MAIN IMAGE: Francois du Toit – managing partner at Tyson Properties Johannesburg, Khairiyah Safeda – founding director of Safeda & Associates, Jackie Smith – chief executive of Buyers Trust
Kerry Dimmer
A signed offer to purchase (OTP) does not guarantee that a property will reach transfer. When a transaction collapses, the deposit, conveyancing costs, and estate agent’s commission can all become contentious, so agents need to understand where they stand.
A purchaser may have paid a substantial deposit, the conveyancer may already have completed weeks of work, and the agent may have introduced the parties, negotiated the sale, and managed the transaction. But if the property never reaches registration, who ultimately pays for all that work?
The answer is not straightforward. Three industry specialists say the OTP wording, the reason the transaction fails, and the stage reached in the transfer process are critical.
A deposit is not automatically there to pay everyone
Francois du Toit, managing partner at Tyson Properties Johannesburg, says deposits become complicated when a purchaser withdraws. “In South Africa, deposits often serve as a security measure for sellers and will often show commitment, but they raise complex ethical and legal considerations when a buyer withdraws from the deal, especially when the transaction is quite far down the process, and all suspensive conditions have been met.”
He cautions against the assumption that once a buyer has signed the OTP and fulfilled the suspensive conditions, a deposit can simply be used to settle the costs generated by the failed transaction.
“Legally, if all suspensive conditions have been met and a buyer still withdraws, the standard procedure entails that the conveyancer and the agent must pursue separate legal action to recover their fees. This means that a deposit cannot simply be withheld without following due process, reinforcing the need for transparency and fairness in all transactions.”
He also points to uncertainty around clauses sometimes referred to as rights of first payment, noting that “the legality of these clauses has not been conclusively established in South African courts, leading to a somewhat ambiguous landscape.”
For agents, the lesson is to avoid treating the deposit as money that is automatically available to settle their commission or other transaction costs.
What happens to the conveyancer’s costs?
Khairiyah Safeda, founding director of Safeda & Associates, says the answer depends on when and why the sale falls through. For example, if a purchaser fails to obtain the required bond and the agreement lapses because a suspensive condition has not been fulfilled, the conveyancer generally would not charge the conveyancing fee because the transfer does not proceed.
The position changes once the suspensive conditions have been fulfilled and substantive transfer work has started. “However, if the bond finance and other suspensive conditions have been fulfilled, the agreement is then active, and the conveyancer has commenced work on the transfer. Should the transaction subsequently fall through, wasted costs may become payable.”
Safeda says the Law Society of South Africa’s conveyancing fee guidelines allow for wasted costs when a transaction is cancelled after work has already begun. The percentage depends on the stage reached and increases as the transfer progresses.
For example:
- Taking instructions and planning: 17.5%;
- Drawing preliminary documents: 32.5%;
- Signature phase: 42.5%;
- Financial arrangements, such as guarantees: 62.5%; and
- Lodgement: up to 90%.
“The OTP can also contain specific provisions dealing with wasted costs and liability for conveyancing fees.”
On responsibility, Safeda is clear: “Note that the purchaser is always liable for the conveyancing fees.”
That does not necessarily mean the purchaser will ultimately have to pay the full normal conveyancing fee if the transaction is cancelled. The amount may be calculated according to the work completed and the applicable wasted-cost stage.
Can the conveyancer simply take the money from the deposit?
Safeda says whether conveyancing costs can be deducted from a deposit held in trust depends primarily on the OTP. “If the OTP specifically authorises the conveyancer to deduct the conveyancing fees or wasted costs from the deposit, then this can be dealt with in accordance with that provision.
“However, the conveyancer cannot simply assume that they are entitled to appropriate a deposit held in trust towards their fees; the OTP and mandate need to be considered.”
The same principle applies when the purchaser and seller disagree about why the transaction collapsed. “Generally, the deposit remains held in trust while the parties’ dispute regarding the cancellation and entitlement to the deposit is resolved.”
That means an agent should not promise a buyer that the deposit will be returned immediately, or tell a seller that it automatically covers commission or other costs.
What happens to the agent’s commission?
A sale not reaching transfer does not necessarily mean the agent loses the commission. However, entitlement depends largely on the OTP terms and the circumstances surrounding the cancellation.
Safeda says many OTPs specifically address the agent’s commission where a sale does not proceed. “For example, depending on the particular clause:
- Where the transaction fails as a result of the seller’s breach or default, the seller may be liable for the agent’s commission.
- Where it fails as a result of the purchaser’s breach or default, the purchaser may be liable.
- Where the purchaser and seller mutually agree to cancel, the OTP may provide that the commission remains payable and may apportion the liability between the parties, for example 50% to each.
“The precise wording of the OTP is therefore important, and the agent’s entitlement should not be assumed to be the same in every cancellation scenario.”
Can commission be taken from the deposit?
Potentially, yes, but again the OTP must expressly provide for it.
Safeda says many OTPs contain provisions allowing the estate agent’s commission to be recovered from the deposit held in trust, particularly where the agreement states that commission remains payable even though the transaction does not proceed to registration. But the existence of such a clause does not mean every failed sale will produce the same outcome.
Protecting the client
Jackie Smith, chief executive of Buyers Trust, approaches the issue from the perspective of protecting the purchaser’s funds. “People assume property transfers are linear and guaranteed once the OTP is signed,” she says. “The reality is that many transactions hit obstacles long before registration takes place.”
Those obstacles can include stalled bond approvals, compliance certificates, disputes about fixtures or deadlines, and disagreements over contractual terms.
Smith says deposits can represent a significant financial exposure. “It’s often between 10% and 20% of the purchase price and is usually paid well before transfer.”
She says everyone involved needs to understand exactly where the money is held and under what circumstances it can be released, particularly buyers, who “must comprehend exactly what needs to happen before funds are released”.
Agent as communicator
The estate agent remains a key communication link between the parties, the conveyancer, and other professionals. That makes understanding the mechanics of a failed transaction as necessary as understanding how to close one.
The safest approach for agents is therefore to go back to the documents rather than make assumptions:
- Check the OTP.
- Establish whether the suspensive conditions were fulfilled.
- Identify the reason for cancellation.
- Establish how far the conveyancing process had progressed.
- Confirm what the relevant mandates say about costs and commission.
