What Is It and How Does It Work?

In life, things happen and the outstanding bond you have on a piece of land may need to be transferred to a different individual. This can be for several reasons from owning the property jointly and selling your shares to an individual that passed away and a family member inherits the full estate. In these circumstances, the bond might not need to be cancelled but rather transferred from one owner to another in terms of Section 57 of the Deeds Registries Act.

What does Section 57 stipulate?

Section 57 of the Deeds Registries Act determines the circumstances under which a bond can be transferred – the current owner removed and substituted with the new owner. The request for Substitution is usually brought by the new owner. The salient points of Section 57 can be summarised as follows:

  • The bond in question cannot be a surety bond.
  • The land transferred to the new debtor must be
    • the land in its entirety
    • or all the shares of the land owned by the previous debtor.
  • All the land under the bond needs to be transferred.
  • The Bank has to allow the substitution.
  • The new debtor must consent to the substitution.
  • The previous debtor cannot have any remaining rights over the land.
  • The new debtor must be legally capable of taking on a bond.

Certain people that are not legally capable of bonding land and to whom Section 57 will not be applicable includes:

  • A trustee in an insolvent estate
  • The executor administering an estate
  • The liquidator of a company being wound up

How does the substitution happen?

The process of substituting the debtor can look slightly different depending on the specific actors involved. The substitution can be requested because the entire land is being sold, or because half of the land is being transferred due to a divorce, or from a deceased estate, the entire land is being transferred to a beneficiary.

When the new owner requests the Section 57, it has to be approved by the bank. Regardless of the bank involved, they will do a full credit check on the new debtor as they need to ensure that he/she qualifies to bond land. The rest of the paperwork is dependent on the bank and can range from simply updating the system to requiring new bond documents to be signed and submitted. Once the bank approves the new debtor, attorneys will get involved to register the Section 57 at the Deeds Office.

This has to take place at the Deeds Office because the previous debtor is not only completely removed from the bond, he/she must also be removed from the title deed to the land by transferring the land to ensure that the previous debtor has no rights to the land after Section 57’s substitution takes effect. The substitution and the transfer happen at the same time. In the case of the land being sold, a sales agreement needs to accompany the transfer and the value of the land also has to be determined as possible transfer duties may apply and will need to be calculated.

Concluding thoughts

The Substitution of Debtors under a bond can become a tricky situation as there has not always been an agreement as to when Section 57 applies and when it doesn’t. The Registrars have made several rulings over the years to clarify the section and its application to different situations. If Section 57 does not apply to your specific case, the bond needs to be cancelled and a new bond registered in the new debtor’s name. Luckily, at AED Attorneys, we deal with Section 57 Substitutions as well as the cancellation and registration of bonds. We are also well versed in dealing with deceased estates and we can personally assist in various situations where Section 57 is and is not applicable.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.