In most metropolitan areas many properties have undergone a change in use and are no longer utilised as originally intended.  In many instances the shift away from the Central Business District area has resulted in former residential areas being utilised for business and other purposes.

It is necessary to comply with the applicable Zoning Scheme Regulations regulated by the Municipality in question. Prior to the purchase of a property a cautious purchaser will require proof of the current zoning from the seller. Additionally confirmation should be sought that any conditions imposed in an approved zoning have been complied with by the seller. From a practical perspective it is usually necessary to seek professional assistance from a person well versed with property law.

Certain conditions imposed by the Municipality when approving a zoning application may carry significant financial implications for a purchaser. In most instances the Municipality imposes a Transport Development Levy (TDL) which requires a substantial payment to the Municipality as part and parcel of a rezoning approval.

In many cases former residential properties are advertised and sold as business sites. In certain cases no formal rezoning application has in fact been prosecuted to the Municipality and the property simply falls within an area where a business zoning may be supported by a Municipality "in principle". However until such time as a rezoning application has in fact been successfully prosecuted and the conditions imposed by the Municipality complied with, the property may not be utilised for any purpose other than the existing zoning.

In certain cases it is imperative that the Title Deed relating to the property be thoroughly examined in order to ensure that the intended use is not prevented by way of conditions contained in the Title Deed. Notwithstanding the fact that a Municipality may have approved the rezoning of a property, such property may still require the removal of a condition in its Title Deed. In certain instances this is achieved by way of an Application to the High Court. However in the majority of cases Title Deed conditions are removed by way of an application in terms of the Removal of Restrictions Act.

As with any application it follows that such application may be unsuccessful in which case the property would not serve the purpose for which it was purchased notwithstanding the zoning thereof.

In specific cases it is necessary for a further examination to take place over and above the reflected zoning.

Zoning Scheme Regulations invariably provide for a number of Use Zones and each Use Zone provides for Primary Uses which reflect the permitted usage under the applicable Use Zone. However in certain cases it is necessary for a further application to be made to the Municipality in order to utilise the property for a secondary use which is accommodated by the prosecution of a special consent or departure application to the Municipality.

It is therefore necessary that the intended use of a property be supported by either the use permitted in terms of the Primary Use or, alternatively, in terms of a further special consent/departure approval enabling the property to be utilised in terms of the required Secondary Use.  Again, knowledge of the contents of the Zoning Scheme Regulations is required in order to examine whether the property will be capable of being utilised for the intended reason.

Property owners are able to obtain an Informal Town Planning Inquiry printout enabling them to ascertain the zoning which has been accorded to the property by the Municipality. However a detailed examination of Municipal records and the Title Deeds is advisable.

Most people are aware that there are certain costs involved in the purchasing or selling of a property.  These costs can change depending on the entity that is used to buy the property in.  This article will discuss the various cost items that typically affects a property transaction in South Africa.

Costs to the Purchaser
Attorney (Conveyancer’s) Fees

The first cost item to consider when buying a property is the conveyancing (attorney) fees.  Although the purchaser pays the Conveyancer’s fee, it is usually the seller who appoints the attorney.  This ensures that the conveyancer acts in the Seller’s interest and prevents unnecessary delays in the transfer process.

The conveyancer’s fee is paid for his/her role to change the ownership of immovable property from the Seller to the Buyer in accordance with the Deed of Sale.

Conveyancing Fees are prescribed by the Law Society of South Africa and is calculated on a sliding scale based on the purchase price of the property.

A question that is often asked, is why the cost of a transaction increases with the property price when to all intents and purposes, the same amount of work is done.  The answer to this lies in the risk that the Conveyancer assumes when he/she agrees to the transfer of a property:  the greater the selling price, the greater the risks associated with  the transaction.

Property Search Fee

The conveyancer has to do a Deed Search to ensure that there are no conditions in the title deed that prevents the proposed nature of the transaction.  This is a fairly involved process as in many cases Title Deeds may refer to conditions in prior Title Deeds.  For more information on this practice, refer to Meyer de Waal’s article on conditions “behind the pivot deed” published earlier in this blog.

The typical cost to do a Property Search range from R75 to R200 plus VAT.

Postages and Petties

Postages and Petties includes (but is not limited to) telephone costs, postage and courier fees, administration fees and bank charges.  As a rule, the Transferring Attorney can recover any direct costs associated with the transfer of a property, but in reality it is often difficult to calculate the exact amount applicable to a specific transaction.  Thus an  estimate is used.  Firms usually charge between R250-00 and R700-00 plus VAT for Postages and Petties.

FICA

With the introduction of the Financial Intelligence Centre Act in 2001, it became compulsory for all persons listed as Accountable Institutions in the Act to establish and verify the identity of any client prior to establishing a business relationship with such client.  These include requiring a proof of residential address, the verification of the Identity Documents of the client and an in-person identification of the client.  All documents pertaining to such verification must be stored for a period of at least five years.

The cost of a FICA verification varies between R200-00 and R550-00 plus VAT.

Electronic Generation Fees

Not all attorneys charge for Electronic Generation Fees, but nowadays this practice is quite common.  This charge is usually disbursed to the purchaser when the Conveyancing Firm makes use of the Transactional Billing option that is offered by many Software Vendors.  The Firm pays a fixed amount per set of documents that is generated with the  software and this is passed on to the purchaser.  The cost of Electronic Generation Fees for Transfers is usually around R150-00 per instruction plus VAT.

Rates Clearance

The conveyancer must obtain a Rates Clearance Certificate from the Local Authority to verify that there are no outstanding Rates and Taxes payable by the Seller.  The municipality will not issue a Rates Clearance Certificate before all outstanding monies are paid.  The cost of a Rates Clearance Certificate is currently R165-00, depending on the  Local Authority.

Provisional Rates and Taxes

The purchaser will have to pay all rates and taxes 4 months in advance before the registration of the property can take place, but can claim a refund from the council for any amount paid, which is attributable to the rates due, following the registration of the Transfer.

Deeds Office Fee

The Deeds Office’s Fee for transferring a property is calculated on a sliding scale based on the purchase price of the property and is published in the Government Gazette from time to time.

Transfer Duties

Transfer Duty is a Tax that is levied by the Government on property transactions that depends on the Entity that buys the property.

For Natural Persons the tax is calculated on a sliding scale based on the purchase price of the property:

For Legal Persons (Close Corporations, Private and Public Companies and Trusts), transfer duty is calculated at a flat rate of 8% of the purchase price.

Entities that are registered for VAT can claim Transfer Duties paid back from the South African Revenue Service (SARS), but must levy VAT on top of the sale price when they sell the property again.

A Seller registered for VAT can sell a property as a going concern to Purchaser who is also registered for VAT and then a zero vatable transaction can occur. SARS recently published a memorandum on zero VAT transactions. Contact Meyer de Waal on 021 461 0065 for more information.

Home Owners Association Consent and Admin Fee

It is often a condition of the Local Authority that properties in Home Owners Association (HOA) may not be transferred without the consent of the Home Owners Association.  This prevents the situation where a property can be transferred to a person who has not bound himself to the rules of the Home Owners Association.  The cost levied differs from one HOA to the next, but typically is around R1000-00 plus VAT.

Costs to the Seller
Beetle, Electrical and Gas Conformity Certificates

The seller is obligated to give the buyer an electrical compliance certificate and is liable to pay the cost of any repairs to the electrical installation. Cost: Approximately R375.00

Although it is not compulsory to provide for a beetle-free certificate in a deed of sale, most financial institutions require a certificate before granting a home loan.  The seller usually pays the cost associated with such an inspection.  Cost: Approximately R375.00

Since 1 October 2009 any property with a gas appliance must be issued with a certificate of conformity.  This must be issued by an authorised person registered as such with the Liquefied Petroleum Gas Safety Association of Southern Africa (LPGAS).  You can read more on this requirement here.  Cost: Approximately R150.00

Capital Gains Tax

Sellers have to pay capital gains tax on a property when it is sold.  A capital gain (or loss) is the difference between the base cost of an asset and the net selling price upon the disposal of the asset.

For Natural Persons disposing of their primary residence, the first R1 500 000,00 of the Capital Gain is not taxable where after 25% of the gain is taxed at the individuals marginal tax rate.

For Legal Persons, 50% of the Capital Gain is taxable at the applicable entity’s tax rate.

For an accurate calculation of Capital Gains Tax, click here.

Estate Agent Commission

If a seller employs the services of an estate agent, the amount of commission negotiated will be payable by the seller on the registration of the transfer of the property.  Commission usually varies between 3% and 7.5% (excluding VAT) of the selling price of the property.

Bond Cancellation Costs

If a bond is cancelled, the bank may require a three month notice of the seller’s intention to do so.  If the seller fails to do this, the bank may charge interest for up to three months.

The fee paid to the attorney of a bank for the cancellation of an existing bond is +/- R 1 600.00.

An onerous title deed condition that isn’t discovered in time could delay or prevent the progress of a property development – with serious cost implications. Alternatively, such an omission could be costly when buying or selling property.

Given this truism, the purpose of this article is to sensitise the reader to some pitfalls when dealing with title deeds.

The deeds registration offices had a system whereby deeds were lodged in duplicate and the Deeds Office would endorse changes of ownership, caveats, interdicts, mortgage bonds, and servitudes against the title deeds. They would keep one copy for records purposes and the other copy would be given back to the client.

It was not practice, nor prescribed in any Act, that conditions be carried forward from deed to deed. In the Deeds Registries in the former Cape Province the so-called pivot deed system had existed prior to 1937. The pivot deed system is unique to the Cape Town deeds registry.  In terms of this system, no conditions were carried forward in a title deed. The title deed conditions would simply state:

“Subject to the conditions as contained in Deed of Transfer No … [with reference to the prior
title deed]”.

When searching the above pivot deed, one would find that these deeds in turn make reference to earlier title deeds.

It is only since 1937 that title deed conditions have been carried forward in each new title deed. Thus, to determine all the possible conditions against and in favour of a property, proper research must be done and all previous title deeds must be checked, from the day when the first Government Grant or Crown Grant was issued up to 1937.

The practical way would be to employ a conveyancing attorney, skilled in these matters, to conduct the research and prepare a Conveyancer’s Certificate to certify that

* the Conveyancer did a search behind the pivot deed and
* found no onerous conditions relevant to the proposed nature of the transaction or development, etc.

Developments since the 1980s

The Deeds Registration offices introduced a micro filming system, and since then all title deeds lodged are microfilmed. In addition, a scanning system was introduced in 2007/ 2008. Thus, Deeds Office records are now kept on both microfilm and in digital format, while the original title deeds are sent back to the attorneys for delivery to the new owner or bank(s). Title deeds are endorsed with changes in ownership, mortgage bonds and all other propertyrelated transactions. This of course depends on the instruction the deeds office had received on lodgement from the conveyancing firm.

The Deeds Offices continually update their records and one can obtain a “Deeds Office printout” to view the most current information listed against the property, viz.:

• Interdicts and caveats (examples are court orders, insolvency and rehabilitation notices, sequestration orders, liquidation orders, notices from the Surveyor General’s office, and expropriation notices).

• Sectional title information, such as 

•  Exclusive use areas. 
•  Rights of further extension reserved by the developer (section 25).
•  Servitudes on common property.

• Notarial servitudes

• Mortgage bonds

It is, however, also important to note that updated information pertaining to property transactions can take, from date of registration, as long as 5-8 working days to appear on the system of the Deeds Offices. Sectional-title transactions can take up to 10 days and other transactions that involve cross-writing in title deeds filed in counter cover can take up to three weeks.

(Cross-writing is the updating of all relevant and related information in documents filed at Deeds Registration offices. The counter-cover system applies where 20 or more properties are held under one title deed, and where the client requests the Deeds Office to keep the original title deed in its records.)

Some advice

In sum, to protect one’s interests, it is a good idea to appoint a conveyancing attorney to conduct a search at the Deeds Office and peruse or verify the following information that might be applicable to the subject property:

• Conditions in the current title deed

• Conditions behind the pivot deed

• Information on the Deeds Office printouts, such as:  

•   Caveats.  
    Servitudes. 
    Interdicts.

And, lastly, if you are a developer, remember to appoint a town planner to assist with the restrictions imposed by the local authority and, if applicable, zoning requirements.