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Recording of a contract

18 October 2012

In the conveyancing circles, it is assumed that the concept of a contract in terms of the Alienation of Land Act 68 of 1981 (the Act) is generally known to all.  It is also assumed that the terms such as "land", "Seller", "alienate", etc, are also understood in so far as this aspect is concerned.  The purpose of this article is not to dwell on definitions, but rather to unpack the procedure for the recordal of a contract, the general practices, as well as the effect thereof.  To gain clarity on the definitions, the reader is invited to peruse section I of the Act.  This article is primarily directed at first level examiners in the respective Deeds Registries as it appears that its aspect is not always fully understood.  Thus, when faced with deeds of this nature, examiners become a bit apprehensive and a little unsure how to deal with it.

Generally, one must bear in mind that this transaction emanates from a scenario where the seller of land or his/her representative wants to alienate his/her land to the purchaser.  An agreement is reached, the terms of which include that the payment for such land will be made by the purchaser to the seller through more than two instalments over a period of  more than one year. (Bear in mind that certain "land" does not fall within the ambit of this discussion and cannot therefore form the subject of the said agreement.)

For an examiner dealing with this type of a transaction, the first and foremost thing to ascertain is the existence of an agreement between the seller and the purchaser.  This you will ensure by assessing your application which should be in the prescribed Form A and which should bear the signature of either the seller or the purchaser or perhaps both.  Bear in mind that the seller is not necessarily the owner of the land.  The concepts of an "intermediary" and a "remote purchaser"  play a role here and should never be ignored.  On examination, the examiner will not have the actual agreement that was signed by the parties, but will be working with an application drafted in the prescribed Form A, lodged in a white cover and prepared by the conveyancer.  So, as much as you do not ask for a deed of sale when examining a deed of transfer, you also do not ask for the copy of the agreement in this case.  The next step would be to ensure that the agreement is "registrable".  This is done by assessing whether the land in question has no legal restrictions affecting or prohibiting the registration of this contract.  Furthermore, the principle of contractual capacity  must also be assessed.  Ensure that no other contract is recorded in respect of that land.  This will be done by verifying information from the data printout.  Where land is sold under a contract, and is subsequently re-sold, only the first contract can be recorded.  The application for recording of a contract can be brought by the seller or the purchaser or both.  Remember, there is no time limit as to when the seller is bound to bring such an application.  However, in the case of the purchaser, he/she can only bring an application upon the lapse of 90 days from the date of the contract, or from the date on which the land in question becomes registrable (see section 20(1)(a) of the Act. 

If this is in order, the title deed of land must be endorsed neatly with an endorsement indicating that a contract has been recorded against such land.  It goes without saying here that the title must be lodged.  If such title is lost or destroyed then regulation 68(1) of the Deeds Registries Act 47 of 1937 must be invoked before or simultaneously with this transaction.  The endorsement must be completed by disclosing the full names, identity numbers and marital status of the parties.  The white cover of the application must be given a B....../......AL code.  Office fees are chargeable on the registration of such contract. 

The effect of the recordal of such contract is that it takes preference over any mortgage bond registered subsequent thereto.  It therefore affects the ranking of any bond registered subsequent to its registration because the purchaser under such contract shall have a preferent claim in respect of the sale of such land if it is sold in execution or insolvency.  Land against which a contract is recorded can only be transferred to the purchaser under the contract or to his/her intermediary.  When examining a deed of transfer and it appears that a contract was previously recorded against such property it must be ascertained whether the transferee in the deed is the same as the purchaser stated on the contract, or that it is such purchaser's intermediary, if not then such contract must first be cancelled.  However, for purposes of section 14 of the Deeds Registries Act 47 of 1937, if a transaction (sale) took place before the contract was recorded and such transaction was never registered, then the transfer in terms of that transaction must be proceeded with provided that the subsequent transfer in favour of the purchaser under the recorded contract is registered simultaneously.  For example, whereupon the death of a spouse who was married in community of property, a section 45(1) application was never registered, and the surviving spouse for some reason, unbeknown, subsequently recorded a contract with the purchaser, then the section 45(1) application must be registered simultaneously with the transfer of such land to the purchaser. 

If a transfer takes place in favour of the purchaser or his/her intermediary, then there is no need for the examiner to call for the cancellation of the existing contract.  It is sufficient to just place a neat hand-written endorsement next to the "contract" endorsement stating that: "The within-mentioned property is transferred by virtue of T3476/2011 dated .........."  Do not forget to make space for the Registrar to sign on execution.  If land was subject to a pre-emptive right and a contract was recorded against such land then such contract will be subject to the pre-emptive right.  If a subdivision has to be made on land against which a contract is registered then the contract must first be cancelled as there would be a difference in the property description.  A new contract will have to be recorded subsequent to the subdivision.

It is imperative that we must know and understand the effect a recorded contract has on land, because it restricts/prohibits certain transactions from being done by the owner.  It is also necessary to know which actions would require consent by the purchaser, and those that will not.  The subject of recordal of contracts is widely neglected and creates confusion and assumptions when it arises for the examiner to deal with.  If, for example, a contract was recorded against property that has a bond and the owner of the property later cancels the bond, it is not necessary to ask for the purchaser's consent.  It is also not necessary to ask for the purchaser's consent where the seller makes an application for the recording of a contract after the 90 day period has lapsed. 

When it comes to the cancellation of a recorded contract, one must know that only the owner or seller is entitled to cancel the contract subject to the limitations of section 19 of the Act.  If the owner or the seller is insolvent or the said property is attached and is sold to a person other than the purchaser in terms of the contract, then the trustees or sheriff respectively must make an application to cancel the recordal of the contract.  The application is made in the prescribed Form C and must be in the form of an affidavit, prepared by a practising conveyancer.  The application  takes a BC ...../....... AL code and also attracts office fees.  The "contract" endorsement on the title is cancelled in the same manner as a bond endorsement, but the code should be amplified to read BC ..... / ...... AL. The normal explanation of verifying the particulars of parties and property descriptions must be done.

Gloria Makallane
Deeds Training
Pretoria

Reader Comments: 4
pieter 24/03/2014:

Is it possible to record a Section 20 contract against an Erf that is still being held by a 'mother erf' iro which a General Plan has been registered, or is it imperative to first take out a CRT for such individual erf?

ELAINE JANSE VAN RENSBURG 11/02/2016:

A Section 20 Contract was registered against the title, now the parties are divorced and only the husband is entitled to the property in terms of the divorce settlement. What procedure is to be followed?  I am really stuck with this question. 

Chantel Kritzinger 19/02/2016:

Hi Elaine, I don't say that this would be the correct procedure, but it makes sense that the 50% share of the property should first be transferred from the wife to the husband. If I understand the notes above, the recorded section 20 contract will remain unaffected by the transfer of the 50% share, unless the husband decides to cancel the contract with the purchaser.

Dawn Grabe 02/03/2017:

If the property is an RDP house and subject to a condition that the property may not be sold for a period of 8 years, can a sect 20 recorder be made against the property?

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