller can take, when he/she seriously considering selling his/her property, is to proceed to give notice to his/her bank that he/she is intending to sell his/her property, to avoid unnecessary delays or unbudgeted cancellation penalties.
- The Seller and the Purchaser can familiarize themselves with the contractual obligations of the Deed of Sale to avoid confusion and potential delays in the sale process. It is also their duty to peruse the Deed of Sale for any inaccuracies and to provide the requesting party with all necessary FICA documentation as soon as possible.
- This article only provides a summary of the delays a property transaction might be faced with. There are many further unforeseen circumstances that may arise, such as the death or insolvency of either of the parties, where further consents and processes will be required in the finalisation of a transfer.
- It is the duty of all parties involved, especially that of the estate agents and conveyancers, to react strategically to this Covid-19 pandemic, both in the short term as well as long term, and to circumvent any unnecessary delays by informing clients of the process to be followed and what exactly is expected of them for the smooth running of the process.
The content of this article is to provide general guidance and understanding on the subject matter and should not be construed as providing full legal advice on the topic. Detailed specialist advice should be sought for specific situations.
Property and Commercial Law
Phone: 012 361 9823