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Suspensive conditions & deposits: a warning

Suspensive conditions & deposits: a warning

MAIN IMAGE: Denise Zaslansky – CEO of Firzt Realty, and Michelle Cohen from Leapfrog’s Johannesburg North East

Senior writer

Cliffe Dekker Hofmeyr has highlighted the importance of precise contractual terms and adherence to legal requirements in property transactions. The firm says a recent court case has far-reaching implications for property buyers, sellers, and real estate professionals.

The case centred around the validity of an agreement of sale for an immovable property situated in Hout Bay. The dispute itself concerned the validity of the agreement, the waiver of suspensive conditions, and the cession of rights related to a substantial deposit.

The protagonists, the dispute, the applicable clauses

Protagonists: Christopher Charles Hughes (applicant), Nicholas Gargassoulas (the first respondent), Cindy-Ann Oosthuizen (the second respondent), and Pam Golding Properties Pty Ltd (the third respondent).

The dispute: An agreement of sale had been entered into between Charles Hughes and Peter Henry Green for the sale of Hughes’s property through the Pam Golding Properties agency. The agreement was finalised on 12 February 2020 at an agreed purchase price of R4 950,000. This required Green to deposit R1 Million into Pam Golding Property’s trust account within seven days of signing the agreement and the remaining purchase price to conveyancing attorneys on property transfer registration.

Reference:  Clause 6.1 of the agreement stipulated that the sale was subject to a suspensive condition. Green needed to secure mortgage loan approval for the balance of the purchase price by 13 March 2020.  Notably, Clause 6.2 allowed Green to waive this condition by providing written notice to the seller before the fulfilment or waiver date. If the suspensive condition remained unmet by the due date, the agreement would become null and void, and the deposit, along with any accrued interest, would be promptly refunded to the purchaser within five business days.

Unfortunately, Green failed to meet the latter condition, resulting in the agreement lapsing. As a consequence of the lapsed agreement, the High Court ordered the third respondent to refund the substantial deposit that Green had paid to the first and second respondents.

The importance of precise contractual terms

As a point of departure, the Supreme Court of Appeal (SCA) observed that the applicant and Green operated under the mistaken belief that the agreement remained valid and was still subject to the suspensive condition. This is because Green had, before the due date, offered to pay the remaining balance in cash, and the parties mistakenly constituted this as a waiver of the suspensive condition. However, the High Court found that Green did not waive the suspensive condition by written notice in terms of Clause 6.2, and the agreement had actually lapsed because the condition was not met by the stipulated due date.

After careful consideration, the SCA rejected the applicant’s argument that the High Court had erred in determining that Green had not waived his reliance on the suspensive condition. The SCA found that the applicant had failed to meet the burden of proving that Green had waived the benefit of the suspensive condition. Consequently, the High Court’s finding was deemed sound and beyond reproach.

For these reasons, the SCA found that Green was entitled to a refund of his deposit. Furthermore, he was entitled to transfer his rights to the deposit to the first and second respondents, and any counterargument was deemed to have no reasonable chance of success.

Agency heads respond

Weighing in on this case is Denise Zaslansky, CEO of Firzt Realty, who says that these rulings remove any doubt about why a deposit should be refunded when an Offer to Purchase property is suspensive.

“Property practitioners must ensure when completing the documentation that they explain to both the seller and the purchaser that the sale is only un-suspensive once all suspensive conditions are met.  It is imperative that the property practitioner understands the implications of ensuring that any clauses added to the agreement will override the standard wording in the agreement.

“Further, when a situation arises that either party verbally advises that they would like a condition changed, i.e. Green might have verbally told the property practitioner that he intended to pay the balance of the purchase price in cash, which the property practitioner relayed verbally to the seller but never reduced this to writing and had signed by both parties to make it legal and binding, the condition in the agreement would remain the same.  i.e.  suspensive on a bond grant.”

Zaslansky also provides another example: when a purchaser makes an offer suspensive on a Property Report within a certain period. “In this instance, the clause should read …This offer is suspensive on the purchaser obtaining a Property Report which is acceptable to him and notifying the Agent of same within a 10-day period from acceptance of the offer which will make the sale un-suspensive. If the Report is unfavourable, the sale will remain suspensive, and the purchaser must notify the agent in a timely manner, which will then render the offer null and void.  In this instance, the deposit will be funded to the purchaser within 3/5 days.

“This example also leaves no room for doubt,” says Zaslansky. “It might be a long and cumbersome process, but it will alleviate any misunderstanding. It is imperative, therefore, that a third party reading a clause understands the contents, without having to refer to any of the parties involved in drawing up the agreement.”

Michelle Cohen from Leapfrog’s Johannesburg North East concurs with Zaslansky, adding: “The bottom line is that in the sale of immovable property, verbal discussions don’t count: everything must be reduced to writing.  

It is also clear that in 90% of the Offers to Purchase that people sign, if a suspensive condition like a bond grant or the sale of the purchaser’s property is in the agreement, any deposit paid must be refunded if the condition isn’t met.”

Cohen relates a relevant recent incident: “We had a bond attorney who tried to charge the buyer wasted costs for work done when both the offer and the bond grant clearly stated that the offer was made subject to the buyer selling their property and the successful transfer thereof. Consequently, the buyer refused to pay, and the attorney voided their account and apologised.

“A suspensive condition is exactly what it says: it suspends the conclusion of the offer until that condition is met,” concludes Cohen.  

Let this strongly serve as a reminder to all parties involved in property sales to carefully consider the implications of suspensive conditions and their impact on the validity of agreements.

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