There is no law that prevents a purchaser from choosing the conveyancer or transferring attorney in South Africa. While the standard is for the seller to appoint the conveyancer, what are the implications of challenging this status quo?
What is the transferring attorney responsible for?
- Receiving the deposit and placing it in an interest-bearing trust account for the benefit of the buyer
- Paying SA Revenue Service the transfer duty on behalf of the purchaser
- Paying the Estate Agent commission
- Ensuring that the rates and taxes are up-to-date for the benefit and on behalf of the buyer
Essentially there has to be an agreement between the buyer and seller as to who chooses the conveyancer. This is always a term and condition of the offer to purchase sale agreement, says Conveyancing Attorney Denoon Sampson.
However, he says if the seller agrees to the purchaser choosing the conveyancer, he “compromises his rights and agrees to uncertainty and risk."
Yet, notes Tess Rodrigues, founding member of Property Factor, a bond originating firm, "the buyer who pays the legal fees, parts with their hard-earned cash and usually incurs a 20-year or more debt to secure the transaction. “The transaction is definitely riskier for the buyer, yet the seller nominates the attorney,” she says.
Another argument suggests that it is the seller who has the biggest financial risk, and “a conveyancer appointed by the purchaser may willfully delay the property transfer to benefit his client the purchaser”.
Attorney and director of MDW Inc, Meyer De Waal says, “The conveyancer has a duty of care towards the seller and the purchaser. The conveyancing attorney cannot choose between the seller or the purchaser.
“Prior to arriving at the desk of the attorney, the estate agent must complete the deed of sale correctly to ensure that all the due dates can be met, including a realistic time frame for the approval of a home loan, if required and achieving the required target date of registration of transfer. It thus comes down to the property and correct drafting of the sales agreement between the seller and the buyer,” says De Waal.
“If the deed of sale that regulates the agreement between the seller and purchaser is correctly drafted, the conveyancer will have to abide by the due dates of completion and execution of such task. The transfer date and occupation date must be a predetermined date and the conveyancer must do all he can do achieve registration within such period of time.”
‘Ownership can only be given’
Sampson notes South Africa's Common Law and the Deeds Registries Act provide that the seller's agent (who is the seller's conveyancer) or the seller himself must give transfer."
“Section 20 of The Deeds Registries Act stipulates that the owner himself (and not the purchaser) or the seller’s mandated agent, by means of a Power of Attorney to Transfer Ownership, must sign the Deed of Transfer.
“The point is that the purchaser cannot take ownership: it can only be given by the owner".
"It is simply not possible for the purchaser to sign to divest ownership of the seller: only the seller or his legally mandated conveyancer can do this."
This is probably the main reason why purchasers cannot sign a Power of Attorney to Transfer and why sellers want to choose their own conveyancer.
What happens when a sale gets complicated and is delayed?
Property Factor recently secured a home loan for a client in a complicated property transaction which, after 8 months of back and forth negotiations, has not yet registered.
Rodrigues says when the transferring attorney was approached to advise the buyer of their legal rights, the transferring attorney responded, saying “Please note that as the conveyancer (i.e. transferring attorney), we cannot act as the attorney of either party and each party must seek independent legal advice.”
Conflict of Interest
Sampson goes on to explain that an attorney cannot allow himself to be conflicted between the interests of more than one client.
For instance, he cannot find himself in a situation where the seller requests the purchaser’s conveyancer to issue a letter of demand against the purchaser. The reason is that if the conveyancer is appointed by the purchaser, he will be duty-bound in terms of Law Society Protocol to defend the purchaser.
He cannot at the same time, issue a letter of demand against the purchaser and then tell the purchaser that he will protect and defend the purchaser. A typical conflict of interest is not allowed and conveyancers can easily fall into the conflict of interest trap unwittingly.
"So, the bottom line is that; the person calling for payment should not feel that he is compromised in trying to extract the money, because he was appointed by the person who is now delaying payment.
De Waal further explains that often a seller may feel disgruntled that a transfer process is delayed, as is the case with the unforeseen deeds office delays during Covid-19 times.
“If the sales agreement is correctly drafted, provision for an occupational interest that is close to the prime lending rate ought to be the “norm”, compared to the low occupational interest that is usually inserted in sale agreements. If the occupational rental is too low, such may be to the unfair benefit for the purchaser and to the determent of the seller if the registration of transfer is delayed.
Should a dispute arise between the seller and the purchaser that cannot be resolved through negotiation, then the conveyancer, whether appointed by the seller or the purchaser must step back and recommend to both the seller and purchaser that they must appoint their separate independent litigation attorneys to act on their behalf, says De Waal.
Seller left out of pocket
A case in point, which Rodrigues says affirm her concern about who gets to choose the conveyancing attorney is a High Court judgement (Agu v Krige and Others (20763/2017) [2019] ZAWCHC 46) set in March 2016.
As per the sale agreement, a buyer deposited the full purchase price amounting to R720,000 into the seller’s nominated transferring attorneys’ account. When it later became apparent that the "conveyancer stole the money", the purchaser demanded transfer. The seller refused, as they would be without the property and without the money.
The seller lodged a claim against Legal Practitioners Fidelity Fund for the stolen funds, but this was rejected as it maintained that the money deposited was held for the benefit of the buyer and not the seller, therefore, the buyer incurred the loss.
The buyer refused to claim from the Legal Practitioners Fidelity Fund as they felt it wasn’t their loss. As they met their obligation under the sale agreement, they approached the courts to order the transfer of the property.
The court needed to establish whether the transferring attorney was acting as the agent for the seller. As the seller nominated the transferring attorney, the conveyancer was in fact the agent for the seller and having received the funds as the agent, it was as good as the funds having been paid to the seller directly. The court ordered the transfer of the property to the buyer. The seller was left without a property and without money.
"This clearly demonstrates, there is absolutely no benefit, to either the seller or buyer, having the seller of a property nominate the transferring attorney. In fact, the above court case clearly highlights the risk of such practice.
Furthermore, while the transferring attorney is granted the POA by the seller to affect transfer, the financial risk of the attorney’s obligation ways heavier on the home buyer. It is time that the industry examines how it does business in protecting the interests of all concerned," says Rodrigues.
'A complete stranger taking control of the seller's most valuable asset'
Sampson also acknowledges that Estate Agents have all experienced, with bitter unhappiness and regret, instance when an ill-qualified, non-specialist attorney is chosen to attend to the conveyancing.
"There have been many horror stories of ill-qualified attorneys being appointed just because he is the neighbour or relative of the purchaser. Most sellers feel that they cannot trust an unknown attorney to become his legal representative, because they do not even know who he will be?
De Waal adds, “It is my view that the practice must be adopted that the conveyancing attorney can be appointed by either the seller or the purchaser. In many instances the seller and the conveyancing attorney does not even have a prior relationship, but is appointed through a suggestion by the estate agent who sold the property.”
Collecting the purchase price
A fundamental part of the conveyancing process is to collect the purchase price from the purchaser, adds Sampson.
"If the purchaser has chosen his own conveyancer, and the purchaser requires an extension of time to raise the purchase price, the appointed purchaser’s conveyancer will feel obliged to indulge the purchaser’s request to delay payment.
Sampson says the danger here is that the purchaser’s conveyancer is more likely to indulge the purchaser in preference to the interests of the seller.
"If the purchaser and the purchaser’s conveyancer choose to stall the transfer, the seller is left out of the loop; and quite often in the past, is not properly informed as to the problem and delay in the conveyancing process. It is therefore always most important that the seller feels he can trust the conveyancer to act in the interests of the seller and to be accountable to the seller, when it comes to collecting the purchase price."
The purchaser always pays the transfer costs
By far the greatest component of the transfer costs, is the Government Transfer Duty Tax. The Transfer Duty Act specifies that the person acquiring ownership must pay the transfer duty. So, it is an Acquisition Tax that is levied on the purchaser. It is the conveyancer’s job to collect the Transfer Duty from the purchaser.
So, the purchaser has always paid the legal fees as part of the transfer costs which have to be collected and paid for before lodgement in the Deeds Office. The Deeds Office is very quick to police and check to see if the transfer duty has been paid in advance before lodgement.
So, whilst the purchaser pays the transfer costs, the seller bears many other charges such as estate agents selling commission, Capital Gains Tax, Advance Rates and Taxes, and the cost of Certificates of Electrical Compliance, Gas Certificate and Fence Certificates.
If the purchase pays the costs, why can they not choose the service provider?
Sampson highlights that much in the same way as the seller chooses the conveyancer to ensure their best interest, so too banks only enlist their trusted and previously accredited panel of conveyancers to register its mortgage bonds.
“The banks will only allow its trusted and previously accredited panel conveyancers to register its mortgage bonds and to protect the bank’s interests against the borrower.
In the normal retail and general economic world, there are normally only two parties to the transaction: just the seller and the purchaser. The purchaser can easily shop around and find alternative sellers who can offer the same product or service. Also, there is no conveyancer to worry about, which makes things a lot simpler.
"But the conveyancing world is different, because there are more than just two parties to the transaction.
"There is the relationship between the owner and the conveyancer, that is fundamental to the success of the transaction. There is also the relationship between the seller and the estate agent. The seller is liable to pay the estate agent and he will want his own conveyancer to look after his interests in paying the agent’s commission. The purchaser is not liable to and is not accountable to pay any agent’s commission.
"The estate agent also has an interest in the choice of conveyancer because the agent relies on a conveyancer to provide and collect the selling commission. A typical conveyancing transaction has to balance the interests of not only two people, but actually four people.
"So instead of the purchaser being able to chop and choose a seller; it is unlikely that he will find a similar house with a better fee-paying arrangement.
"Should the purchaser be unhappy with not being able to choose a conveyancer, we recommend the purchaser be allowed to choose one of four or five reputable conveyancing specialists, as listed and prescribed by the seller, as being acceptable to himself.
"So at least the purchaser is given a limited choice of a couple of reputable conveyancing firms, that are also acceptable to the seller and generally also to the estate agent.
"As to why does the seller have the prerogative to choose the conveyancer, it is because both the Deeds Registries Act and our Common Law prescribe that only the owner can transfer ownership and normally the seller chooses his representative (his conveyancer) to do it for him," concludes Sampson.
