Legislation
The Alienation of Land Act 68 of 1981 is, in the main, the legislation that governs the sale of immovable property in South Africa. It provides for the requirements to be met when entering into a sale agreement in respect of land.
What is a Sale Agreement?
The Sale Agreement can also be known as the Offer to Purchase (OTP), where the buyer signs and submits the offer to purchase the seller’s immovable property. If the seller accepts the terms, they will also sign the agreement, and it becomes a legal and binding Sale Agreement. Once signed by both parties, withdrawing can incur severe penalties, unless one of the parties has failed to fulfil a condition of the agreement.
The Four P’s
To ensure a Sale Agreement is legally binding, it must have, as a minimum, the four P’s:
- Parties – details of the buyer and seller (including ID / registration numbers), taking care to note whether they are a natural person or juristic entity;
- Price – the purchase price (preferably in both numbers and words);
- Property – address and legal description as per the title deed (i.e. erf / portion / section number, township); and
- Particulars (of payments) – the particulars around deposit payments or bond approvals should be stipulated clearly with amounts and deadlines for payment.
These terms must be clear and certain, in order for the contract to be enforceable.
Format of the Agreement
The contract should also be in writing – clearly written in line with the latest legislation and concise. Sections not relevant should be removed or crossed out to avoid confusion.
Ambiguous clauses left open to interpretation can leave the buyer and seller vulnerable for misunderstandings, disagreements and eventual costly litigation.
The sale agreement must be wet-ink signed by all parties involved. Scanned copies of a wet-ink signature will suffice. However, an electronic or digital signature is not valid.
Suspensive Conditions (the ‘Subject To:’s)
If suspensive conditions in a sale agreement are not met by the specified date in the agreement, both parties would no longer be liable (e.g. a seller has the right to accept another offer should it please them, or a buyer has the right to put an offer on another property).
Typical suspensive conditions you would see include:
- subject to bond approval of a certain amount;
- subject to sale of the purchaser's property;
- subject to the outcome of a building inspection;
- subject to a re-zoning approval; or
- subject to the seller finding another property.
The wording around these conditions in your Sale Agreement must be clear and concise for both parties, to avoid any misinterpretations.
The 72-Hour Ratification Clause
The 72-hour ratification clause, sometimes referred to as 'continued marketing clause' or ‘release clause’, is intended to protect the buyer from making a financial commitment they can't fulfil, while also giving the seller flexibility to continue marketing the property.
This clause makes provisions for a seller to continue marketing their property for other potential buyers whilst bound to a sale agreement with an existing buyer - but specifically relates to agreements that have suspensive conditions.
If the seller gets another unconditional offer from another buyer, they may consider it – but must first give the original interested party a written notification that allows them 72 hours to remove the suspensive conditions.
Upon written notification (which includes email), the buyer has 72 hours to meet the suspensive condition – whether that be bond approval or sale of their existing property. This is where the particulars of the wording around the suspensive condition become important. For example, does the suspensive condition state that a bond must be approved, granted, accepted or guaranteed? These are all steps in the bond process, but each step carries vastly different timelines and reliance on other parties (that can be outside of the buyer’s control).
Resolutive Conditions
A resolutive condition is an arrangement between the seller and buyer that the agreement of sale will terminate on the happening of a certain future event.
Some resolutive condition examples include:
- sectional title unit plans not registered;
- a national road is built next to the property sold;
- seller fails to supply approved plans to the buyer;
- a specific result in the national election; or
- a re-zoning application is approved / not approved.
For all resolutive conditions, a time period must be specified in the sale agreement. Wording around these resolutive conditions is crucial to avoid ambiguity.
Validity Periods
Once the seller signs the Sale Agreement, both parties are legally bound. The agreement can only be nullified if there's a breach of contract (with potential penalties) or if a suspensive condition isn't met.
If a suspensive condition isn’t met, but the buyer and seller still want to continue with the agreement, an addendum must be drafted and signed by all parties before the deadline in the Sale Agreement lapses. A common example is where the buyer accepts a lower amount for the mortgage, but is still happy to continue and pay a larger deposit.
Get advice on your Sale Agreement
Whether you’re planning on entering into a sale agreement, need assistance to create one (e.g. a private sale) or would like an update or review of an existing template (for an estate agency), we’re here to help.
Aucamp Incorporated is an experienced law firm with over 35 years’ experience in property transfers and mortgage bonds in South Africa. For expert advice, get in touch with one of our experienced attorneys.