When you purchase land in South Africa, you will usually be required to pay the purchase price which, in some instances, consists of a portion thereof (known as a deposit) to a Conveyancer's trust account.
This amount will then be invested, usually for the benefit of the purchaser, and interest that accrues on this amount will be paid over to the purchaser once the matter is registered at the Deeds Office.
There was a matter where a purchaser of immovable property paid an amount of R 2.6 Million as the purchase price to their Conveyancer. Prior to this, the purchaser's funds were invested in a money market fund which earned interest of an amount of R 11,500 per month (about 5.3 % per year).
The purchaser expected to earn the same amount of interest on this amount while the money was invested for the time it took the transfer of property to be finalised. To the purchaser's shock, the interest that they were paid out amounted to a measly R 369. The purchaser laid a complaint against their Conveyancer with the Cape Law Society, arguing that their Conveyancer failed to exercise her duty of care when investing his money. The purchaser also issued a letter of demand to their Conveyancer for amount of R 12 000, which was the maximum amount that could be claimed in the Small Claims Court at that time.
The Conveyancer said that when she queried this with the Bank, the Bank informed her that their interest rates changed and that they only informed their larger clients.
The Bank defended themselves by saying that the money was invested in a call account and that they were never notified that this was for an investment on behalf of an Attorney's client. The Conveyancer denied this statement and claimed to have proof that this was stipulated on her request for this investment.
The Conveyancer's Bank eventually agreed to pay her interest of R 12 331, which the Conveyancer paid to the purchaser. The Cape Law Society dismissed the complaint against the Conveyancer but assured the purchaser that it would escalate this issue to the Law Society of South Africa so that it may be addressed at a national level.
This matter stresses the important principle that when dealing with money belonging to someone else, a Conveyancer and Attorney has a higher duty of care to do the utmost best for the client when it comes to investing those funds.
Part of that duty is to inform clients of the rate of interest that applies to the Conveyancer's or Attorney's specific investment account. This duty does not end there. There is also a duty to explain the charges that will be deducted from the interest that accrues on that investment.
Conveyancers and Attorneys charge a minimal fee for investing these funds as investing and paying these funds out takes time to do. In addition to this fee, a certain percentage of the interest earned on the investment gets paid to the Legal Practice Council as well.
If the interest rate linked to the Attorney's trust account and potential deductible fees are not to your liking, another option is requesting your Banker to issue guarantees to the Attorneys for the purchase price. This could ensure that the money held in your bank account generates interest at a more favourable rate and that no deductions due to Attorneys are made from the interest that is earned on this investment.
Be mindful that Banks, however, do charge a fee for issuing these guarantees. It is best to also ask your Banker to confirm these fees so that you have all the options available to you before you make an informed decision.
Part of the duty of care when handling funds belonging to another person is to present them with all their options and to be transparent about fees, interest rates and charges upfront. Being transparent and presenting clients with all options with regards to investment of their funds ensures that your client's interests are always protected.
Don't just invest, invest after INVESTigation to ensure that it is in your best INTEREST!
Published on April 29, 2019
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.