Legal Articles

Implications of Cancelling an Offer to Purchase

Cancelling an offer to purchase in South Africa carries legal implications for whichever party requests to cancel.

The transfer of immovable property in South Africa is regulated by legislation. The legislation serves as a means to protect all parties involved in the transaction.

According to section 2 of the Alienation of Land Act no. 68 of 1981, alienation of land shall not be forced unless it is stipulated as such in a written deed of alienation, also known as the Offer to Purchase, which must be signed by the purchaser and the seller.

Particular details of the sale are set out in the Offer to Purchase (OTP). These details clarify all important aspects regarding the property being sold and its conditions, ensuring complete transparency.

Both the purchaser and the seller sign the agreement once the offer has been accepted. Once both parties have signed the OTP, it becomes a legally binding contract. This requires both parties to fulfil their individual responsibilities as specified in the agreement.

Therefore, it is important for each party to have a clear understanding of their responsibilities and what the implications are of being legally bound by the contract.

Cancelling an offer to purchase is only possible should there be a lawful reason for the cancellation.

Suspensive Conditions in an Offer to Purchase

Suspensive conditions are conditions which temporarily suspend any obligations until the offer to purchase becomes legally binding.

The OTP will clearly specify any suspensive conditions which are applicable to the sale.

Legal cancellation of an offer to purchase without penalty is possible only if:

• One or more of the suspensive conditions could not be met by either party
• The contract indicates that either party may cancel the contract within a certain period of time

The OTP agreement becomes ineffective if the suspensive conditions have not been fulfilled, except if there is an addendum to the agreement, which buyer and seller agree upon, to waive compliance with the conditions set out in the OTP.

Further reasons for cancelling an offer on a sale of property may be seen as breaches of contract and therefore, the party in breach will be liable for any costs incurred.

Cancelling an Offer to Purchase

The purchaser should firstly establish whether or not the OTP had any applicable suspensive conditions and if so, he should then determine whether the conditions have been fulfilled or if the agreement was declared null and void.

It is also possible for the agreement to contain a clause which takes into consideration particular situations which have been agreed upon by both parties. Despite any additional clauses, the contents of an offer to purchase are generally standardised.

Clauses may set out any circumstances which allow either party to legally cancel the contract. Should the cancellation be in accordance with the clause, there will be no implications for cancelling an offer to purchase for either party.

Breach of contract may also warrant cancellation of an OTP. Should one party contravene the contract in any way, the other party may legally cancel the contract as well as claim any costs.

Implications of cancelling an offer to purchase

In the case where there has not been a breach of contract, the seller of the property will be liable for the real estate agent’s commission. However, should the purchaser choose to cancel the agreement of sale where all suspensive conditions were fulfilled, he will then be liable for payment of the agent’s commission.

Should the purchaser remain in default for a certain period of time once written notice has been issued by the seller or his agent, damages may be claimed from by the seller and the agency for any costs incurred with the cancellation. These damages include a percentage, determined by law, of the conveyancing attorneys transfer frees and are payable by the purchaser.

If one party has breached the contract in any way, the aggrieved party may demand that the sale still go through and be finalised in accordance with the terms and conditions of the agreement. This is an alternative to cancelling the agreement completely.

This approach may entail appealing to the courts for an order which facilitates this specific outcome.

Should both parties mutually agree to cancel the agreement, both parties will be equally liable for the estate agent’s commission as well as the transfer fees.

When an offer to purchase is made on property valued at up to R250 00.00, the agreement should include a “cooling off clause”. In accordance with this clause, the purchaser has the right to withdraw his offer or to cancel the offer to purchase. This is done by written notice which must be delivered to the seller within 5 days of the offer being signed.

In this case, on the condition that the purchaser complies with all requirements and time-frames stipulated, he will incur no liabilities with regards to cancelling the offer to purchase.

Considering the aggrieved party

In the event of the contract being cancelled with no legal reason, both parties may be obliged to fulfil their obligations and follow through with the transaction.

For example, if the seller has already bought another property in the hope that this sale will cover the costs of the new property, or the buyer has vacated his home in order to move into his new home, these changes result in costs and the aggrieved party should be compensated for the relevant costs involved.

The party who has been adversely affected may claim back from the deposit held by the agency or the conveyancing attorneys.

Valid proof of the damages or losses suffered must be made available by the aggrieved party. Litigation will most likely follow from this decision.

It is easy to see how important it is for both parties involved with a property sale must be aware of the possible claims that can be made against them should they decide to cancel an OTP after the suspensive conditions have been fulfilled. Cancelling an offer to purchase under these circumstances constitutes breach of a legally binding contract.

Seeking legal advice before signing an offer to purchase is recommended in order to gain full understanding of the terms and conditions of the agreement.

Van Deventer & Van Deventer Incorporated – Property Attorneys in South Africa

Our property lawyers in Johannesburg and Cape Town will assist with legal matters related to cancelling an offer to purchase and breaches of contract. Contact Us.