Purchasers reneging on an Offer to Purchase

In terms of our Law, the Alienation of Land Act, no sale of land shall be of any force or effect unless it is in writing and signed by the Seller and Purchaser. This document is called an Offer to Purchase which constitutes an agreement of sale once signed by Seller and Purchaser.

The agreement of sale discloses, amongst other things, each party’s obligations in order to effect transfer from the Seller to the Purchaser.  For instance, the agreement of sale will usually stipulate that the Seller will need to provide the Purchaser, or the Conveyancing attorneys, with an electrical compliance certificate, amongst other certificates, prior to registration.  Likewise, the agreement of sale will stipulate how and when the Purchaser needs to pay the purchase price.  Most of the time the Purchaser will be required to pay a deposit.  This will of course be disclosed in the agreement of sale together with a date by which the deposit will need to be paid.  Furthermore, the agreement of sale will also state how and when the Purchaser needs to pay the balance of the purchase price.  If for instance the Purchaser pays a deposit but then does not pay the balance of the purchase price on due date, then the Purchaser is technically in breach of the contract.  In this instance the Seller is entitled to instruct the Conveyancing attorneys to send a letter to the Purchaser advising him that he is in breach of the agreement and giving him a certain amount of time, as stipulated in the agreement of sale, to remedy his breach, failing which the Seller is entitled to invoke the breach clause in the agreement of sale.  Most times the agreement of sale will give the Purchaser 7 days within which to remedy his breach and should he not do so then the seller usually has the following remedies available to him:

1.  To hold the Purchaser to the agreement, or

2.  To cancel the agreement and to retain the amounts paid on account of the purchase price as liquidated damages in respect of the Purchaser’s breach of contract.

In addition to the above the Estate Agents can also usually claim for their commission, that would have been paid by the Seller, from the Purchaser and of course the conveyancing attorneys can also charge a percentage of their fees from the Purchaser as wasted costs.

In the above scenario and in terms of most agreements of sale the Seller can, in terms of the agreement of sale, therefore retain the deposit, paid by the Purchaser, as liquidated damages. However, unfortunately it is not quite that simple.  In terms of the Conventional Penalties Act, any penalties or liquidated damages contained in the agreement shall be subject to the provisions of the act.  Section 3 of the Act states the penalty needs to be proportionate to the prejudice suffered by the Seller and therefore the Seller cannot be unduly enriched.  The Sellers damages will need to be correctly quantified and therefore it is often only possible to assess the damages claim once the Sellers property has been resold.

Purchasers do however need to ensure that they understand the entire contract, as well as their obligations, before making an Offer to Purchase a property as the contract, once signed, is an enforceable contract between the Seller and the Purchaser.

Should you require further information or assistance with Offers to Purchase you can contact Storme Heath at C & A Friedlander on storme@caf.co.za