Cancelling a property sale agreement

When a buyer signs an offer to purchase a property and the seller countersigns the offer, it becomes a binding agreement of sale.

What if one of the parties changes their mind? The buyer no longer wants to buy, or the seller no longer wants to sell. Is it possible to cancel the agreement of sale?

It all depends on the terms of the agreement and may have substantial financial implications. Basically, it’s important to study the agreement.

For example, a sales agreement automatically becomes void if the buyer is not able to raise finance. This usually happens early on, and the agreement automatically lapses. Once finance has been approved and a bank has issued the guarantee, there may be other suspensive conditions that, if not fulfilled, will cancel the agreement.

If one of the parties is in breach, for example, by not fulfilling a suspensive condition either in the time allocated or not being able to do so at all, this could be grounds to cancel the agreement. But it also depends on whether the agreement stipulates any remedies for such a situation.

On the other hand, new facts about the property may have come to the attention of the buyer that he feels the seller should have disclosed, which could put a spanner in the works. The seller may have knowingly concealed substantial defects, thinking he could rely on the voetstoots clause. But that isn’t always the case.

Of course, cancelling an agreement by mutual consent is always possible, depending on the situation. If the transfer process is already underway, it’s likely that the party who initiates the cancellation may be liable for legal and other fees.

Any one of these scenarios is possible, depending on the terms of the agreement:

Cooling-off period

There could be an agreed-upon cooling-off period stipulated in the agreement within which the buyer or seller could withdraw from the contract.

Breach

If either party breaches a specific clause of the agreement, the other party may be entitled to cancel the agreement.

Suspensive conditions

The agreement may have conditions that must be fulfilled by a certain date. If these conditions are not met, the buyer or seller may be entitled to cancel the agreement.

Rescission

Rescission of the sales agreement may be possible if there was fraud or misrepresentation by one of the parties, or if there was a mistake in the agreement.

Mutual agreement

The parties may agree to cancel the agreement by mutual consent. In this case, the terms of cancellation should be clearly agreed upon in writing and signed by both parties.

A party who wishes to cancel a sales agreement should consult a qualified legal professional who can explain their rights or obligations and advise on the best way forward.

Can foreigners buy property in South Africa?

The short answer is yes. Foreign buyers, whether they are natural persons or legal entities registered outside the country, can buy property in South Africa. Of course, they must comply with local legislation. For example, a foreign company or trust will be required to register locally according to the requirements set out in the Companies Act.

Properties may be sold to permanent resident holders who are non-citizens and to refugees with a permanent residence permit after they’ve lived in South Africa for five continuous years. But selling or letting property to illegal foreigners is, well, illegal.

Visa requirements

It needs to be clear whether a property is purchased for investment or whether the foreign national wants to stay in the property for a longer period. Often foreigners buy holiday homes where they stay for a few months and rent the property out as holiday accommodation for the rest of the year. Then they might need a visa or residence permit. The requirements are set out in the Immigration Act 13 of 2002.

Buying online

You don’t have to be in South Africa to buy a house. Non-residents can view a property on the internet and complete the transaction without ever setting foot in the country. Depending on the country of signature, the purchaser will need to have documents signed before a notary public or at a South African embassy. In some instances, the documents may have to be apostilled.

Exchange control

Exchange control regulations state that foreigners may only borrow up to 50% of the purchase price of a property locally. The balance must be paid in cash and may well be sourced from an international bank. The amount and purpose of foreign funds brought into South Africa must be reported to the Financial Surveillance Department of the South African Reserve Bank, which regulates and monitors cross-border transactions.

Foreign nationals who bought a holiday home and receive rental income will be liable for tax as a non-resident, and they’ll have to pay capital gains tax when they sell the property. Upon the sale of a property, the proceeds up to the amount that was introduced from a foreign source, plus the capital growth and interest, can be repatriated.

Don’t buy before you’ve received legal advice

If you’re a foreign national, consult a local conveyancing law firm that understands the regulatory requirements and has experience in assisting foreign nationals in purchasing property in South Africa before you sign the sales agreement.

What if the seller of a property dies before transfer?

When you buy a house quite a few things must happen at the appointed time for the transaction to run smoothly.

As a buyer, you would have either given notice at a rental property or sold the home where you live now. The evacuation date at your current home is likely to coincide with your occupation date of the new property. You would have cancelled services and booked the movers. If everything is going according to plan, the transaction should take about three months from signing of the sales agreement to transfer.

But what if the owner and seller of the new property dies before signing the transfer documents?

This is the legal position

The sales agreement remains in force when a seller dies. But the process comes to a halt until an executor for the deceased estate has been appointed by the Master of the High Court.

Once appointed, the executor must make sure that the estate is solvent and that the sale agreement is valid and binding. The executor must sign a new Power of Attorney, endorsed by the Master of the High Court, for the transferring attorneys so they can continue with the conveyancing process.

If the matter has already been lodged at the Deeds Office, the attorneys will need to resubmit the documents with the new Power of Attorney.

Do the heirs have a say?

The heirs only need to consent to the sale of a property if there is no valid sales agreement in place.

If there is a valid sales agreement and the heirs object to the sale, then the buyer may have to enforce the sales agreement in court.

How long until the property is transferred

Although the sales agreement remains in force, the seller’s death will stop the proceedings. It usually takes about four to eight weeks after the estate has been reported to the Master’s Office before the Master issues his Letters of Executorship. Once the executor has been appointed and the transfer process is underway again, there should be no further delays.

What if the buyer dies?

If the buyer financed the property via a mortgage, the bank would likely withdraw its guarantee as the buyer would no longer be able to repay the loan. Then the sale would be cancelled. Only in a cash transaction would the buyer’s estate be obliged to pay the purchase price and proceed with the transfer.

Our conveyancing practice can assist you with any queries in connection with your property transfer.

Selling or buying property – The conveyancing process

Miniature white house being past from one person to another.

Conveyancing is the means of legally transferring ownership of immovable property. It’s a complex and lengthy procedure of obtaining and preparing documents for submission to the Deeds Office to transfer a property from a seller to a buyer.

Many parties are part of this process:

  • Estate agent
  • Seller
  • Buyer
  • Financial institution
  • Transfer attorney: Transfers the property from seller to buyer, appointed by the seller
  • Bond attorney: Prepares the buyer’s bond documents, appointed by the bank that provides the mortgage to the buyer
  • Cancellation attorney: Cancels the seller’s bond, appointed by the bank that holds the seller’s mortgage

Plus, secondary parties that supply compliance certificates and clearance figures, such as tradesmen (electrician, plumber), the municipality or body corporate.

All these people must provide their services in good time for the transfer to take place. It’s important for a seller to instruct an experienced conveyancing attorney, who controls this process, to attend to the property transfer.

Here’s a breakdown of the process.

The sales agreement and other documents.

  • Buyer and seller sign the sales agreement.
  • The seller instructs a conveyancing attorney to deal with the transfer.
  • The buyer usually has an agreed period in which to get a loan. Once the buyer’s bond has been approved by a bank, the bank will instruct an attorney to attend to the bond registration.
  • If the seller has an existing bond over the property, that bank will instruct another attorney to attend to the bond cancellation. If there’s more than one existing bond, each bank will instruct its own attorney.
  • The seller provides electrical, plumbing, beetle, gas, and electric fence certificates (not all of these are required for every property).
  • The transferring attorney will obtain the title deed and the cancellation figures for the existing bond/s, rates clearance figures, levy figures, and a guarantee from the buyer’s bank for the purchase price (or the balance if the buyer paid a deposit).
  • Any suspensive conditions, for example, the prior sale of the buyer’s existing property, must be fulfilled before the transaction can continue.
  • When all conditions have been met, the buyer and seller each sign the transfer documents. The buyer also signs bond documents.

Payments

  • The buyer pays the transfer costs.
  • The seller pays rates and levies, including any advance payments.
  • The transfer attorney obtains transfer duty receipts from SARS, rates clearance certificates, and a levy certificate (if any) and makes all payments.

Lodgement

Once all documents have been signed, all certificates are in place, and costs have been paid, the documents are prepared for lodgement at the Deeds Office. All attorneys must lodge their documents on the same day.

The Deeds Office has 10 working days to examine the document. If all goes well, the attorneys will be advised that the matter is “up for registration”. If anything is not in order, the attorneys will have to amend the documents and relodge, and the Deeds Office will have another 10 working days to examine the documents.

Registration

Once the Deeds Office has completed its examination and everything is in order, the attorneys have five days to appear at the Deeds Office to register the deeds. Once the Registrar of Deeds has signed the documents, ownership of the property passes from the seller to the buyer.

  • The buyer’s new bond has been registered and the seller’s existing bond has been cancelled.
  • All guarantees have been paid, the estate agent has been paid their commission, and the seller has received the net proceeds.

The buyer can now move into his new home unless an occupation date other than “on transfer” has been agreed upon in the sales agreement.

This is not the end of the story

About three months later, the Deeds Office sends the original title deed and bond documents to the attorneys. They will forward the title deed to the bank that provided the mortgage, or to the owner if there is no bond. Copies of these documents are usually sent to both buyer and seller by their attorneys.

If you’re selling your property and would like further information, contact us. We understand the legislation governing immovable property and the complexities of the conveyancing process. You can rest assured that your property transactions are in good hands with us.