Essential legal considerations for buying or selling property

When approaching property transactions in South Africa, several distinct legal considerations are crucial for a smooth and legally sound process, says Antonie Goosen, founder and principal of Meridian Realty. According to Quay1 Regional Manager Christine Marsh, addressing these legal considerations helps buyers and sellers protect their interests and ensure a successful transaction.

Firstly, says Goosen, it's crucial to understand the South African property ownership system, which follows a dual system of land ownership: freehold and sectional title. Freehold properties grant ownership of both the land and the buildings on it.  With sectional title a unit consists of a part of a building or a separate building on a piece of land that has been converted into a sectional title scheme. The owner's ownership of the unit includes ownership of an undivided share in the common property. All the sections together with the common property comprise "the scheme". Therefore, understanding the differences between these types of ownership is essential when buying or selling property in South Africa.

"In terms of due diligence, verifying the property's title deed and confirming the seller's legal right to sell the property is paramount. This may involve conducting a thorough search at the Deeds Office to ensure that the property is free from any encumbrances or legal issues that could affect the sale. Property Practitioners and Conveyancers have access to systems where they can verify this information.  Additionally, it's crucial to check for compliance with local zoning laws and regulations to ensure that the property can be used for its intended purpose.

"When drafting the sale agreement, it's essential to ensure that it complies with the requirements of the Alienation of Land Act and the Consumer Protection Act. These laws govern the sale of immovable property and provide certain protections for both buyers and sellers. The sale agreement should clearly outline the terms of the sale, including the purchase price, payment terms, and any conditions that need to be met before the sale can be finalised.  One of the important requirements of the Act is that any sale of immovable property in South Africa must be contractually reduced to writing and signed by both the buyer and the seller.  It is therefore not possible to transfer property ownership rights in South Africa unless the contractual terms have been reduced to writing and signed by both parties," says Goosen.

Another interesting aspect of South African property law is that it is still a requirement that buyers and sellers sign the alienation documents in wet ink.  Digital signatures are not yet allowed in terms of current legislation. 

He says in South Africa, property transactions typically involve the services of a conveyancer, who is responsible for overseeing the transfer of ownership from the seller to the buyer. The conveyancer will prepare the necessary legal documents, including the transfer deed and any mortgage documents if applicable, and ensure that the transfer is registered with the Deeds Office.

"The Conveyancer will also request a rates clearance certificate from the local municipality to ensure that all outstanding municipal debts on the property have been settled before the buyer takes ownership. This helps avoid any surprises or liabilities after the sale has been finalised. Both buyers and sellers should be aware of the tax implications of the property transaction. This includes transfer duty, which is payable by the buyer on the purchase price of the property, as well as capital gains tax, which may be applicable if the property is sold for a profit. Seeking advice from a tax consultant or financial advisor can help ensure compliance with tax laws and minimise tax liabilities," says Goosen.

Lastly, says Goosen, a property condition report is legally significant for both buyers and sellers. "Sellers are obliged to disclose all material defects or issues with the property, as mandated by law. In fact, Property Practitioners must not accept any mandate to lease or sell a property unless they have been provided with a fully completed and signed disclosure form by the Seller.  This disclosure must be in writing and in the exact format as governed by law.  Buyers rely on these reports to make informed decisions about purchasing property. If latent defects are found post-purchase that were not disclosed, but where the buyer can prove that the Seller was aware of the defects at the time of concluding the agreement, then the buyers may have legal recourse against the Seller. However, if buyers proceed with the purchase after reviewing an accurate report, it signifies acceptance of the property's condition. Transparency in property reporting is crucial to mitigate legal risks and ensure a smooth transaction process in South Africa," says Goosen.

Marsh says when buying or selling a property, several key legal considerations must be taken into account to ensure a smooth and legally compliant transaction.

1. Clear Property Title Deed: One of the foremost legal considerations is ensuring that the property has a clear and marketable title. This means that the seller has the legal right to sell the property and that there are no disputes or claims against it. A conveyancer will typically conduct a title deed search to verify this.
2. Compliance with FICA Requirements: The Financial Intelligence Centre Act (FICA) mandates that both buyers and sellers provide proof of identity and address to prevent money laundering and other illegal activities. Ensuring FICA compliance is a critical step in the property transaction process.
3. Sale Agreement: A comprehensive sale agreement is essential. This legally binding document outlines the terms and conditions of the sale, including the purchase price, deposit amount, transfer duty, and any special conditions. Both parties must fully understand and agree to the terms before signing.
4. Due Diligence on Municipal Rates and Taxes: It is crucial to check that all municipal rates and taxes are up to date. Any outstanding amounts must be settled before the transfer of ownership can take place. The seller is responsible for ensuring that these payments are current.
5. Property Encumbrances: Encumbrances, also known as liens, are claims or liabilities attached to the property, such as mortgages or unpaid taxes. It's essential to verify that there are no unresolved encumbrances that could affect the transfer of ownership.