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17 September 2009

The table below reflects the annual increase, over the past six years, in the number of claims arising out of conveyancing matters.

2003 - 30 claims
2004 - 40 claims
2005 - 67 claims
2006 - 70 claims
2007 - 98 claims
2008 - 294 claims

We are hopeful that, now that the property boom is over, conveyancers and their staff may be less pressurised and over-burdened, and that fewer errors will occur. However, the claims team has compiled an updated list of problem areas in conveyancing practice, in an attempt to alert conveyancers to some of the possible pitfalls. These are taken from actual claims.

Payment of deposit/purchase price to seller/developer before transfer is registered. (Risk of sellers insolvency)
Never pay over the deposit and/or purchase price until the transfer has been registered and you have ensured that all undertakings etc have been met.

It is also advisable to warn purchasers against improving the property before registration.

Payment of proceeds of sale to a third party who is not authorised to act on behalf of a seller/paying over proceeds on the instructions of a third party.
Be very wary of situations where anyone other than the seller gives instructions regarding the payment of the proceeds of the sale. Always obtain the seller's written and verified instructions if the proceeds are to be paid to or on the instructions of anyone else.

Failure to study and familiarise oneself with the terms and conditions of the Agreement of Sale e.g. remedies provided for in the event of a breach, the procedure to be followed for cancellation, method of payment of the purchase price, suspensive conditions, payment of commission etc. This is a very important area, which has led to a number of clims against conveyancers.
Ensure that all conditions have been met before transferring the property. Ensure that the seller is advised of his rights m the case of a breach and that the coned remedies are applied.

Failure to confirm instructions in writing, to reduce variations of the agreement to writing and to record essential facts which have been agreed upon verbally.
All material terms and instructions should be recorded in writing.

Failure to provide guarantees timeously or in an acceptable form resulting in the seller cancelling the contract. Paying guarantees prematurely lie, before registration.)
In one matter the conveyancer failed to establish that the seller's bond was a single facility account. The purchaser's bank paid the guarantee directly into the seller's account and the conveyancer only became aware of this once the seller had withdrawn a substantial portion of the proceeds, before registration.

Undue delays in passing transfer, opening a Sectional Title register etc.
Give clients realistic time periods for transfer, so that there are no unrealistic expectations. Timeously advise clients of unavoidable delays. Prepare documents with great care to avoid delays at the Deeds Office.

Failure to ensure that transfer / bond documents are signed in front of the conveyancer (or at the very least a trained, reliable paralegal) so that identity of signatories can be verified.
All documents must be signed in the Conveyancer's presence, once the identity (and where necessary, the authority) of the signatory has been confirmed.

Failure to clarify and reduce to writing the relationship with third parties, for example estate agents.
In one of our matters, the recipient of a standard letter sent out by a conveyancer inviting tenders on a property, subsequently alleged that he had had a mandate to sell the property and claimed commission on the sale.

The conveyancer had regarded the claimant as an interested developer. The problem was made worse by the fact that the conveyancer bad not received (or responded to) a letter from the claimant setting out the terms of his alleged mandate.

Problems with the financial aspects of a transaction especially VAT, Transfer Duty, Capital Gains Tax, currency of purchase price etc.
Ensure that you establish the status of the parties to the agreement of sale and whether transfer duty or Vat applies or if the transaction is zero-rated. Be extra vigilant when dealing with parties in/from other countries and ensure that VAT is paid over to the Receiver timeously.
NB: If the Seller is a non resident, the sale will be subject to Capital Gains Tax. Advise your clients accordingly. Conveyancers must beware as the Receiver will expect them to pay over the Capital Gains Tax.
NB: For a useful discussion of this aspect, please refer to the article by Hesma Strydom in Bulletin 2/2008.

Failure to obtain the consent of the Minister in terms of S 3(1)(e) of the Subdivision of Agricultural Land Act 70 of 1970.
In one of our matters. the conveyancer drafted an agreement of sale, which was entered into prior to the parties' having obtained the consent of the Minister of Agriculture. On the basis that he was not bound by the agreement, the seller, sold the property to another purchaser. The original purchaser claimed damages from the conveyancer.

Creation of a conflict of interest situation, when acting for both purchaser and seller and a dispute arises.
Remember that the transferring attorney is duty bound to safeguard the interests of both seller and purchaser. especially when one of the parties is not represented.

Failure to comply with the requirements far sales of immovable property in installments in terms of the Alienation of Land Act.
In one of our matters, an option clause, drawn by the conveyancer was unenforceable as it did not sufficiently describe the property as required by Section 2 (1) of the Alienation of Land Act, read together with the Sectional Title Act.

Proceeding with a foreclosure when the judgment debtor has made arrangements with the bank / failure to communicate properly with the judgment creditor (bank, body corporate etc).
Before carrying out such a drastic step, ensure that you are aware of all developments.

Failure to observe specific conditions on the Title Deed / failure to ensure that conditions on the deed of sale are carried over on to the Tide Deed.
This happens more often than one would expect and great care should he taken.

Furnishing of undertakings (including bridging finance matters).
In practice, attorneys sometimes give undertakings on behalf of and on the instructions of their clients. These undertakings promise to pay an amount of money on the happening of a future event. The legal implications and consequences of attorneys giving such undertakings were underestimated until the decision in Ridon v Van der Spuy & Partners (Weskaap Inc) 2002(2) 5,4 121 (C).

In the light of that decision, it is imperative that great care he given in the wording of such a document. It must be clear that the undertaking is only given in a representative capacity and that the attorney/firm does not assume personal liability for the payment should it not he honoured.
Where possible, the undertaking should be given and signed by the client himself, where not, the attorney should obtain an irrevocable authorisation from the client.

With regard to bridging finance matters. please refer to Hesma Strydom's article on the topic in Bulletin 4/2008.

Payment of the proceeds of a sale to an incorrect party.
Again it is essential to know what documents and instructions are on the file before paying out.

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