Article courtesy of Law Dot News | Property – Bond Clause Deadline

A Bond Clause Deadline…

“I love deadlines. I love the whooshing noise they make as they go by.” (Douglas Adams in The Salmon of Doubt)

Contracts often contain suspensive conditions, a common example being the bond clause in a property sale agreement. The standard bond clause provides that the buyer must obtain a bond by a set deadline, and everyone’s rights and obligations under the agreement are suspended until the bond is granted. If the bond isn’t granted by the deadline, there is no sale.

In practice, the buyer often struggles to meet the set deadline and asks for an extension. If that happens to you, be sure to structure the extension correctly and to get it done and dusted before the deadline expires.

Parties often think “oops, we both missed the deadline, but no worries, we want the sale to succeed so all we need do is agree to revive the agreement.” But that’s a fatal mistake, because if a suspensive condition fails, the contract dies and all your attempts to bring it back to life – usually by way of an addendum or an extension of the time limit – are doomed to fail. You will need a brand new contract if both of you still want to proceed. 

Let’s illustrate this point with a Supreme Court of Appeal (SCA) decision in which the parties attempted to “revive” their agreement after the bond clause had already failed.

A deadline passes and a R5m house sale dies

In February 2020 (i.e. shortly before the economic shock of the pandemic), the buyers of a R5.15m house paid the agreed deposit on time but couldn’t raise the required bond of R4.95m before the deadline set out in the bond clause. A first addendum to the sale gave them another few days, and that addendum was valid because both parties signed it before the deadline expired.

But then the parties made a fatal mistake. Only after the extended deadline had whooshed merrily past did they sign a second addendum, agreeing to extend the date again and thus, they both believed, saving the sale.

The buyers now did more than just get a bond – they paid R1.95m in cash and provided bank guarantees for the rest. And they did all that before the second deadline expired, so all seemed well with the sale. Until Covid struck. That left the buyers with financial problems, so they tried to exit the sale and get their money back. “No deal,” said the seller, “the agreement is still valid and enforceable, you have to take transfer.”

Off to court went the buyers, eventually ending up in the SCA, which held the sale to be void and ordered the seller to refund them their R1.95m. The Court couldn’t have been clearer in ruling that when a suspensive condition (like a bond clause) isn’t fulfilled, the whole contract becomes unenforceable. This despite the fact that both buyer and seller clearly intended to proceed with the sale and thought they were validly reviving it with their second addendum.

Our law is clear – when a sale agreement has already lapsed, there is nothing you can do to revive it. Only a new agreement could have saved the sale, and the Court, on the facts, rejected the seller’s attempts to convince it that the second addendum was actually a new agreement. It was, said the Court, just an invalid attempt to revive a dead contract.

Here’s what to do to keep that sale alive and well

Every situation will be unique, but at the very least follow these three principles.

1. Failed suspensive conditions (in particular bond clauses) are notorious sources of dispute when property sellers and buyers come to blows. Make sure yours is clearly worded and reflects exactly what you have agreed to. A professionally drawn sale agreement tailored to your needs really is a no-brainer here.
2. Keep an eye on those deadlines! If you need to extend one, do so before it expires with a full, clear and signed addendum.
3. If you happen to miss the boat there, a whole new agreement is essential. It may well incorporate the same terms and conditions as the original (updated where applicable of course) but nothing less than a brand new deed of sale will pass muster.

As always, sign nothing until we’ve checked it for you!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property Sales – Acceptance of Offer

Property Sales: “Conditional Acceptance” of an Offer is Not Acceptance, It’s Rejection

“The conditional acceptance of an offer amounts to rejection of same and not the conclusion of a contract, but may be a counter–offer.” (Extract from judgment below)

A good offer comes in for your property, so you accept it. But you’re not happy with a few of the terms, so before you sign you make a few changes to the offer. Maybe they are big changes, maybe they seem inconsequential.

Either way, you are now effectively negotiating, not accepting the offer. You have in fact just rejected it. Unless the buyer now accepts your amendments in writing (by initialing or counter-signing against your alterations), you almost certainly have no valid sale.

Thinking that you have a valid sale when you don’t is a common and easily-made mistake, and a recent High Court decision shows just how important it is for both seller and buyer to be aware of this danger.

The property auction, the counter-offer, and the commission claim

• A property on auction attracted a top bid of R1.85m and after some haggling the buyer put in a second offer of R1.9m.
• The seller accepted this second offer, but critically with amendments. The parties could not agree on these outstanding issues, with the result that the seller sold the property to another buyer without the auctioneers’ involvement.
• At which stage the auctioneers sued the seller for commission, arguing that a sale had been concluded at R1.9m because the amendments to that offer were “not material” ones (in other words, they weren’t important, significant or essential terms). The terms in question related to who was to receive the agreed occupational interest and to the issue of a gas compliance certificate. Neither amendment, argued the auctioneers, was material to the sale.
• The Court however disagreed, commenting that “In principle, anything more or less than an unqualified acceptance of the entire offer amounts to a counter-offer and constitutes a rejection of the original offer.” It accordingly dismissed the auctioneer’s claim for commission on the basis that the seller’s amendments were material and amounted to a counter-offer which the buyer had never accepted. In other words, no sale agreement had ever come into existence.

So, do you have a binding sale agreement?

If the amendments to the offer have been accepted and signed by both buyer and seller, no problem – the counter-offer has been accepted and you have a binding sale agreement.

Otherwise, as our courts have put it: “When parties conclude an agreement while there are outstanding issues requiring further negotiation, two possibilities would follow: no contract formed because the acceptance was conditional upon consensus, or a contract formed with an understanding that the outstanding issues would be negotiated at a later stage.” Deciding which is which means trying to deduce the parties’ intentions from their conduct and other circumstances – a grey and specialist area requiring specific legal advice.

Bottom line

Making a counter-offer can be an excellent tactic for negotiating towards agreement, but be very careful with the concept of “conditional acceptance”. It is actually not an acceptance at all but a rejection of the offer and could well be a counter-offer requiring acceptance by the other party in order for there to be a valid sale. Avoid all doubt by making sure everything is signed and counter-signed.

As always, ask us before you sign anything!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews