Cost related to the sale and purchase of property

Buying a property, especially if it is your first purchase, can be a very exciting but daunting endeavour. Quite often Purchasers and Sellers are not fully aware of the financial implications of such a purchase and are caught off guard when receiving the attorney’s statement of account. When considering to purchase or sell a property, one must not only take the actual purchase price into account, but also several other related expenses which must be paid prior to the successful registration of transfer.

In terms of Section 35(7) of the Legal Practice Act, Act 28 of 2014 (hereinafter referred to as “the LPA”), we as legal practitioners are required to provide our clients with a written cost estimate notice when first receiving an instruction, specifying all particulars relating to the envisaged costs of the legal services to be rendered. This includes the likely financial implications consisting of fees, charges, disbursements and other costs. Not only will a better understanding of the costs give the parties a better understanding of the procedure, but it will also allow them to adjust their expectations accordingly.

This article aims to provide our readers with a breakdown of these financial implications as well as an indication for whose account each expense will be. Let us look at a practical example: the standard sale of a residential property situated in the Western Cape between a Seller and a Purchaser, both being natural persons. We will assume for our current purposes that the Seller mortgaged the property when first purchasing it and that the new Purchaser will also be taking out a mortgage loan to finance his purchase. All of these transactions will be dealt with simultaneously

From the sellers pocket

A. To the bond cancellation attorney:

In the event that a bond has been registered over the property, the bond needs to be settled and cancelled in order to transfer the property free from any encumbrances. The costs associated with the cancellation of the bond includes:

1. Conveyancing fees: These costs refer to the professional fees and expenses incurred by the conveyancer appointed by the bank or other financial institution in order to ensure successful cancellation of the bond. The conveyancer’s fee is calculated according to the prescribed Fee Guidelines issued by the Law Society of South Africa and are based on the value of the property.
2. Sundry disbursements
3. Deeds Office fees: A fee is charged by the Deeds Office for the cancellation of the bond.
4. Vendor fees: These are the fees paid by the conveyancer to generate bond documents and facilitate communication with the bank. This amount will be included in the bond costs.

One must ascertain from the financial institution what their specific rules and requirements are, for example whether they will charge penalty interest should the bond be cancelled early or notice of such cancellation is not given timeously. These costs may vary from one institution to another.

B. To the transfer attorney:

1. Estate Agent’s Commission: This amount will usually be a percentage of the purchase price or as otherwise agreed to between the Seller and the Estate Agent and will be provided for in the Deed of Sale. Standard practice is for the attorney to pay the amount to which the estate agent is entitled from the purchase price received from the Purchaser upon finalising the accounts after successful registration.
2. FICA verification fees: We as legal practitioners are required to verify both parties in accordance with Financial Intelligence Centre Act, Act 38 of 2001 (“FICA”). The attorney will charge a fee for such verification.
3. Compliance certificates

Unless otherwise agreed to and provided for in the Deed of Sale, the Seller will be liable for the costs of obtaining the following:

• Electrical Compliance Certificate (only valid for 2 years);
• Beetle-free Certificate;
• Gas installation Certificate of Conformity;
• Electrical Fence System Compliance Certificate;
• Plumbing Certificate of Compliance.

The necessity of each certificate will depend on the local authority’s requirements, as well as whether or not the property contains certain fixtures. Should there be no gas appliances or electric fencing on the property, these certificates will not be required. The certificates must be provided by registered contractors/installers.

It is also important to note that, should the professional conducting the inspection find that there are damages and/or faults that need to be remedied prior to providing the certificate, the Seller will be responsible for the payment of such remedial work.

4. Pro rata rates, taxes and levies: In order to transfer the property, a Rates Clearance Certificate issued by the local authority, stating that all rates and taxes are fully paid on date of transfer, and a Levy Clearance Certificate issued by the Homeowners- or Property Owners Association (“HOA/POA”) or Body Corporate, confirming that all levies are fully paid, needs to be lodged as supporting documentation at the Deeds Office.

In most cases, the local authority will require that the Seller pays the rates and taxes a few months in advance, also known as pro rata rates and taxes. If the property is registered in the name of the Purchaser in a shorter time period than estimated, the Seller will be refunded with the excess amount. Similarly, if the property is situated in an estate or sectional title scheme, the HOA/POA or Body Corporate will require the Seller to pay levies in advance prior to issuing the Levy Clearance Certificate. Both of these advance payments are to ensure that their costs are covered during the transfer procedure until the transfer actually takes place.

5. HOA/POA Consent: Most properties situated in an estate or complex, will be subject to a condition that it may not be transferred without the consent of the HOA/POA or Body Corporate. Such consent must be obtained prior to transfer and the HOA/POA or Body Corporate is allowed to charge a fee for providing such consent.

From the Purchaser’s pocket:

A.  To the transfer attorney:

1. Transfer duty or Value Added Tax (“VAT”): The payment of transfer duty is regulated by the Transfer Duty Act, Act 40 of 1949 (“the Transfer Duty Act”), and levied on the purchase price paid or the value of the property concerned. Upon payment, the Receiver of Revenue will issue a transfer duty receipt which must be lodged as supporting documentation to the Deed of Transfer at the Deeds office. If the Seller is registered as a VAT vendor, VAT will be payable in terms of the Value Added Tax Act, Act 89 of 1991, instead of transfer duty. As a general rule, the purchase price must be VAT inclusive unless the Deed of Sale specifically provides otherwise.
2. Conveyancing fees (same as above)
3. Deeds Office fees (same as above)
4. Deeds Office Searches: In order to draft the transfer documents, the conveyancer will have to carry out electronic searches on the property concerned. For each search done, a fee is charged.
5. Rates and Taxes: With effect from the date of transfer, the purchaser will be liable for the municipal rates and taxes. Should the property be situated in an estate or sectional title scheme, the levies payable to the HOA/POA or Body Corporate will also be payable by the Purchaser from date of transfer.
6. FICA verification (same as above)
7. Occupational interest: Should occupation be taken by the Purchaser prior to the date of registration, he/she will be liable to pay occupational interest to the Seller. This amount will be paid to the transfer attorney, who will include it in the amount paid to the Seller upon finalisation of the transaction, or to the estate agent or Seller directly. This expense must be provided for in the Deed of Sale and can be applied by the Purchaser as well, should the Seller wish to stay on in the property after date of registration.

B. To the bond registration attorney:

In the event that the Purchaser is not in a position to pay the purchase price in cash, the first port of call will be to apply for a mortgage loan from a bank or other financial institution. Should this be the situation, the bank will require that a mortgage bond be registered over the property and they will appoint an attorney to tend to this registration. The following expenses can be expected:

1. Conveyancing fees (same as above)
2. Sundry disbursements (same as above)
3. Deeds Office fees (same as above)
4. Vendor fees (same as above)
5. Administration fee: Some financial institutions require payment of administration charges and valuation fees prior to date of registration of transfer. Make sure to ascertain whether it is applicable to your transaction.

This is not an all-inclusive list and other expenses might arise, depending on the specific circumstances of your transaction (ie capital gains tax, missing title deeds, insurance etc.) and the parties to the transaction may also decide to agree otherwise.

Be that as it may, one must always be mindful before signing a Deed of Sale. You are welcome to consult with one of the experts at Faure & Faure Inc. for guidance, if necessary. Try to prevent the situation where you realise that you won’t be able to make the ends meet after the contract has already been concluded, forcing you to cancel the agreement and bear the risk of being held liable for damages because of breach of contract.

It is of vital importance that each party to the transaction understands exactly what they are getting themselves into because as with all things, ignorantia juris non excusat (ignorance of the law is no excuse.)

Article written by Inge Johnson, Attorney at Faure & Faure Inc.

For more information email contact@faurefaure.co.za.