Instalment Sale Agreements – An Alternative To Securing A Sale
Buying a property on an instalment sale agreement basis can be a win-win for buyers and sellers. Here’s how it works:
Key Features:
- Buyer pays a deposit and monthly instalments over a period of at least 12 months
- Seller retains ownership until full payment is made or secured
- Contract of sale is recorded against the title deeds, protecting the buyer
- Monthly instalments and occupational rental are paid directly to the seller
Benefits for Sellers:
- Retains ownership until full payment is made
- Receives regular payments and income through monthly instalments and occupational rental
- Facilitates transactions where mortgage finance is not an option
Benefits for Buyers:
- Can purchase a property without needing a traditional mortgage
- Protected from seller’s potential attempts to sell or mortgage the property as the title deeds are endorsed to mark the Buyer’s interests
- Can apply for a mortgage loan at any point during the agreement period to secure the balance then outstanding and take transfer of the property
- Can on-sell the property at any time – as long as the existing debt to the seller is extinguished
Important Terms:
- Transfer duty is payable within 6 months from the date of sale
- Seller can cancel the contract and retain payments if buyer defaults
- Courts can however reduce the amount forfeited if it’s disproportionate to the seller’s actual loss
Additional Considerations:
- Instalment agreements must be worded in compliance with the provisions of the Alienation of Land Act
- Advisable not to charge interest on the purchase price to avoid being classified as a “credit transaction” under the National Credit Act
It is advisable to secure professional help when concluding an instalment sale agreement.
