Real Estate

1. What is meant by the term “real estate”?

“Real estate” is an alternative term for “land”, “fixed property” and “immovable property”. Other terms used are “farm” for agricultural land, “erf” and “erven” for rural land and “plot” or “smallholding” for pieces of land larger than erven but smaller than farms, normally situated between rural land in towns and cities and agricultural land.

2. What are the different type of ownership or rights in real estate?

• Ownership in real estate gives the owner the greatest rights over his property, including the right to use it to its full potential; dispose of it; use it for a security for a loan; and exclude its use by others;
• A lease is a contract whereby real estate is let to or hired by a person other than the owner for the specified period of time. A lease for ten years or more is a “long lease” and must be registered in the deeds registry;
• A servitude is a right vested in one person of deriving some advantage from another person’s land. There are two types, namely: praedial which is a servitude operating in favour of the owner of a piece of real estate and which cannot be separated from that land; and personal – which is a servitude in favour of a person or body who needs not own any land.

3. What is included in the ownership rights of an owner of real estate?

In terms of our common law, the registered owner of real estate is also the owner of all the buildings and other fixed improvements situated on the real estate. This is why only the real estate itself is described in the deed of transfer (title deed). In other words the buildings on the real estate could not be owned separately from the real estate itself. This was changed in 1971 when the first Sectional Title Act was promulgated. Since then it has become possible to separate ownership of a building or portion of a building from the surface real estate. More about sectional titles later.

Full ownership in real estate is, however, not unlimited. Very often conditions which limit the exercise of his rights by the owner are registered against his title, in other words they appear in the title deed itself. Examples of these in rural areas are building restrictions, limits regarding use of the real estate (for example where an erf may only be used for residential purposes and not for business purposes), a restriction on subdivision, servitudes in favour of a municipality or other entities etc.

4. Which Acts are applicable to real estate and dealings in real estate?

The main Acts applicable to real estate are the Alienation of Land Act 1981, the Deeds Registries’ Act 1937, the Sectional Titles Act 1986 and the Subdivision of Agricultural Land Act 1970. Apart from legislation we also have our common law which is based on Roman-Dutch and English Law principles which still play a very important role in our law relating to real estate.

5. How is ownership in real estate determined or proved?

South Africa has a sophisticated cadastral system at its disposal which can be regarded as one of the best and most reliable systems of defining the boundaries of properties and the positions of rights affecting those properties anywhere in the world. This was brought about by a history of land surveying which originated as long ago as 1657 and culminated in the Land Survey Act of 1927. The individual land surveyors’ field and office records are examined, and, after approval, are preserved in the Surveyor-General’s office as evidence for any future boundary re-location. All surveys also have to be connected to the National Control Survey System as this was extended across the country. That the 1927 Act was a well thought out document, based on sound experience, is evident, as it was used with only minor amendments for sixty years until it was replaced by a new, but substantially similar Land Survey Act 8 of 1977.

What this means is that all real estate is depicted on diagrams or maps and stored in the records of the Surveyor-General. The deed of transfer (title deed) of a piece of real estate contains the full description with reference to the location of the original diagram and stating the exact size thereof. This document is registered in one of the ten deeds registries across the country and is regarded as evidence of the ownership of the piece of real estate described therein. The full names, identity number and marital status of the owner appears in the title deed. It can also be used to trace the full history of the original acquisition and subsequent changes of ownership of that particular piece of real estate.

Other more limited types of rights to real estate are contained in similar documents such as notarial deeds of long leases, notarial rights of servitude, notarial real rights, mortgage bonds, etc. which are also registered in the deeds registries. The records of the deeds registries are public records and therefore open for inspection by anyone.

6. What information is contained in a deed of transfer (title deed) of a piece of real estate?

Records of the deeds registries are electronically updated every time a deed is registered in relation to a person, company or property. The following information appears in a deed of transfer:

• Full names of the individual or legal entity (such as a company);
• The identity number and marital status of an individual or the registration number of the legal entity;
• The property description with reference to the township or district and province where it is situated or to which sectional title scheme it belongs;
• The size of the erf, farm, smallholding or section;
• All the conditions of title applicable to the real estate which could include provisions regarding the land use rights;
• Encumbrances such as mortgage bonds, real rights or servitudes registered against the title of the property.

7. What is a mortgage bond?

When the owner of real estate wishes to put up his real estate as security for a loan from a money lender, such as a bank, he registers a mortgage bond against that real estate in favour of the money lender. This means that, should he fail to repay the loan, the money lender could take action against him, obtain judgement, attach the real estate and put it up for sale at an auction. Assuming that the money lender holds the first mortgage bond (assuming that there are more than one mortgage bond registered) the money lender as first bond holder is entitled to the proceeds of the sale of the property up to the full amount due and payable to it by the owner and only when this money lender’s claim is satisfied, will other creditors of the owner be entitled to share in such proceeds.

8. What is the procedure and what documents are required in the sale and the transfer of real estate?

Parties involved in real estate transactions often complain about the time it takes to finalise everything. It must be remembered that no two transactions are exactly the same and there are many factors beyond the control of the respective attorneys that cause delays in the final conclusion of the process.

Deed of sale

The first step in the process is the conclusion of the sale of the property by the signing of a written deed of sale. The Alienation of Land Act 1981 provides that the sale of real estate is only valid if it is contained in a written contract signed by the seller and the purchaser. In terms of our common law the contract must at least contain a full description of the parties, a proper description of the property sold, the purchase price and the manner of payment of the purchase price. Usually these deeds of sale contain many more important provisions.

Estate agent

In the majority of cases an owner who wishes to sell his property would appoint an estate agent to act on his behalf to find a buyer. Since he is appointed by the seller, the seller is liable for the agent’s commission once the agent has fulfilled his mandate i.e. found a willing and able buyer for the property. The seller would indicate to his agent the price for which he is prepared to sell. The agent will add his commission to the seller’s asking price which has the practical effect of the purchaser actually paying the estate agent’s commission. Estate agents use their own standard contracts which are always referred to as “offer to purchase” but this offer is invariably a full deed of sale containing all the necessary provisions but is initially signed by the prospective purchaser only. When the seller accepts the offer by signing the document, the result is a deed of sale signed by both parties, as required by the Alienation of Land Act 1981.

Loan – suspensive condition

In most cases the purchaser requires a loan in order to pay the purchase price or a large portion thereof and therefore the deed of sale is often made subject to the purchaser obtaining such a loan before a specified date. Should he fail to do so, the deed of sale will lapse. Where a loan is obtained, the mortgage bond being the money lender’s security, will be registered by the purchaser in favour of the money lender simultaneously with registration of transfer of the property into the name of the purchaser.

Transferring attorney

The attorney who is responsible for the registration of transfer of ownership of the property from the seller to the purchaser is called the transferring attorney and is usually appointed or nominated by the seller. If the purchaser requires a loan for payment of the purchase price, the money lender, usually a bank, will instruct their attorneys to attend to the registration of the mortgage bond.

Cancellation of existing bond

If, as is usually the case, there is an existing bond registered over the property, i.e. when the seller bought the property and also required a loan and registered a bond in favour of his money lender, the money lender in the first transaction will in turn instruct their attorneys to attend to the cancellation of the existing bond. In many instances there could therefore be three different firms of attorneys involved in the registration process of a single real estate transaction.

Initial steps

On receipt of his instructions the transferring attorney will do a search in respect of the property in the records of the deeds registry in order to verify the correctness of all relevant facts such as who the present owner is, the description of the property, relevant title deed conditions and possible problems, such as the property being attached by a creditor in execution of a judgement debt against the owner. If any of the parties is a company or close corporation, the transferring attorney will also search the company records to verify the relevant facts regarding the company or close corporation.

A so-called FICA (Financial Intelligence Centre Act) exercise must also be carried out in respect of both parties to the agreement, as a result of which the following documents will usually be required from the parties:

• Copies of identity documents;
• Proof of physical address;
• Income tax and VAT registration numbers;
• Marriage certificates;
• Antenuptial contracts;
• Divorce Orders;
• In the case of a company or close corporation, details of directors and shareholders or members, as well as the incorporation documents and the trust deed and Letters of Authority in the case of trusts.

The transferring attorney will also need the original existing title deed of the property and this will be obtained either from the seller or in the case where the seller also obtained a loan when he purchased the property from the relevant bank. In the case of an existing bond, the transferring attorney will have to establish the settlement figure for the existing bond since the particular bank will require payment of the outstanding balance on the loan or a guarantee for payment thereof on date of registration.

On receipt of verification of the abovementioned documents and information, the transferring attorney will take the following steps:

Rates clearance certificate

The law requires that change of ownership of real estate may not be registered unless a certificate has been lodged with the deeds office certifying that all rates, taxes and services payable to the municipality in respect of the previous two years, have been paid. This certificate must have an expiry date at least two months after date of issue with the result that certain payments in advance will have to be made. The transferring attorney will request the relevant amounts payable from the local authority and will obtain the necessary funds from the seller and in certain instances the purchaser as well, will then pay this amount to the municipality and will be issued with the required rates clearance certificate.

While this whole process took only about two to four days in the past, it has lately become one of the factors causing the longest delays in the registration process. All depends on the efficiency of the particular local authority.

Transfer duty receipt

Transfer duty is a tax levied by the State on every transfer of real estate and is payable by the purchaser. A receipt from SARS that the transfer duty on the particular transaction has been paid, must be lodged at the Deeds Office together with the other registration documents. As of late the application for the issue of the certificate must contain the Income Tax and VAT registration numbers of not only the parties to the transaction, but also the estate agent involved in the sale. SARS will then investigate the tax situation in respect of all these parties and the issue of the receipt is often delayed if any of the parties has any problems, such as outstanding amounts owing to SARS, which first have to be resolved. Consequently this step in the process often causes delays.

Certificates of compliance

Although not strictly a pre-requisite for the transfer of the real estate, the law requires an owner of real estate to be in possession of a certificate of compliance for the electrical system of the buildings and, where applicable, the electrification system of the boundary fences. The deed of sale will usually provide for the obtaining of the certificates and this will often be attended to by the transferring attorney.

Levy clearance certificate

In the case of a sectional title property, the transferring attorney must obtain from the Body Corporate or its committee or its managing agent, a clearance certificate certifying that all levies payable by the owner are fully paid up.

Transfer documents

As soon as he is in possession of the required information, the transferring attorney will prepare the necessary transfer documents for signature by the seller and the purchaser.

The documents that the seller must sign are the power of attorney to pass transfer, transfer duty declarations, solvency, marital and FICA affidavits and resolutions (in the case of legal entities).

The purchaser must sign the transfer duty declarations, solvency, marital and FICA affidavits and resolutions (in the case of legal entities), power of attorney to register mortgage bond and related documents.

Preparation for lodgement

After the above documents have been signed by the purchaser and seller, the transferring attorney will wait for (and follow up where necessary) the following documents. This could be a long wait in the event of delays, which nowadays is more often the rule than the exception:

• Rates clearance certificate from the local authority
• Levies clearance certificate in the case of a sectional title unit
• Guarantees for the purchase price from financial institutions
• Original title deed form owner or existing bondholder
• Consent to cancellation of the existing bond
• Other relevant consents, depending on title conditions
• Transfer duty receipt (or exemption)

Lodgement at Deeds Office

The documents for the transfer of the property, the cancellation of the existing mortgage bond and the registration of the new mortgage bond are linked together and are lodged at the Deeds Office simultaneously.

Examination and preparation

It takes about a week for the examiners at the Deeds Office to examine the documents and raise notes of corrections that may have to be made. In the case of a serious problem the entire set of documents is rejected and will have to be lodged again.

Registration

If the documents are in order, they are registered. The conveyancers and the designated Deeds Office officials sign the documents in a special room in the Deeds Office and thereafter the Deeds Office staff electronically update their records by scanning all the documents in order to record all the transactions registered on that particular day.

Procedure after registration

The transferring attorney and the attorneys who attended to the cancellation of the existing bond and the registration of the new bond, will advise their respective clients and then all required payments will be made and the transferring attorney will prepare his final accounts to the purchaser and seller.

Delivery of registered documents

A week or so after registration the Deeds Office will return the registered documents to the relevant attorneys and the transferring attorney will send the new title deed and mortgage bond to the relevant financial institution for safe custody. If there is no mortgage bond, the title deed will be handed or sent to the purchaser.