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Can you get out of an offer to purchase?

MAIN IMAGE: Annie Davids of AED Attorneys; David Jacobs, regional manager, Rawson Property Group Gauteng

Danie Keet

To many home buyers the offer to purchase is the ultimate step in obtaining that dream home or property. The estate agent handling the purchase process will also advise the client of the importance of such a step and the way in which this documentation should be approached.

This document is in most instances a binding document and will in some instances force you to g o ahead with the transaction.

However, there are some scenarios in which the document can be cancelled without paying heavy penalties that normally applies.

It is important to note that an offer to purchase is a written document that, once signed by both buyer and seller, becomes an agreement of sale. It is important that the parties keep in mind that an agreement of sale is a legal, binding document and both parties are required to fulfil their responsibilities as laid out in the agreement.

But what happens when a seller decides he no longer wants to sell his property, or the buyer finds a more suitable property to purchase after an Offer to Purchase has been signed? Can a party simply walk away from the deal, or are there potential repercussions?

The short answer is yes, there can be major repercussions and, unfortunately, this can prove to be extremely costly for the responsible party.

Possible repercussions include the following:

  • The aggrieved party could sue for out-of-pocket expenses
  • The conveyancing attorney could claim wasted costs for the work done on the transaction up to date of cancellation of the offer; and
  • The estate agent can claim their full commission on the sale that has been cancelled, depending on the wording of the offer.

Annie Davids of AD Attorneys in Johannesburg says cancelling an agreement of sale is only possible should there be a basis in law for doing so.

An agreement can be cancelled under the following circumstances:

  • The agreement of sale can be cancelled based on a clause contained in the agreement. These clauses can stipulate under which circumstances either party can cancel the contract. If a party can prove that cancelling the contract is in accordance with such a clause, there would be no penalties for cancelling the agreement and it would no longer be binding.
  • The agreement can further include a suspensive condition. Only once a suspensive condition has been met, will the contract come into force. An example of such a suspensive clause is where the sale is dependent on the buyer obtaining bond finance. This condition protects the buyer from being liable for the purchase price without the backing of finance.
  • A further way of cancelling the agreement is based on a party’s breach of contract. If one party to the agreement acted in a way that he contravened the agreement, the other party may lawfully cancel the agreement. The aggrieved party may also claim damages from the party who was in breach of the contract, depending on the circumstances of the cancellation.

“Cancellation of an agreement is a complicated matter with many possible repercussions. It is advisable to always seek legal advice before cancelling an agreement to ensure it is done in accordance with the relevant terms and based on merit,” Davids emphasised.

David Jacobs, Gauteng regional manager for the Rawson Property Group, agrees that the offer is legally binding from the moment it is signed, but also says there are scenarios in which it can be cancelled.

“The most common reason for an offer to purchase to be cancelled is because one or more of the suspensive conditions weren’t met,” said Jacobs.

Suspensive conditions are conditions that suspend the obligations of the contract for all parties until they have been fulfilled. Common examples include the purchaser getting the necessary bond approval, a successful home inspection, or the sale of the purchaser’s current property within a specified amount of time.

“Suspensive conditions are added to the Offer to Purchase on request,” said Jacobs, “but it’s wise to keep these to a minimum, or you risk making your offer less attractive to the seller.

“They’re also not Get Out of Jail Free cards – you have to be able to prove that you were unable to meet a suspensive condition, despite your best efforts. You can’t simply choose not to comply to evade your obligations.”

Failure to meet a suspensive condition by choice would be considered a breach of contract – as would refusing to go through with the sale without legal cause or breaking any other terms and conditions in the contract.

If this happens, the party not at fault can justifiably cancel the offer to purchase and claim any legitimate damages or losses from the party in breach.

“These costs can be significant, from estate agents’ fees and legal costs to compensation for loss of profit or moves that won’t happen,” said Jacobs. “It’s generally a very contentious process and could easily end up in litigation, which is why we urge both buyers and sellers to take their contractual responsibilities seriously.”

The only time a buyer can cancel their offer to purchase, regardless of suspensive conditions or other clauses, is if the offer is on a home priced under R250,000 and notification in writing is provided to the seller within five days of signing.

“This is a legislated ‘cooling off’ period designed to protect low-income buyers,” says Jacobs. “It does not apply to any sales over R250,000.”

According to Jacobs cancelling an offer to purchase when all the suspensive conditions have been met is a complex and often expensive process.

“The first step is to be 100% certain of your finances,” said Jacobs. “Crunch the numbers, get pre-qualified, and make completely sure you are comfortable with the commitment you’re making.”

“Do your homework on pricing, check out the neighbourhood, speak to an estate agent and book a home inspection,” said Jacobs. “You need to be sure your offer is realistic, and that the property is a good choice for your specific needs.”

Once all those boxes are checked, Jacobs says buyers still need to double-check that the offer to purchase is fair and includes their required suspensive conditions.

“These contracts may be fairly standard, but you should never take it for granted that your needs are adequately protected,” he said.

“Talk all the details through with your estate agent and have your attorney look things over if there is any uncertainty. Once you sign on that dotted line, you’re committed – you need to be sure you know exactly what you’re getting into and are making the best possible decision with the purchase of your new home.”


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