Understanding power of attorney in property transactions

Imagine you're trying to sell a property in South Africa, but you are currently living or traveling overseas. Handling the transaction from afar can be challenging, but with a power of attorney (POA), you can appoint a trusted representative to manage the process on your behalf.

In this article, we’ll cover what a POA is, the types most commonly used in property transactions, legal requirements to consider, and practical steps to ensure your transaction is secure.

What is Power of Attorney?

A power of attorney (POA) is a legal tool that allows one person, known as the principal, to appoint another person, called the agent or attorney, to act on their behalf in specific situations. This is particularly useful in property transactions when the buyer or seller cannot personally handle the details.

Benefits of using POA in property transactions

Claude McKirby, Co-Principal for Lew Geffen Sotheby’s International Realty, explains: “A POA allows a principal to appoint an agent to act on their behalf for a specific transaction, which is handy in various circumstances. If the principal is overseas, facing health or mobility issues, or unable to attend meetings due to time constraints, a POA allows a trusted representative to take their place. It also simplifies complex transactions involving multiple parties.”

Types of Power of Attorney in property transactions

In South Africa, different types of POA documents are available, each serving specific functions. According to McKirby, two types are most commonly used in property transactions:

• General Power of Attorney: This grants broad authority, allowing the agent to perform a range of actions on the principal's behalf, such as buying, selling, or managing property. However, this POA should be carefully managed as it provides extensive powers.
• Special or Limited Power of Attorney: This type restricts the agent’s powers to specific actions, such as signing property transfer documents. It is often preferred in property transactions because it limits the agent’s authority, providing added security.

Key requirements for a legally binding POA

For a power of attorney to be legally binding in South Africa, certain steps and requirements must be followed:

• Drafting the document properly: The POA document must clearly outline the powers granted to the agent, ensuring there is no ambiguity. It’s advisable to work with a conveyancing attorney or notary to ensure the document is precise and legally sound.
• Signatures and witnesses: The POA must be signed by the principal in the presence of witnesses. Generally, two adult witnesses are required, and they should be individuals who are not related to either party and have no stake in the property transaction.
• Certification for overseas principals: If the principal is overseas, the POA must be signed and certified by a notary public in that country. Additionally, an apostille or certification by the relevant South African embassy may be required to validate it in South Africa.
• Filing the document with relevant authorities: Depending on the transaction, the POA may need to be registered with the deeds office, especially if it involves the transfer of property. Ensure your agent or conveyancing attorney files the necessary documents.
• Revocation clause: To retain the right to revoke the POA if circumstances change, include a clear revocation clause in the document. This allows the principal to end the agent’s authority if it is no longer necessary.

Risks and Considerations

While a power of attorney offers convenience, it also carries certain risks. McKirby advises understanding these potential risks to avoid delays or costly errors:

• Fraud and misuse: A power of attorney grants significant control, so it is essential to select an agent you trust completely. Fraudulent use of a POA can result in financial loss. Consider including restrictions in the POA document to limit the agent's actions if necessary.
• Expiry and revocation: In South Africa, a POA expires if the principal passes away or is declared mentally incapacitated. If the transaction might take a long time, consider a contingency plan. The POA can be revoked at any time, but it is important to communicate this in writing to all parties involved.
• Scope of authority: Avoid granting too much power if it’s not necessary. A special or limited POA can reduce risks by focusing on specific tasks, rather than granting the agent broad, undefined authority.
• Valid identification and documentation: When acting on behalf of the principal, the agent must present identification and a copy of the POA. Ensure the agent understands what documents are needed and confirm that the POA is properly certified and up-to-date.
• Legal advice: Property transactions can be complex, and seeking legal advice when setting up a POA can help avoid costly errors. A conveyancing attorney can assist you in drafting a document that meets your needs and mitigates risks.

Practical tips for setting up a POA

McKirby emphasizes, “Using a POA in a property transaction comes with certain risks, so it’s important to understand where potential risks lie and what issues to be mindful of in order to avoid unnecessary delays or costly errors in judgment.”

Key Takeaways

To ensure you have the best outcome when using this method to sell your property make sure that you:

• Choose a trusted agent for your POA to reduce risk.
• Ensure the POA is clearly defined and limited to necessary actions.
• Work with a legal professional to draft and validate your POA to protect your interests.

A power of attorney can be a valuable tool, enabling transactions to proceed seamlessly even when the buyer or seller is unavailable. By understanding the legal requirements, carefully drafting the POA, and working with a trusted agent, you can protect your interests, avoid potential issues, and ensure your property transaction is completed without unnecessary delays or risks.