When are property deals binding?
Failure to understand when your property deal is binding can be challenged in court.
A recent court case has highlighted just how important it is to understand when exactly a property deal becomes binding. This is usually dependent on the various suspensive conditions in the Offer to Purchase (OTP). Simon Dippenaar and Cronje Oosthuizen of Simon Dippenaar & Associates Inc. provide context.
FAQs: Understanding when property deals are binding
Q1: Most assume that after signing and having the OTP accepted, the property deal is binding. Is this the case?
A: It depends on the clauses contained in the OTP.
For example, OTPs usually contain suspensive conditions. This means the obligations and enforceability of a contract can be suspended pending the fulfilment of a particular event, such as bond approval. This aspect hinges on an Approval in Principle (AIP), which is a written confirmation that a bank intends to grant the home loan, typically subject to valuation and bond registration. Once the suspensive condition is fulfilled, the sale agreement becomes binding and enforceable.
Q2: How much attention should be paid to suspensive conditions, and can these be confusing or misunderstood by the parties in a sale?
A: Suspensive conditions are critical and frequently misunderstood. These clauses determine whether a sale becomes legally binding. Misunderstanding them can lead to costly disputes, failed deals, or even court action. Many incorrectly assume that signing means the sale is binding, which is not the case.
Q3: What are the different types of conditions?
A: A suspensive condition is different from a resolutive condition. Suspensive conditions are commonly used when a buyer needs to secure bond finance before the sale can proceed. The agreement only becomes legally binding once the condition, such as bond approval, is fulfilled within the agreed timeframe.
By contrast, a resolutive condition may be included in a property sale where the contract is immediately binding but could fall away if a specific event occurs. For example, the agreement may remain in force unless a local authority exercises a pre-emptive right to purchase the property. Or, the sale may fall through if the body corporate of the sectional title scheme refuses the buyer consent to bring their pet to the property.
Thus, while suspensive conditions delay the enforceability of a sale, resolutive conditions allow it to proceed but leave room for the agreement to be undone under certain circumstances.
Q4: Are there loopholes? What are those?
A: Examples include:
- Failure to fulfil suspensive conditions: A buyer who no longer wants to proceed with the sale may intentionally delay submitting documents or not pursue bond approval seriously.
- Ambiguity in what constitutes “bond approval”: If the OTP does not clearly define this, the buyer may argue that the condition was never fulfilled. It’s essential to distinguish pre-qualification from actual approval in principle.
- Failure to deliver a bank guarantee or fulfil FICA requirements: A buyer may neglect to provide the required guarantee or comply with FICA obligations.
Q5: In the case of a cash deal, when is the property deal binding?
A: Generally, there is no need for a suspensive condition. However, Section 29A of the Alienation of Land Act provides a five-day cooling-off period for residential property purchases under R250,000 by natural persons. Otherwise, the deal becomes valid and enforceable upon signing, subject to any other clauses.
Q6: If a buyer or seller has legal knowledge, can it create an unfair advantage?
A: Yes. A savvy buyer might include a suspensive clause as an exit strategy while the seller believes the sale is binding. Conversely, a seller may swiftly accept a cash offer with no suspensive conditions, knowing it becomes binding instantly. Legal knowledge helps protect against issues like breach of contract, repudiation, misrepresentation, or non-disclosure of defects, which are covered under laws such as the Consumer Protection Act.
Q7: What documents confirm that a property sale is binding and cannot be challenged in court?
A: No single document can absolutely prevent legal challenges. It depends on the specific circumstances. However, a combination of a well-drafted OTP, clear terms, and fulfilled suspensive conditions makes the agreement legally binding and difficult to contest.