COMMON PITFALLS IN OFFER TO PURCHASE AND UNDERSTANDING THE CLAUSES AND TERMS IN THE SALE AGREEMENT

Buyers and Sellers must understand that once the Offer to Purchase is signed by the Seller, it becomes a legal and binding Sale Agreement. There is a legal saying in Latin, "Caveat Emptor," which means "let the buyer beware." Another rule, called the "Caveat Subscriptor" rule, means that if you sign a contract, you are bound by its terms - even if you did not read or fully understand it. This is part of South African contract law.

The purpose of this article is to explain some of the common problems that come up in property sale agreements, and to share remedies and solutions from a conveyancing point of view. By understanding these issues better, buyers and sellers can hopefully avoid these mistakes in future property transactions.

• What Are Suspensive Conditions in a Sale Agreement?
• A suspensive condition is a clause in a sale agreement that puts the agreement on hold until a specific condition is fully met.
• Examples of suspensive conditions include:
  • The buyer must get a home loan by a certain date.
  • The buyer must sell their own property by a specific date and for a specific price.
  • The seller must first buy another property before the sale can go ahead.
  • Suspensive conditions usually begin with the words "Subject to..."
  • If the condition is not met on time, the whole agreement falls away and has no legal effect.

However, the person who benefits from the condition (for example, the buyer who needs the loan) may be allowed to waive (give up) the condition before the deadline, if the contract allows this.

• Important Things to Know When Adding Suspensive Conditions:
• The condition must be clear and easy to understand.
• It must have a specific deadline for when the condition must be met.
• The wording must be precise, so there is no confusion about what is required. Write in very understandable English.

What Happens if the Condition is Not Met?

• If the condition is not fulfilled by the due date, the agreement ends automatically.
• You cannot simply fix it by adding a clause or signing an addendum.
• Instead, the buyer and seller must sign a brand-new sale agreement.
• This new agreement can be a short document that refers to the old (lapsed) agreement and confirms that both parties agree to the same terms, unless changes are made.

UNDERSTANDING SUSPENSIVE CONDITIONS IN THE BANK GUARANTEE AND HOW IT IS ARRANGED

Understanding Bank Guarantees in Property Sales

A bank guarantee is often used to secure the payment of the purchase price, or part of it, when a property is transferred at the Deeds Office. It gives the seller peace of mind that the money will be paid once the transfer is final. However, the date for providing the guarantee should not be too soon after the buyer receives their home loan approval. This is because several steps need to happen before a guarantee can be issued. It is generally recommended to allow 15 to 20 days from the date the loan is granted for the guarantee to be delivered.

Important Points About Guarantees:

Guarantees are costly.

• If the buyer uses their bank, the bank will charge a fee.
• If the buyer's money is held in the attorney's trust account, the attorney may also charge a fee.
• If the guarantee is based on a new home loan, and the bond later falls through, the buyer may have to pay cancellation costs to the bond attorney.

A Practical Alternative:

• Instead of requiring a formal bank guarantee (which can be expensive), sellers and their attorneys can consider accepting an undertaking (promise) from the conveyancer.
• This undertaking can be given once all suspensive conditions are met and the transaction is properly secured.
• This option can save the buyer money and reduce the risk of delays or wasted costs.

OFFERS ACCEPTED AFTER THE EXPIRY OF THE ACCEPTANCE PERIOD

Offers to Purchase - Validity and Acceptance: Most Offers to Purchase are only valid for a limited time. This means the Seller must accept the offer within the time stated in the document.

If the Seller accepts the offer after the deadline, the agreement is not automatically valid. The Purchaser then has the right to cancel the agreement, but they may also choose to accept the late signature and allow the sale to continue.

To avoid confusion or disputes, it is very important that both the Purchaser and Seller initial next to the acceptance date if the Seller signs after the deadline has passed.

THE REQUIREMENT OF MUNICIPAL PLANS

Building Plans and the Sale of a Property

If a property does not have approved municipal building plans, it is seen as a latent defect (a hidden problem).

• If the Seller did not know there were no plans, the voetstoots clause (sold as-is) protects the Seller, and the Purchaser cannot demand the plans-unless the sale agreement specifically states that plans must be provided.
• If the Seller does know there are no plans, this must be disclosed to the Purchaser.
• Once disclosed, the Seller does not have to provide the plans unless:
  • The Purchaser includes this as a condition in the agreement, OR
  • The Seller guaranteed (warranted) that the property has plans.
• If the Seller knew there were no plans and purposely hid this from the Purchaser (fraud), then the voetstoots clause does not protect the Seller. In that case, the Purchaser can legally insist on getting the plans.

Important Advice:

If a condition about building plans is included in the Offer to Purchase:

• It can delay the transfer process by weeks or even months.
• The condition must be clearly written and must include a deadline for when the plans must be provided.