realAdvice: What you need to know about instalment sales

There has been a lot of talks lately about the instalment sale "solution" for buyers that can't get bonds and owners who can't sell their properties - but not many people seem to know how this process actually works, so here are the essentials:

• Sales of fixed property can be made via an Instalment Sale Agreement in terms of the Alienation of Land Act, Act 68 of 1961 (ALA).

• During the term of this agreement, the buyer will usually try to pay off at least 20% of the purchase price so that he or she can then qualify for a home loan for the remainder of the price, and pay the seller off in full.  

• Before an instalment sale can be concluded, the buyer and seller need to agree on the property purchase price, the initial deposit, the term of the instalment sale (anything between 12 and 60 months, the capital instalments to be paid during that term, any agent's commission to be paid, the date the property can be occupied by the buyer, any occupational rent to be paid, liability for the rates and taxes on the property and the date on which the buyer will assume risk relating to the property and be responsible for insuring it.

• An attorney will then need to draft a sale contract for them that not only complies with the ALA and contains all the specifics of their agreement.

• Once this is signed, the attorney must inform the bank holding the existing bond on the property and request it to issue an "ALA certificate" within 21 days which states the capital amount the bank requires for the bond to be paid off, and the rate of interest it is charging on that amount.

• The bank can only refuse to issue this certificate if the purchase price stated in the installment sale agreement is less than the amount it is owed on the existing bond. And if that happens the instalment sale agreement will lapse.

• If the bank does issue an ALA certificate, it should also send the property Title Deed to the attorney so that this can be officially endorsed in terms of Section 20 of the ALA, and the endorsement registered in the Deeds Office in order to protect the buyer's right to take the transfer.

• The buyer will usually take a transfer at the end of the agreement term but can elect to take transfer sooner on condition that the full purchase price is paid to the seller.

• The buyer can also elect to sell the property to a third party at any time during the currency of the ALA agreement - but only on the condition that any new sale agreement provides for the original sellers' purchase price to be secured and paid in full in one amount.

• The chief benefit of an ALA agreement for buyers is that they do not immediately need to qualify for a bond, but can use the term of the agreement to rectify or improve their credit status and significantly increase their chances of being approved for a home loan in future.

• The main benefits of an ALA agreement for a home seller are being able to get the property sold and receiving "cash flow" from it over the term of the agreement in the form of both capital payments and occupational rental. In addition, the buyer is usually responsible for the rates and taxes and other charges relating to the property.

• However, there are risks for both parties too, and such agreements should never be entered into without the proper legal assistance and without proof that the Title Deed endorsement has been registered in the Deeds Office.