It is common practise for purchasers in especially residential property transactions, to submit an offer to purchase containing a suspensive condition, typically within a fixed period of time. These are often referred to as ‘subject to’ offers.
In most cases, the purchaser will either make its offer subject to the obtaining of a bond for the purchase of the property, or the sale of the purchaser’s current property. If this bond or other property sale is not completed, the offer to purchase lapses.
‘Subject-to’ and the 72-hour clause.
These ‘subject-to’ offers mostly contain a clause which entitles the seller to put the purchaser to terms to either complete or withdraw the suspensive condition, but only in the event that another purchaser has made a competing offer within a fixed period of time, typically 72 hours. This clause is usually referred to as the ‘72-hour clause’.
In our experience, offers to purchase typically do not have a general waiver clause entitling purchasers to waive these suspensive conditions, this waiver usually lives within the 72-hour clause and is only available in the event that a competing offer is received.
What happens when there is no competing offer?
If no competing offer to purchase has been received, or the purchaser has not completed the suspensive conditions, the offer to purchase will lapse and the seller will continue its search to find another purchaser for its property.
So what happens if the period for the completion of the suspensive conditions is approaching, and the purchaser would like to waive these conditions? Can this be done?
The simple answer, is yes.
Case law is clear that a suspensive condition which is purely for the benefit of the purchaser may be waived by the purchaser to perfect a subject-to offer. This has been confirmed by our Courts especially with reference to mortgage bonds (cf Mia v Vermaak Holdings (Pty) Ltd (522/08) [2009] ZASCA 99).
There are however a few conditions:
1) the condition needs to be exclusively to the benefit of the purchaser,
2) the condition must be waived within the time period within which it needs to be fulfilled, and
3) there is a presumption against waiver which means the condition must clearly and intentionally be waived, the waiver cannot simply be implied.
In conclusion, a suspensive condition purely for the benefit of the purchaser, may be waived by the purchaser without obtaining the permission from the seller.
This can be a real problem for a seller.
What happens if the purchaser does not have the funds to purchase the property, which is most often the case with a subject-to offer? What happens if the purchaser never actually bothered to apply for that bond, or if the bond was approved, but the purchaser failed and/or refused to actually sign the relevant documentation?
Whilst us lawyers will tell you that you can place the purchaser in breach; terminate the contract; recover damages and/or wasted costs, are in a very strong legal position… This is but a theoretical position and means nothing to the seller.
Practically, even with the security of a guarantee, security or deposit, a purchaser will quickly lawyer up and argue that despite the delay caused by its shenanigans, there is not really a quantifiable loss suffered by the seller.
Even the doctrine of fictional fulfilment – which says that if the purchaser intentionally and in bad faith ensures that the condition is not met – is extremely hard to prove and again of no practical use to the seller.
This is a very frustrating position for the seller to be in.
Solution:
Make sure that any suspensive condition in a subject-to offer to purchase contains a clause that only allows a purchaser to waive this condition, with the written consent of the seller.
This will allow the seller to exit a doomed transaction and quickly find another purchaser, without being frustrated and dragged along by a purchaser, who is scrambling to find the funds to purchase the property.
Especially in our current market, it is important to be able to quickly exit a sale transaction and sell to another willing purchaser.
Written by – Sam Robertson
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Please note, this is not legal advice. If you need legal advice on a matter related to the topic discussed, please do not hesitate to contact us at [email protected]