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Can I cancel my offer to purchase?

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11 Sep 2013

A Property24 reader asks:

A Property24 reader says she needs to cancel her offer to buy property because she cannot get finance for the extra costs.

I signed an offer to purchase  and now I have decided to cancel it. The reason for my cancellation of the bond is because I have tried as well to apply for further financing to cover the transfer fee and registration cost and my enquiry for such was rejected, and I have no means out of my salary given all the expenses that are deducted.

Can the agency sue me for cancelling the OTP?

Jaco Rademeyer, from Jaco Rademeyer Estates, responds:

This matter deals with cancellation of an offer to purchase land. As a purchaser it is very important to be aware that the most important document when dealing with a sale of land is the “offer to purchase” also known as the agreement of sale. All the terms and conditions pertaining to a sale are stipulated in that document. It is advisable that the parties involved in the said agreement should always ensure that they understand the terms and conditions therein to a great extent because all aspects, including legal implicated aspects pertaining to the sale in question, will be stipulated in that agreement.

The offer to purchase is a contract which is binding between the parties. The Alienation of Land Act 68 of 1981 provides that contracts for the sale of immovable property or rights in immovable property must be in writing and signed by the parties or their duly authorised representatives in order to be enforceable.Just like any other contract, upon signature thereof, the offer to purchase becomes a binding legal transaction between the parties. Until the signature of the seller and the buyer (or their agents) appears in the offer to purchase, none of the parties will be bound by the terms of the aforementioned agreement.

In the matter in question, the first thing that the purchaser should determine is whether the agreement of sale which he or she entered into was subject to any suspensive conditions. If the said agreement was subject to suspensive conditions, then the purchasers should ascertain whether the said suspensive conditions were fulfilled. If suspensive conditions in an agreement of sale are not fulfilled, then the entire agreement becomes null and void unless both parties (seller and purchaser) in the sale agree to have an addendum to their agreement whereby they waive compliance with the suspensive conditions contained in the offer to purchaser.

In the matter in question, it is clear that the offer to purchase was subject to a suspensive condition, in particular, the approval of a bond. The bond was approved and such approval resulted to the suspensive condition being fulfilled.

What were the terms of the suspensive condition? 100% bond? 90% bond plus costs? Bond was approved but was it on the terms and conditions acceptable to the purchaser as most Offers to Purchase will state? For example, if the terms of the approved bond did not include costs and the purchaser intended for costs to be included, the purchaser is entitled to cancel the approved bond based on that reason. If the purchaser in this matter cancelled the agreement based on the fact that the bond was approved but not on his/her terms, it cannot be held that she/he breached the agreement, especially if she even took further necessary/ reasonable steps to try and acquire further finance. All the purchaser will need to do is to prove that she/he tried her best to get finance.

If there were no terms relating to the approved bond to include costs, the purchaser’s cancelation of the agreement unilaterally upon fulfilment of the supsensive condition would then amount to breach. Upon such breach, the purchaser would be liable for the agent’s commission and not the seller.

If the breach occurs and purchaser remain in default for a period of days (normally 7 days) after written notice has been given to him or her by the other party or his agents, then the aggrieved party, in this case the seller and the agency, shall be entitled to claim performance or damages.

If the purchaser and the seller agree to cancel the sale, then both the seller and the purchasers might be liable jointly and severally to the agent for commission (not if suspensive condition was not fulfilled).It must always be borne in mind that the agent fulfilled his or her mandate, whether or not the sale proceeds, he or she would be entitled to his or her commission. The party in breach of the contract would be whom the agent will claim his or her commission from. If the seller complied with all the terms of the agreement of sale and the purchaser is the party in default, he will be liable for the commission. The claim will not merely be just commission; the seller could institute a claim for damages or specific performance, in other words, an order to make the purchaser continue with the agreement of sale. If there was a Conveyancer involved and he or she had already performed his or her duties, in particular, transfer and/or bond

It is of most importance that the purchasers and sellers become aware in detail of the terms and conditions of the agreement of sale before signature. Termination of a contract unilaterally wherein all the suspensive conditions have been fulfilled amounts to breach of contract, which creates room for claims being instituted against the party in breach. The claims will not only derive from the seller but also from the agent and the Conveyancer (if any).

Readers may submit questions to Property24’s Guest Expert panel and/or comment below. We may not be able to answer all questions received, but all will be considered. 

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