4.1 South Africa

South African insolvency law does not allow the buyer to acquire a proprietary interest in an asset that forms part of an insolvent estate (see footnote 227). This may lead to hardship if the buyer has already paid the purchase price (see section 1). This possibility of hardship led to the enactment of the Alienation of Land Act (Act 68 of 1981) (hereafter: ALA). The prevailing view with regard to this matter is that the described position of the purchaser was unfair when it came to purchase agreements of immovable property between housing corporations (as sellers) and individuals (as buyers). Vulnerable individuals would not normally be able to pay the full purchase price in one go. Therefore, the purpose of the ALA is to strengthen the position of the purchaser who pays the purchase price in instalments.1 One of the provisions that strengthens the position of the purchaser is section 22 of the ALA. This provision dictates that a purchaser is entitled to receive the title to the immovable property if the seller has gone bankrupt prior to delivery, on two conditions: (a) the purchaser must have purchased the land in terms of a ‘contract’, and (b) the purchaser must have made arrangements for the payment of all costs in connection with the transfer of land. A ‘contract’ (in terms of the ALA) is an agreement pertaining to the sale of land in more than two instalments over a period exceeding one year.2

However, two years ago the scope of this protection was widened significantly by the Constitutional Court in Sarrahwitz v Maritz N.O. and Another (herafter: Sarrahwitz or Sarrahwitz-judgment).3 In this case, Ms. Sarrahwitz, a poor woman, bought a house from Mr. Posthumus. She paid the purchase price in full, by borrowing this amount from her former employer. However, as the years progressed, no delivery of the immovable took place.4 On 14 April 2006, Mr. Posthumus was declared bankrupt and Mr. Maritz was appointed as trustee. Under South African private law, both the immovable and the purchase price formed part of the insolvent estate. After several unsuccessful attempts, Ms. Sarrahwitz made an application to the Constitutional Court. The Constitutional Court held that the distinction between purchasers that paid the purchase price in instalments and ones who immediately paid the full price was not in accordance with sections 9 (equality) and 26 (right to housing) of the Constitution.5 The Court therefore applied the remedy of severance and reading in at the end of the definition of a ‘contract’ in section 1 of the ALA. The words “including residential property paid for in full within one year of the contract, by a vulnerable purchaser” were read in. The Court further defined a ‘vulnerable purchaser’ as “a purchaser who runs the risk of being rendered homeless by a seller’s insolvency”.6 Therefore, under these circumstances, the buyer may acquire the ownership of a dwelling, despite the fixation of assets of the insolvent estate.