A warning to home buyers in South Africa

Well-known lawyer Richard Spoor has warned that home buyers’ deposits in South Africa are not safe when they are paid into a trust account.

Spoor is one of South Africa’s most prominent human rights and public-interest attorneys, with many high-profile victories.

One of these victories is the class-action lawsuit for compensation for gold and asbestos miners with lung disease.

In a recent post, Spoor shared details about a legal battle where a prospective home buyer paid a deposit into the trust account of the conveyancing attorney.

The buyer was told that the money would be held in an interest-bearing trust account in the buyer’s name and for the buyer’s benefit.

The sale was subject to suspensive conditions that had to be met. In other words, this was a standard sale agreement signed by thousands of South Africans each year.

The understanding was that if the sale fell through, the agreement would lapse and the buyer would get his deposit back.

The sale did indeed fall through because the buyer could not sell another property, which was needed to fund the new house.

When the buyer asked for a refund of his deposit, the conveyancing attorney refused. Instead, the attorney paid the deposit, plus accrued interest, to the seller.

After a legal battle, the High Court ordered the attorney to repay the deposit and interest to the buyer.

However, the attorney appealed to the Supreme Court of Appeal (SCA) in Bloemfontein. The matter was heard this week.

There was a focus on the judgment of the Constitutional Court in Stopforth v Royal Anthem, 2015.

In this case, the Constitutional Court found, “I consider the payment into the attorney’s trust account ought to be regarded as a payment to Royal (the seller)”.

“Because it is a ConCourt decision, unless it can be distinguished, it is binding on the SCA. At least one of the SCA judges seemed to think it was,” Spoor said.

“If the Supreme Court of Appeal follows Stopforth, it will have catastrophic consequences for buyers and the property transfer system in South Africa.”

Spoor explained that buyers pay deposits, sometimes the entire purchase price, into conveyancing attorneys’ trust accounts.

This deposit is done with the confidence that if the sale does not go through and the property is not transferred to them, they will get their deposit back.

He warned that if the Supreme Court of Appeal supports the argument that the money belongs to the seller, it will cause the system to collapse.

“The entire basis on which buyers entrust conveyancers with their deposits collapses if they cannot get their money back,” he said.

“A buyer may as well pay the deposit to the seller, and rely on his good faith, to refund it if the sale falls through.”

“There is no added security in entrusting the deposit to an attorney because, although it is held in the buyer’s name, it is, in law, the seller’s money.”

Spoor said that, until the Stopforth case is clarified, a buyer’s deposit is not safe, and ‘trust’ has no meaning.