Instalment Sale Agreement – Should You?
A Buyer may not be able to agree on Finance terms with a Financial Institution; If the Seller and Buyer can agree on terms for a Sale of fixed property, there is an alternative to institutional finance:
In 1981, the Alienation of Land Act (ALA) was passed: The Act (68/81) offers a practical solution with the following criteria:
The agreement has to be for a period longer than 12 Months.
The purchase price has to be payable in more than 2 instalments
Property must be residential in nature, not agricultural (AH)
Simple enough right?
"No", because there have been instances where more than one instalment sales were made on the same property, or where a new mortgage was taken out on the property after an instalment Sale had been agreed to. There had been cases of misapplication. And now; "Yes" because an Instalment Sale must be accompanied by a Section 20 endorsement against the title deed which will limit transaction that would limit the buyers rights and claims on the property.
Some considerations for Instalment Sale agreements:
Seller remains owner of the property; transfer once the full price is paid
Purchaser pays occupational rent, should they take occupation
Purchaser pays levies, rates and taxes
Purchaser may sell at any time during the period of Instalment Sale agreement; on condition that the purchase price is secured to the Seller and paid in full on transfer.
Purchaser may make as many payments in advance
Commission to agents may be paid in instalments
Guidelines:
Have the agreement drawn up by legal professionals
The purchase price may be above market prices to account for the time value of money or interest charges.
The agreement should cover how payments are to be made, and the format by which the outstanding balance statements will be made available to the buyer.
It can be an out the box solution for both Seller and Buyer; however, it is an agreement all parties need to pay attention, much attention to the detail of the agreement. Both parties need to be abreast with the the ALA Act as well as negotiate well on terms such as interest charges; which should work out cheaper than with Institutional Finance.
