Building Plan Conditions in Bond Grants.

In an attempt to protect their security, financial institutions are frequently requesting updated approved building plans as a pre-registration Bond condition. This can cause massive delays in the registration process if the updated approved plans are not available. Most offers are silent on the provision of building plans and therefore with the addition of this condition by the financial institutions, the condition is indirectly added as a pre-registration condition to the sale transaction. 

One can write a book about this conundrum and therefore this short article is more aimed at awareness and should only be seen as a short introduction to the issue at hand.

It is important to note that there is case law to the effect that a Seller is protected by the Voetstoots clause if a Seller was unaware that updated approved plans are not available. This is normally the situation where a Seller has bought the property without receiving the plans and trusted that the City Council, being the custodian of all building plans, would have a copy of the updated approved plans.

Unfortunately, the above protection does not eliminate the issue where a Purchaser’s bank demands the updated approved plans which are unavailable. The bank will simply not allow registration of the matter until the updated approved plans have been issued, even if it means that the registration process is delayed by around 3 to 6 months…or even more.

To avoid delays in the registration process, it is extremely important for Agents to ask Sellers during the mandate negotiations, if the updated approved plans are available. This will ensure that the Sellers get a head-start in obtaining the updated approved plans before the property is sold and the registration process starts. One can then also add a clause in the offer whereby it is recorded that the updated plans are in the process of being approved and that such approval of the plans, unless requested by the bank, shall not prevent the finalisation of the registration process. In the event where the bank does not request the plans, the transfer and bond can therefore be registered while the updated approved plans are being finalised at the City Council. In the event where the bank requests the updated approved plans, the Purchaser would have agreed to the approval of the plans being in process and will not be in a position to blame the delayed registration on the Agent or the Seller. 

Another interesting point is that most bond approval clauses, including the PGP bond clause, refer to the approval of a bond on “standard terms and conditions”. A Seller, who is unaware of the unavailability of plans, can therefore argue that the imposition of a condition relating to the updated approved building plans is a special condition, as opposed to a standard condition which the agreement has provided for. In this case, the Purchaser has not complied with the bond approval clause. This argument is especially relevant where a Purchaser has obtained more than one bond grant, as this will force the Purchaser to accept the less onerous bond grant, which will in turn eliminate a delayed registration process.

There is a plethora of different situations that may be applicable when dealing with building plans and it is therefore of the utmost importance to ensure that the issue is discussed during the mandate negotiations with the Sellers and that the correct clause is used in the offer in order to cater for the specific situation.

Article by Jaco van der Westhuizen, a Director at FWB.