L7. Basic Terms in Property Sales

1. Immovable property

Is land, whether unimproved (i.e. vacant) or improved (i.e land with permanent improvements such as a house). A piece of land and all the permanent improvements constitute a single entity, namely one immovable property. This means that the permanent improvements cannot be sold independently of the land. It is also not possible to transfer ownership in portions of a building to different persons unless the building forms part of a sectional title scheme in terms of the Sectional Titles Act 95 of 1986.

Included in the sale will be the land, the house, all surface, and subsurface soil and water as well as all the trees and plants on the land as well as all movable items that have been permanently affixed to a house or other building on the land

2. Fixture

A movable item that has been permanently affixed to the property.

3. Title deed

Every piece of land that is privately owned in South Africa is shown on a diagram or a general plan of the land, drawn up by a land surveyor and approved by the Surveyor-General, with the details recorded in a document called a title deed. There are a number of deed registries in SA and the title deeds of properties in the areas under the jurisdiction of a particular deed’s registry are filed in that registry. Anyone can view this information either by going to the deeds office or requesting a copy online. If the property is not bonded, then the owner will hold his title deed otherwise it will be held with the financial institution that has granted the bond.

The title deed will contain the following information

  • The names of both the previous and the existing owner(s) of the property.
  • A full description of the property, including its measured size.
  • The purchase price which the existing owner paid for the property.
  • Whether there are any conditions restricting the use or the sale of the property.
  • Whether any limited real rights are registered in respect of the property and if so, what their nature is.

Note: an agent is not legally or ethically obliged always to examine a title deed of a property before he markets it, however, it is sound practice to do so especially agricultural, commercial, or properties in an estate development if a purchaser wishes to rezone (i.e. start a business), etc.

4. Rights over immovable property: servitudes

A person who is not the owner of an immovable property normally has no rights in respect of that property. For example, he cannot build on the property, use the water on it or drive over it. However, the owner may grant o someone else the right to do so. This right can be registered on the title deed and is then referred to as limited real rights (a right which one person has over another person’s property). This can limit the owners’ rights over their property.

Note:

  • A real right registered in transferred from one owner to the next.
  • It can only be cancelled by the holder of the real right.
  • A purchaser of a property with a registered real right is legally bound to observe and honour the right. registered whether he knew of its existence at the time of sale or not.
  • A registered limited real right can potentially de-value a property (as a new purchaser may not want to buy a property with a real right over it.

5. Servitudes

A servitude is a specific type of limited real right. It usually entitles the holder to exercise some right in respect of someone else’s property, but it can also empower him to prohibit the landowner from exercising one or other normal ownership rights

There are two types of servitudes

  • Praedial servitude – accrues to a person in his capacity as owner of a specific property which the servitude intends to benefit.
    • Right of way over a property.
    • Height restriction of a building.
    • Transferrable.
  • Personal servitude – personal right in favour of a specific individual.
    • Access to water given to a specific individual.
    • Usufruct.
    • Not transferrable.

Servitudes are typically registered over farms and smallholdings. Residential servitudes are typically subject to drainage and sewerage servitudes in favour of the local authority.

You do not need to get permission from the person that has a right to exercise servitude over your property if you want to sell it, however, the new owner will have to comply with the servitude.

6. Usufruct

This is commonly used in wills: the owner of a property bequeaths the property to certain persons (e.g. his children) subject to a usufruct in favour of another person (his wife). The latter may then occupy the property and enjoy the fruits thereof (i.e. rental income) till the death of the person in whose name the usufruct is registered in.

  • The property may be sold by the heirs, provided the new purchaser agrees to the terms of the usufruct.

By law, a property is always sold subject to the servitudes and other limited real rights contained in the title deeds.

A servitude can be cancelled by agreement between the holder of the servitude and the owner of the property.

Task: obtain a copy of a title deed – preferably on a complex/estate that may have servitudes registered over it and review.

7. Property ownership

Ownership is a right that, in principle, confers on the owner complete and absolute control over his property. An owner cannot, however, do as he pleases with his property, because his rights as an owner are restricted by both common law and legislation.

An owner has the right to:

  • Sell the property.
  • Improve it (subject to municipal bye-laws).
  • Destroy it (i.e. demolish it – provided he has not bonded it)
  • Bequeath it to his heirs.

An owner however is obligated to pay rates & taxes, bond repayments etc.

There are instances where a property can be owned totally or partly by someone (e.g. the government) notwithstanding the fact that the property is not registered in his name.

8. Prescription

This is where a person can become an owner by prescription – this means he has been in possession of the property for an uninterrupted period of 30 years openly and as if he were the owner.

Examples:

  • If a boundary fence between two properties has been incorrectly placed, the land included by the incorrect fencing can be acquired by prescription.
  • A tenant – however, this is rare.

Note though that the Deed office will not amend the ownership details unless the claim has been awarded in a Court of law.

9. Expropriation

Expropriation is where the State or other authorised institution may acquire ownership through expropriation (see the Expropriation Act 63 of 1975). Notice of expropriation is noted against the title deed and cannot then be transferred to a new owner.

Typically, this happens if a property has mineral rights, falls in the path of the proposed development (i.e., the Gautrain), etc.

  • Insolvency of the registered owner

See the Insolvency Act 24 of 1936 for detailed information.

The owner of immovable property is divested of his property upon his insolvency. The property is vested in the Master of the High Court until a trustee is appointed to oversee the insolvency. The insolvency is registered against the title deed which will prevent the transfer to a new owner unless authorised by the trustee.

Furthermore, an un-rehabilitated insolvent cannot let out his property, sell it or purchase another property without the written consent of the trustee.

10. Joint ownership

Property owned by two or more persons (two or more individuals, or parties married in community of property). Joint property or any portion of it can be sold or mortgaged only with the consent of ALL the joint owners – a majority decision is insufficient. Therefore, a mandate or offer to purchase needs to be signed by all parties to be valid (or in the case of trusts/companies a signed resolution is sufficient.

11. Transfer of ownership

This process is governed by the Deeds Registries Act 47 of 1937. In terms of this Act, transfer only passes to the purchaser on registration of the property into his name in a deed’s registry.

12. Appointing a conveyancer

Typically, the conveyancer is appointed by the Seller. If the seller does not have a conveyancer, an agent can recommend one but be sure to observe clause 7.1 of the Code of Conduct.

  • Transfer documents

In order to pass transfer to a purchaser, the current owner’s copy of the title deed needs to be lodged with the Registrar of Deeds. This must be accompanied by a number of other documents including:

  • The transfer duty or VAT receipt

This is issued by the Receiver of Revenue and confirms that all taxes and duties payable on the property have been paid. Transfer duty is calculated as per the terms of the Transfer Duty Act 40 of 1949.

  • Rates clearance certificate and/or body corporate levy clearance certificate.

This certificate is issued by the local municipality and body corporate/HOA to confirm that all outstanding rates/levies etc. have been paid.

  • The consent of the bondholder (mortgagee).

If the property is mortgaged, the property cannot be transferred unless the mortgagee consents to the cancellation of the bond. This consent is only given if there are sufficient funds in the proceeds of the sale to settle the outstanding bond.

If there is a shortfall, and in certain circumstances, the bank will agree to the transfer of the existing owner signs an acknowledgement of debt to settle the shortfall.

  • Consents required in terms of the conditions of the title deed.

This is if there are conditions contained in the title deed restricting the transfer of the property. Proof of these conditions having been met must be logged in order to proceed with the transfer.

13. Transfer costs

When must transfer duty be paid?

See Transfer Duty Act 40 of 1949…

Transfer duty must be paid within 6 months of the sale of property (this date is effective when all suspensive conditions have been met). After this, penalties can be charged by SARS.

The amount payable is based on the value of the property – i.e. the full purchase price (including commission). It is fraud to enter into a disguised contract of sale at a lower price than the actual price in order to avoid transfer duty.

An exception is if the property is sold in execution – then the commission can be deducted and transfer duty paid only on the price paid to the seller – in this case, the purchaser typically pays the commission.

VAT – see “Laws Affecting Real Estate”.

14. Land use control

Task: visit the local municipality town planning department and view various maps/schemes etc.

Apart from specific common law and statutory restrictions, control measures may also be contained in the title deed of a property, as well as in the relevant guide plan, structure or development plan, and town planning scheme.

What is meant by the restrictive condition of title and how these and other title deed restrictions affect the use of a property?

Restrictive conditions of title are conditions registered by township developers against the title deed of all the erven within a township, restricting the use of each of the erven in a particular manner.

  • To create neighbourhoods with a specific character (i.e. a specific style of building).
  • To restrict use in a specific area (i.e. exclusively residential, industrial etc.).
  • Other Prohibitive conditions can include.
  • Conditions in a will – i.e. if the heir is a child and the property can only be sold when he reaches a certain age.

These though can be lifted if an application is made to the High Court.

What must be done if a purchaser wishes to buy property provided certain title deed restrictions are removed?

Restrictive conditions of title can be removed in terms of the Removal of Restriction Act 84 of 1967

What is a guide plan, structure plan and town planning scheme?

15. Guide Plan

These are drawn up to determine a broad land use pattern for the development of a region. These plans specify areas set aside for township establishment, industrial and commercial development, rural development, open spaces, etc.

Property may not be used for any purpose that will conflict with the guide plan

16. Structure/development plans

Many local authorities have structure, development or policy plans for either the entire town or city or parts of it. A structure plan lays down specific land-use patterns (i.e. the plan will show areas to be used for housing, shops, schools etc)

  • Town planning schemes

A town planning scheme is a document created by a local authority in order to regulate the protection of public health, safety and welfare.

It consists of a scheme map and scheme clauses. It shows the uses to which the land may be used.

These can vary from town to town.

What are the typical control measures contained in a town planning scheme?

A town planning scheme contains the following basic information.

  • Use zones: this indicates the purpose for which the land may be used.
  • Density zones: identifies the number of dwellings that may be erected on a property with a minimum erf size.
  • Floor area ratios (FAR): identifies the total floor space that may be built on a property.
  • Height: this refers to the number of story’s that are permitted on a property.
  • Coverage: this is the amount of land that may be covered by the buildings.
  • Building restriction areas: this refers to the distance from the street boundary or the distance from the side and rear boundaries that may not be built upon.
  • Parking: identifies the number of parking bays required – specifically townhouses etc.

17. Residential use zones

This refers to the purposes for which a property may be used as a primary right (without obtaining the city council’s specific consent), and which uses are prohibited.

See attached scheduled zoning.

Any application for re-zoning is done through the town planning department of the local authority.

18. Density zones

subdivision potential of property i.e. Residential 1 = 1 dwelling per unit per 1500sqm.

19. Floor area Ratio (FAR)

The floor area ratio (FAR) is the ratio that is obtained by dividing the gross floor area of any building, existing or proposed, by the area of the property on which the building has or will be constructed. This will be needed in order to determine the development potential of a vacant piece of land.

  • Height

Height refers to the number of story’s – typically in Res 1, there is a 2 or 3 story limitation.

  • Coverage

This is expressed as a percentage of the total area of a piece of land that may be covered by buildings seen vertically from the air. If, for example, a 1000sqm property has a coverage of 30% then 300sqm may be covered by buildings.

20. Building restriction areas

This is commonly known as a building line and refers to the distance from the street and other boundaries that a building on a property must be set back. These will affect ANY construction on the property including swimming pools, tennis courts etc.

What does subdivision of a property entail and how can a portion of land be sold before the land has been formally subdivided?

A piece of land (erf, smallholding or farm) constitutes one single property and it is not possible to sell and transfer portions of the land to different persons unless the property is subdivided, each subdivision has its own title deed.

Note: an OTP taken on the condition that the property is to be subdivided, must provide a clear drawing of the portion of the property being subdivided.

Applications for subdivisions are dealt with by local authorities in accordance with the provisions of the town planning scheme.

What does rezoning of a property entail and what must be done if a purchaser wishes to buy a property subject to rezoning?

Often property is purchased with the intent to rezone i.e. change is made in respect of one or more of the control measures contained in the town planning scheme.

This can be to re-use a property for business purpose (however for small business only consent needs to be applied for). These applications are dealt with by an attorney or a town planner.

21. Subdivision

Subdivisions

There are several potential benefits associated with property subdivisions, but before moving ahead with plans to subdivide a property owner need to take into account a number of factors.

The subdivision of land, where one property is divided into two or more portions, is often something that owners consider in order to benefit financially from selling off these divided portions, or perhaps building additional houses on each portion and selling these off at a profit. There are also many other reasons to subdivide a property that may come into play, such as dividing property and selling a portion to a developer for town planning purposes.

Regardless of the reason, the appropriate steps need to be followed and relevant legislation complied with in order to effect a property subdivision.

22. Legislative considerations

Depending on the type of land to be divided, certain legislation may have an impact on the process. For example, the Subdivision of Agricultural Land Act, 70 of 1970 regulates the subdivision of farmland and requires the consent of the Minister of Agriculture before the requested subdivision can take place.

The location of the land is also an important consideration as Provinces and Local Authorities have their own legislation and bylaws that govern subdivisions and regulate the details of such a transaction. These include the minimum size of a subdivided portion, the number of portions, availability of services, access to roads and property zoning.

The relevant Local Authority should be contacted for confirmation on these, as ascertaining the specific legislation and bylaws that apply in a particular situation is crucial before beginning the process of a property subdivision.

23. How property subdivision works:

As well as the legislative considerations, the costs associated with the property subdivision process, particularly relating to the various professionals required in order to complete and register the subdivision, must be taken into account to make sure the process will provide long-term benefits.

Once an owner has made the decision to proceed with the subdivision of a property, the process will begin with enlisting the services of a land surveyor who will draw up a sub-divisional diagram and have this registered with the Office of the Surveyor General.

From there, a town planner will handle the process on behalf of the owner/applicant and will assess all the requirements as set out by the Local Authority.

The town planner will determine and provide recommendations regarding any restrictions or limitations on the subdivision and attend to advertisements and notification of all relevant parties (e.g. affected neighbours) to allow for legitimate objections to being lodged.

Any objections by interested parties, e.g. neighbours, will have to be dealt with in the appropriate tribunals/hearings and this may delay the process and increase costs significantly.

Depending on the complexity of the subdivision, the services of an engineering firm may also be required to perform a full site inspection and provide a services report.

With all legislation and bylaws complied with, a conveyancer will be instructed, who will draft the necessary documentation for registration of the subdivision in the Deeds Office.

While the timeframe for the final registration process remains the same as for all other property transfers, the full subdivision process can be a very lengthy one, and as such should be commenced well ahead of any desired deadline for the final registration and sale of subdivided land portions.

A piece of land is considered as a single property that cannot be sold or have portions thereof transferred to a different owner unless the property is subdivided, each subdivision has its own title deed.

An estate agent can, however, negotiate the sale of a portion before an approved subdivision of the property but the offer must then be made subject to a condition that subdivision approval is obtained before or on a certain date together with a sketch of the portion to be subdivided clearly indicating its size.

All applications for subdivisions are dealt with by the local municipality in accordance with the town planning scheme.

One cannot sell a farm or a portion of a farm if there is land that must be subdivided.  The subdivision must be approved by the Department of Land Affairs first.  No scheme or plan (lease agreements and then option agreements and then sale agreements) will be valid if signed before the subdivision was approved, no matter what anybody tells you.  The bottom line is that one cannot sell farmland before a subdivision was approved. (This paragraph of course only refers to cases where a farm owner wishes to subdivide the farm and then sell off a portion – it does not pertain to cases where the whole farm is sold).

24. Rezoning and removal of restrictions

Often property is purchased on the condition that it can be rezoned, i.e. a change is made in respect of one or more of the control measures contained in the town planning scheme.

e.g. to change the use of a house into an office etc.

These offers can be made subject to rezoning or till the consent application is signed off by the Municipality.

Should an offer be made with the condition that a specific restriction to the title is removed, then the offer needs to make this clear. The restriction needs to be applied for in terms of the Removal of Restrictions Act 84 of 1967.

Both of the above are typically dealt with by a conveyancing attorney or a town planner on behalf of the Seller

25. Rezoning

A straightforward rezoning is possible where there are no restrictive conditions in the title deed of a property. The process is governed by the provisions of the applicable town planning ordinance. The success of a rezoning application depends on

  • The relevant town planning scheme.
  • The relevant structure/development/policy plan.
  • The opportunities and constraints relating to the specific property.
  • The need and desirability of the rezoning.
  • The environmental impact of the rezoning.

An application generally takes 6 to 12 months to finalise and typically involves.

  • Preparation of a motivating statement and other documents and plans.
  • Advertising of the application in the local press, Provincial Gazette and calling for representations and objections.
  • Consideration of the application by the official of the local town planning department, with due consideration to objections received and comments of other government departments.
  • Referral of the application to the relevant council and Minister for consideration.

26. Other

  • Tacit hypothec

The landlord’s tacit hypothec is a form of real security recognised in South African law. The hypothec is “tacit” because it is understood or implied without being stated; in other words, the hypothec comes into effect by operation of law and not by agreement between the Landlord and Tenant.

The hypothec secures the lessee’s obligation to pay the rent in terms of the agreement of lease. It does this by allowing the landlord to burden the movables present on the leased land or while in transit to a new destination subsequent to the removal from the land.

What this means is that the Landlord is able to obtain a limited real right in the movable goods present on the property on the date that rent is in arrears. However, this right does not accrue to the Landlord automatically; it first needs to be perfected. In other words, the landlord has to obtain an interdict restraining the removal or sale of the goods on the property pending action for rent or order for their attachment by the court.

Importantly, the hypothec does not apply to goods removed from the premises before the hypothec is perfected. In certain instances, the movable goods belonging to third parties can also fall under the hypothec, but only to the extent that the movable goods belonging to the lessee are insufficient to satisfy the arrear rental. For this to happen the Lessor will have to show that the aware and consented to the presence of the goods on the premises, that the landlord was unaware that they belonged to a third party and that the goods were bought onto the premises for permanent use by the lessee.

  • Builder’s lien
  • In terms of common law, a builder has a right of retention over the building or structure (site) or portion thereof that he has constructed, enhanced or repaired to secure payment of the contract price, by means of retaining physical control of the site, until such time as his claim has been satisfied or the contractor has been provided with appropriate alternative security in respect of his claim.
  • has been provided with appropriate alternative security in respect of his claim.

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