Please note that you are using an outdated version of Internet Explorer which is not compatible with some elements of the site. We strongly urge you to update to a newer version for optimal browsing experience.

Property sales and deposit refunds

03 Sep 2014

Under South African common law, the general rule that applies when an agreement fails is that the parties must restore the status to the position they were in before the agreement was signed, unless both parties have agreed that there is an exception to this rule.

If there are no suspensive conditions written into the sale agreement and the buyer is in breach of the contract but does not take any steps to rectify the breach within the time stipulated, the seller is entitled to keep the deposit.

Lanice Steward, managing director of Knight Frank Residential South Africa, says when there is a sale of a property involved and the buyer puts down a deposit but is seen to have defaulted on the agreement, the seller can cancel and keep the deposit.

But what does this mean for the buyer and why would he pay a deposit?

Usually the payment of a deposit is advisable when a buyer wishes to show his good intent and commitment to the purchase of the property. In the majority of cases, the buyer is required to get finance and in most contracts there is a 20 to 30 day provision made so that the buyer can apply for a bond (and this time frame should be enough). She says the seller would have to take his home off the market for this period, so it only seems fair that the buyer commits in some way, hence the deposit payment.

The buyer might have to sell his property, which could take anything from one to six months to sell.

In some instances, if the bond is high or a property is difficult to sell, the agreement will make allowance for the seller to continue to market his property and accept another offer should he receive one that is more acceptable, i.e. with no suspensive conditions. Steward says this does not have to be a higher offer, just more acceptable, i.e. cash or an offer not subject to the sale of another property. She says then 72 hours or three working days would be given to the first buyer to either lift the suspensive condition and accept the legal responsibility of the agreement or walk away from the purchase.

If they walk away or don’t receive the necessary finance, their deposit is refundable, plus interest but minus the administration charges. However, Steward says any company holding a deposit will charge an administration fee, which is part of the costs of running a trust account (which is expensive).

In a recent judgement between Royal Anthem Investments v Lau, the seller tried to claim the deposit amount that had been paid to the conveyancing attorney (which was being held in a trust account) because the buyer defaulted and could not raise the necessary finance in the time stipulated. The clause in their sale agreement read: “If the purchaser is in default of this agreement and refuses to rectify the default within 14 days after acceptance of this written notice, the seller will be entitled, …, to cancel the agreement and to keep any other amounts payable,…”

In this case, after going to the Supreme Court of Appeal, the judge held that the deposit did not fall within the words “any other amounts payable” and the deposit should be returned to the buyer.

In the above case, the transfer fee was also paid over to SARS ahead of time, which is unusual and should not be done until all the suspensive conditions are fulfilled and the sale is confirmed, says Steward. This amount, however, is usually refunded but without interest and it does take time for the refund to be processed.

When is the deposit not refundable?

If there are no suspensive conditions written into the sale agreement and the buyer is in breach of the contract but does not take any steps to rectify the breach within the time stipulated, the seller is entitled to keep the deposit. Most agreements (some do differ) will also have a clause enabling the seller to cancel the agreement but retain the right to sue for damages.

“This is a warning to be careful what you contract into - if there are no suspensive conditions and you don’t fulfil your legal obligations, you have inconvenienced the seller and therefore will lose your deposit.”

Print Print
Top Articles
Often described as one of Cape Town’s best-kept secrets, the coastal suburb of Noordhoek offers buyers laidback country living and luxurious estate homes.

Manchester, Algarve, Lisbon, Porto and Birmingham offer property investors lucrative opportunities. Here’s why, and how to identify the best places to buy…

From Musgrave to Morningside, Essenwood and more, these townhouses in popular Durban suburbs are perfect for first-time home buyers or investors. Take a peek…


Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.

Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724