How to Lease?
The lease agreement on the Waterfall development for Residential properties:
The lease explained:
When looking to build a house of Waterfall, it must be noted that properties are not owner in freehold, but are held by a long term lease (registered for an initial period of 99 years), and this ownership structure applies throughout the Waterfall development.
The ownership structure is aimed at giving the occupier rights which are similar to the rights of an owner of a full title or sectional title purchase.
What this means is that purchasers are in essence buying limited rights to the land and have the right to occupy the stand, as per the lease agreement, for the period prescribed in the agreement (99 years) and the lease is capable of an infinite number of extensions, each extension restoring the lease period to 99 years.
Although this is not a common form of asset ownership and practice in South Africa, the long term lease is a viable and proven form of residential property ownership recognised and used globally and will still provide you the assurance and ownership security you are looking for.
How it works?
On the initial registration of the lease agreement, the lessee pays to the lessor a once off upfront lump sum lease amount, for the right to occupy the land as per the agreement for a term of 99 years. The lease term commences on the date of registration with the option (at the election of the lessee) to renew or extend the lease term.
The lease is registered (in the office of the Registrar of Deeds in Pretoria) in the form of a notarial deed, against the title of ownership by the lessor (the person letting the property) in favour of the lessee (the person to whom the property is let).
This awards a great deal of protection for the lessee because he/she is ensured of a legal entitlement to enforce his undisturbed right of use and enjoyment over the property within the rules and regulations set by the home owners association.
Should the lease consideration payable to the lessor be financed, it can be done through a financial institution of the lessee’s choice. To ensure the rights of the bank (as they are initially funding your purchase), and those of the lessee, are protected, we’ve consulted with the Banking Council of South Africa and negotiated various conditions contained in the agreement.
Any permanent improvements to the land form part of the land and thus the lease agreement.
Such a type of property agreements of course leads to the questions of ‘What happens when you want to sell the property?
Just like any asset, it can be exchanged for compensation. In this case, like any form of property, it’s dictated by market value or what someone is prepared to pay for it on any given day. Whether with the assistance of an agent or privately done, the seller and the purchaser of the lease rights must agree on a price (including the extension fee of 3.5% (plus VAT)). The lease term is then to be extended back to 99 years (by the seller and the lessor) and then the seller can cede his/her rights (to the 99 year period) to the purchaser. The extension of the lease period and the cession of the lease rights are registered simultaneously in the deeds office. Like the transfer of a freehold property, the seller is required to settle all outstanding, levies, rates, taxes and municipal charges relating to the leased property
On that registration, the extension fee is paid to the Lessor, being the Waterfall Country Estate Wuqf (Proprietary) Limited.
A benefit of this arrangement is that transfer duties are not applicable to the deal and thus allows a more favourable purchase price to be negotiated by both parties. Furthermore, generally the transaction time from signature of the sale agreement to registration in the deeds office is much quicker than in the case of a freehold or sectional title property.