Typically, when purchasing immovable property (“the property”), the bank or other financial institution lends money to the purchaser on security of a mortgage bond to be registered over the property, for the purpose of financing the purchase price of the property.
The law does not preclude the purchaser from purchasing property without obtaining financial assistance from the bank or other financial institution. The Alienation of Land Act 68 of 1981 (“the Act”) is applicable to land purchased for residential purposes and it regulates instalment sale agreements (“the agreement”) whereby the property is sold against payment by the purchaser to the seller in two or more instalments over a period exceeding one year.
The Act places the onus of recording the agreement with the Registrar of Deeds at the instance of the seller. Recording the agreement with the Registrar of Deeds has the effect of the agreement being registered and the title deed being endorsed so as to reflect that an agreement has been concluded between the seller and the purchaser.
The question one may ask is why is it important for the agreement to be recorded with the Registrar of Deeds? The recording of the agreement provides protection to the purchaser in various respects, in particular, it prevents the seller from alienating the property to someone else. The Registrar of Deeds will accordingly not permit transfer of the property to any person other than seller.
The seller is prohibited from receiving instalments from the purchaser without the agreement having been recorded with the Registrar of Deeds within the 90 day period stipulated by the Act.
Payments in terms of an agreement concluded under the Act are not due or payable by the purchaser until the agreement has been recorded with the Registrar of Deeds. The Act provides for other requirements for a valid instalment sale agreement to be concluded, however for the purposes of this article, focus will be on when payment becomes due and payable under the agreement.
The Act has a direct effect on the terms of the agreement regarding when the instalments are due and payable to the seller. Should the seller not record the agreement with the Registrar of Deeds within the stipulated period as was the case in Amardian and Others v Registrar of Deeds and Others  ZACC, the instalments will not be due and payable to the seller prior to the agreement being recorded with the Registrar of Deeds.
Contrary to what was submitted by the seller, the Constitutional Court determined that:
- The effect of the late recording of the agreement with the Registrar of Deeds does not constitute a suspensive condition which upon being fulfilled becomes unconditional.
- Upon the late recording of the agreement with the Registrar of Deeds all the outstanding amounts prior to the agreement being recorded do not become immediately payable retroactively.
- If the purchaser was in arrears under the agreement prior to it being recorded, the agreement would not be open to cancellation by the seller as the agreement would not have been activated prior to it being recorded with the Registrar of Deeds, consequently, no amounts would have accrued under the agreement.
- The seller cannot contend that payment was due under the agreement despite payment not being payable as a result of the agreement having not been recorded with the Registrar of Deeds.
The correct approach to follow is that a debt becomes due and payable automatically upon the conclusion of the agreement, however where there is a statutory requirement that an agreement must be recorded, payments become due and payable upon the agreement being recorded.
The seller must ensure that the purchaser is aware of the date that the agreement was recorded with the Registrar of Deeds as this will be the date when instalments become due and payable to the seller. The purchaser is not liable to pay for a debt which he was not aware was due and payable.
Moreover, in circumstances where the purchaser makes irregular payments in terms of the agreement, the seller is only entitled to exercise the remedy of cancellation once the agreement has been recorded with the Registrar of Deeds.
The Constitutional Court has reaffirmed its stance in previous judgements in that a debt becomes due and payable when it is immediately claimable and recoverable. This will often coincide with the date upon which the debt arose, however this is not always so, especially in property transactions.
Thus, the recent Constitutional Court judgement enunciates the following principles regarding instalment agreements:
- The seller has an obligation to record the agreement with the Registrar of Deeds within the period stipulated by the Act.
- The instalments only become due and payable upon the purchaser gaining knowledge that the agreement has been recorded with the Registrar of Deeds.
- If the agreement has been recorded late by the seller, the seller cannot retroactively claim payment of the instalments.
It is unlawful for the seller to exercise the remedy of cancellation when the purchaser has fallen into arrears under an agreement which was not recorded with the Registrar of Deeds.
Nolwazi Mathebula-Candidate Attorney
Article reviewed by Sifiso Msomi- Partner at Shepstone and Wylie Attorneys, Property Department