Can a Purchaser Assume Liability for the Seller’s Existing Bond?

In South African property law, it is possible for a Purchaser to acquire immovable property without registering a new mortgage bond, by taking over the Seller’s existing bond. This is achieved through a process known as cession and delegation, subject to the written consent of the Bank.

In essence:

• • The Seller cedes the rights under the existing loan agreement (the obligation to repay the outstanding bond amount) and the Purchaser assumes those obligations through delegation of debt.
• • This legal arrangement does not extinguish the existing bond but rather substitutes the debtor, placing the new purchaser in the position of the borrower.
• • The Bank must evaluate and approve the Purchaser’s creditworthiness in accordance with the National Credit Act 34 of 2005 and all applicable FICA regulations.
• • This process is often desirable where the interest rate on the Seller’s bond is favourable, or where the Purchaser wishes to avoid the costs of registering a new bond, which include bond registration fees, initiation costs and associated attorney disbursements.

However, such arrangements are not common practice and are generally only approved in limited circumstances by financial institutions. The Parties must ensure that:

1. 1. The terms of the cession and delegation are reduced to writing;
2. 2. The Bank’s written consent is obtained prior to transfer;
3. 3. The transfer documents lodged at the Deeds Office reflect the ongoing mortgage bond correctly; and
4. 4. The Purchaser complies with all statutory requirements, including affordability assessments and verification of source of funds.

While this mechanism may offer a cost-effective alternative to bond registration, it carries its own legal risks and must be properly managed through experienced conveyancing practitioners.