15 Jul TRANSFER GUARANTEES
When a conveyancer is appointed to attend to the transfer of property, arguably the most important function is to secure the purchase price of that property.
To do this,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 bank.
All standard offers to purchase property contain a clause that obliges the purchaser to either pay the purchase price in full in cash, or to secure the purchase price through a guarantee (issued by a registered South African bank). The guarantee must set out the value of the guarantee according to the transferring attorneys’ requirements and must be payable upon the registration of the property from the seller to the purchaser in the deeds registry.
WHAT IS A GUARANTEE?
The guarantee is a document issued by a registered South African bank that guarantees the payment of funds upon the happening of certain events (i.e., the transferring attorney informing the bank that registration of the transfer of the property from the seller to the purchaser in the deeds registryhas taken place).
Guarantees are signed by a representative of the issuing bank, or an authorised agent who signs the guarantee under a power of attorney.
On transfer, the conveyancer will notify the issuer of that guarantee of the registration. The guarantee is then payable, and funds are paid in terms of that guarantee into the nominated trust account.
THE SOURCE OF THE GUARANTEE?
If the purchaser finances the purchase through a mortgage bond, the mortgagee bank and its attorneys will facilitate the issuing of the guarantee.
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 also receive interest on the funds in the conveyancer’s account (provided they give the necessary authority to the conveyancer).
- The second method would be for the purchaser to leave the funds in their bank account and request their bankers to issue the required guarantee. The conveyancers provide the guarantee requirements (and should adequately explain these to the purchaser). The disadvantage in this method is that banks generally charge a fee for the issue of a guarantee, which fee varies from bank to bank. There are also administrative challenges that may be difficult for a layperson to understand and overcome.
A MATTER OF TRUST?
Purchasers often enquire whether they can simply pay the purchase price on registration, without the issue of a guarantee. The answer to this question is NO!
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. Furthermore, the seller’s bank usually requires a guarantee for the particular amount owing on the seller’s bond prior to allowing transfer. This is not possible without a valid guarantee.
This is not a matter of trust but rather one of practicality and contractual compliance.
For assistance with your property purchase or sale, get in touch.