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Purchasing a property - Where do I pay my deposit and what about interest?
01 October 2019  | Marié Combrink

Purchasing an immovable property and signing the written agreement is a very big step as an investment in our lives.


Most of the agreements currently stipulate a deposit to be paid, mostly due to the fact that our financial institutions do not grant 100% loans for the full purchase price or more, including the legal fees and transfer duty payable as in previous years.


It is then very normal to ask where does the deposit need to be paid in, on or before the date stipulated in the agreement, and further hereto what about interest on the amount paid? The reason for this question and I also think sometimes why people are hesitant to pay the deposit is that they honestly feel they are “losing” interest on an amount that could have been kept in their own bank account.


First take note that the deposit has to be paid into the trust account of the transferring attorney and this is very important to meet suspensive conditions.


I want to stress it is in the Trust bank account of the attorneys, which in plain language means it is still seen as money of such person / depositor, pending the transfer of the property.   If such funds remain in the Trust bank account of the practice, no interest will be earned for the owners or the beneficiaries thereof.


The option regarding such deposits, but for benefit of the beneficiary or owner of the amount deposited and for interest to accrue to their benefit is the following.


Section 86(4) Trust investment regulated by the Legal Practice act that came into effect on 1 November 2018 reads as follows:


A trust investment practice may:

  1. on the written instruction of any person;
  2. open a separate trust savings account or other interest bearing account;

  3. for the purposes of investing therein any money deposited in the trust account of that practice;

  4. on behalf of such person over which the practice exercises exclusive control as trustee, agent or stakeholder, or in any other fiduciary capacity.


The funds may therefore be transferred from the Trust bank account of the practice and invested on the instructions as indicated in Section 86(4) into a separate trust savings or other interest–bearing account, which interest will accrue to such person.


The fund will be identifiable to the specific client’s account on whose behalf the investment was made and be invested until required for the benefit of such client, but note that the Legal Practice act makes provision that 5% of the interest earned on such investment must be paid to the Legal Practitioners Provident Fund and vest with the LPPF.



Reference / Sources

Legal Practice Act 28 of 2014