What is a Section 20 Recordal?
To protect a purchaser who buys residential properties in instalments, Section 20 of the Alienation of Land Act, obliges the seller to record such a contract against the title deed of the seller’s own property.
This is to inform the entire world that the property in question has been sold in instalments, and in the event of the seller being declared insolvent prior to the property being transferred to the purchaser, the purchaser’s claim shall be a preferent claim which rank below any mortgage bond registered over the property prior to the contract being recorded. Also, if the Seller decides to sell the property again before the purchaser finishes paying for it, the Section 20 endorsement on the title deed will protect the Purchaser.
When is a sale in instalments?
The purchase price must be payable in more than two instalments over a period exceeding one year but not exceeding five years in order for the contract to qualify as an instalment sale contract which qualifies for protection in terms of the Alienation of Land Act.
Payment of the purchase price to the Seller
The seller is not entitled to payment unless the property is registrable, and the section 20 Recordal is registered at the Deeds Office.
Importance of Recordal for the Purchaser
The Section 20 Recordal is important for the purchaser as it notifies the entire world of the purchaser’s interest in the property, and in the event of the seller being declared insolvent, the purchaser enjoys a preferent claim after the mortgagee if the property bought in instalments was subject to a bond when the contract was registered in the Deeds Office.
Can the Seller charge interest?
The seller is allowed to charge interest. If the seller chooses to charge interest, such seller must register as a credit provider in terms of the National Credit Act No. 34 of 2005 (“the Credit Act”). If the seller is not registered as such, the instalment sale where interest and other charges are payable could be declared an unlawful agreement.
Transfer Duty
If transfer duty is payable, it must still be paid within 6 months from the date of conclusion of the sale, irrespective of when the transfer will actually go through.
Cost of Recordal
There is an additional cost to register the Recordal at the Deeds Office. The cost of the Recordal is for the Purchaser’s account.
Additional Costs for Administration of Agreement in Instalments
Kindly note that if we are required to monitor monthly payments and follow up with the purchaser and/or remind the purchaser of payments due, an administration fee will be charged monthly. This fee will be for the account of the Purchaser.
Get in touch with the Southey Attorneys Conveyancing team for more information.
