Once a property has been sold the seller’s Conveyancer is appointed to attend to the transfer of property. One of the functions of a conveyancer is to secure the purchase price of that property.
To secure the purchase price, the conveyancer must either have received payment of the purchase price in cash and have the actual funds in his trust account. Alternatively, the conveyancer must have received a guarantee for the payment of the purchase price issued by a registered South African Financial Institution.
All standard offers to purchase a property contain a clause that obliges the purchaser to either pay the purchase price in full in cash or to secure the purchase price by means of a guarantee issued by a registered financial institution. The guarantee must set out the value of the guarantee and must be paid upon the registration of the property from the Seller to the Purchaser on the date it is registered in the deeds office.
The guarantee is normally to be delivered within a specified period of time which is usually stipulated in the offer to purchase.
- What is a guarantee?
A guarantee is a document issued by a registered South African Bank or Financial Institution that guarantees the payment of funds upon the happening of certain events.
Guarantees are signed by a representative of the issuing bank or an authorised agent who signs the guarantee by virtue of a power of attorney.
On registration of transfer of the property from the Seller to the Purchaser in the Deeds Registry, the conveyancer will notify the financial institution that the property has been registered and call for payment of the guarantee. The guarantee is then paid over to the conveyancer in terms of the guarantee into the attorney’s nominated trust account.
- The source of the guarantee
The source of the guarantee depends on the terms of the individual agreement entered into. If the purchase price is to be secured by a mortgage bond, the guarantee will be issued by the bank that granted the mortgage bond. This is done with the assistance of the attorneys appointed to register the mortgage bond.
If the purchase price is to be secured in cash, there are two ways to issue the guarantee. The first method would be for the purchaser to pay the funds into the conveyancer’s trust account and allow the attorney to issue the necessary guarantee. Most attorneys do not charge for the issue of this guarantee. The Purchaser will further receive interest on the funds in the conveyancer’s account.
Alternatively, the Purchaser can leave the funds in his banking account and request his bankers to issue the required guarantee. The conveyancer would provide the guarantee requirements to the bank. The disadvantage of this method is that the banks do charge a fee for the issue of this guarantee. The fee varies from bank to bank.
- A matter of trust
Purchasers often enquire whether they can affect payment of the purchase price on registration, without the issue of a guarantee. The answer to this question is no. The reason is that the conveyancer has a duty to the Seller to secure the purchase price so that on registration the payment of that purchase price is guaranteed. This is not possible without a valid guarantee.
This is not a matter of trust but rather one of practicality and contractual compliance.