An offer to purchase becomes a legally binding document once signed so it’s imperative that you use an experienced attorney to draft it.
When an offer to purchase a property is signed by both buyer and seller, this constitutes a binding agreement or “Deed of Sale” between the two parties. However, in most cases the “standard contract” might not be enough to cover all the specifics pertaining to the sale. The agreement may require some additions or alterations to clauses, which needs an expert hand in the drafting of such – as these can have serious ramifications if not done properly, says Charlene Nolte-Joubert, partner of Henkes Nolte-Joubert Attorneys and a founding member of the Attorney Realtor Hub.
In terms of our law, it is the seller’s prerogative (not the agent or purchaser) to nominate the conveyancers of his choice as the seller is the most at risk and must be able to rest in the knowledge that the attorney will act on his behalf by doing whatever it takes to get the transaction finalised as quickly and efficiently as possible.
Incorrect or incomplete documentation may result in delays in the transfer process, and can also result in adverse financial complications or loss of monies, she warned.
The questions that an experienced conveyancing attorney will ask **when drafting an offer to purchase:
By what proprietary regime are the sellers, if applicable, married?
For example, if they are married in community of property, the property will be registered in both their names, and they both must sign the sale agreement. Or if the seller is a foreigner, the spouse of the seller must assist by signing the offer to purchase. Considerations such as where the husband was domiciled at the time of the marriage as well as the the marital regime will be vital in determining whether both the husband and wife need to sign if, for example, only the husband purchases the property. All these different scenarios must be considered to ensure that the sale agreement is contractually as watertight as possible.
Is the property being bought in another entity?
If the property is to be bought in a trust, a trustees’ resolution must be passed by the trustees before the agreement is signed, authorising one of the trustees to bind the trust. Documents cannot be backdated and the trustee signing on behalf of the trust must have been nominated by his co-trustees as the designated signatory prior to him signing the offer to purchase on behalf of the trust, failing which all the trustees must sign the purchase documents. Unlike the case of a company or close corporation, a trust/it’s trustees cannot ratify the acquisition of an immovable property by the signature of one of its trustees unless his actions were authorised by resolution prior to the sale agreement being signed by him. If it is a company and someone signs on behalf of a company to be formed it is important to know the consequences of doing so and how to go about it to ensure validity and no personal liability.
If the property being sold rests in a deceased estate, the executor of the estate will have to sign the relevant documents and this can only be done once the Letters of Authority has been issued by the Master of the High Court. Also in last-mentsusioned instance, it is advisable to include a clause in the contract to state that the sale is subject to the approval of the Master of the High Court in terms of Section 42 (2) of the Administration of Deceased Estates Act. For such consent to be granted by the Master, the consent of all the interested parties must be obtained.
Is the purchaser paying a deposit, how much of a deposit is expected and has the payment date for the deposit been specified?
Buyers might ask why they should pay a deposit and why generally 10%. Although there is no hard and fast rule as to the amount, the answer is reasonably logical, says Nolte-Joubert.
If a purchaser pays a substantial deposit, this shows good faith, that he has at least some financial means or an ability to pay (although he may still have to qualify for a mortgage bond for the balance of the purchase price) and that he is seriously committed to the transaction. This strengthens an offer and its prospects of success.
The deposit can also be held back in lieu of damages, should the purchaser default. If the deposit is to be non-refundable, the conditions and consequences of having this clause included will be explained fully to the buyer and seller.
Has the information been verified against the Title Deed?
The Title Deed will be checked to determine whether the size of the property as described in the offer to purchase or Deed of Sale corresponds with the details on the Title Deed. Restrictive conditions should be checked, for example whether there is a usufruct on the property, or any servitudes.
Does the seller have copies of approved plans for the property?
Having approved plans is not a prerequisite for the property to be registered in the name of the purchaser but if no approved plans are available, it is advisable from a purchaser’s perspective especially, to make it a condition of sale that approved plans be provided by a certain date the parties agree upon, as well as who would bear the costs. If the property is a sectional title unit, details of the unit number, section number and corresponding additional sections, i.e. garages, parking bays, storage rooms, will need to be checked and confirmed.
Are there any suspensive conditions?
An offer will often contain at least one suspensive condition if not a cash offer, i.e. be subject to the qualification for a mortgage bond of a certain specified amount by the purchaser or be subject to the sale of the purchaser’s current home, or both. It is important to ensure that a suspensive condition is properly drafted, and your attorney should ensure that this is done correctly. It must be clear, concise and, most importantly, stipulate a cut-off date i.e. by when the condition must be fulfilled. If transfers of multiple properties need to happen simultaneously, e.g. the sale of one to buy another, then the transactions need to be linked financially and the dates of registration need to be simultaneous, or if not possible as soon as possible have the one register after the other for obvious financial reasons. All the parties involved in the various linked transactions need to be “on the same page” as to what is required of them.
Are there additional conditions listed of what needs to happen prior to transfer specified and how will they be dealt with?
Where there is more than one condition, it is best to deal with each one separately, to avoid confusion. If there are costs involved, it must be stated who is responsible for the costs. If there is any doubt or the condition deals with some unusual matter such as the requirement of a specialist’s report on the property, e.g. an engineer’s report to confirm that there exist no structural or other defects to or in the property, then your conveyancing attorney should deal with this clause timeously to obviate any unnecessary delays or uncertainties. Often a snaglist is included and the intention is that this be dealt with prior to registration of transfer unless otherwise agreed.
Is there an existing bond registered over the property?
The seller must generally give at least three months’ notice to his financial institution of his intention to cancel his bond to avoid penalties. The attorney will be able to do this on behalf of the client and this process is preferable as the attorney can ensure notice is given properly.
Does the contract allow for vacant occupation and does it specify whether vacant occupation will occur on transfer or on a specific date?
Should vacant occupation be specified it is important to know that the seller must deal with any tenants by giving notice timeously to ensure the property is vacant prior to the date of registration of transfer. The tenant is protected by the common-law principle of ‘huur gaat voor koop”, and if the offer to purchase does not provide for vacant occupation the lease will survive the sale and the purchaser will become the landlord by stepping into the shoes of the seller.
Is the buyer in this contract covered by the Consumer Protection Act (CPA) or does the voetstoots clause apply?
If the seller of the property is a private seller, and not an investor, speculator, trader, builder or developer, then he is not dealing in property “in the ordinary course of business”, which means that the voetstoots clause could apply. It is always best to attach a full disclosure report, to avoid any discrepancies in the condition of the property at a later stage.
Have all the blank spaces been filled in and have the witnesses signed wherever they need to?
Some banks now insist on witnesses to the offer to purchase, and even though it is not strictly a requirement, it seems to be standard practice. Buyers and sellers must never sign a contract if there are any incomplete sections in the document.
Were any alterations or changes made to the contract?
Any material alteration to a contract needs to be accepted by the other party for it to be valid, and if an alteration is made after the first signatory has signed – it cannot be said that the first person has accepted the change, and must be re-presented to the first signatory for confirmation of the change. Therefore, until accepted by the first signatory it will be regarded as a counter offer and only upon acceptance become a valid Deed of Dale.
What is included in the sale?
To avoid any later disputes, it is advisable that a comprehensive list is made of the items that will be included in the sale as it often is unclear what the permanent fixtures and fittings are.
As each potential sale and acquisition has its own set of facts, before embarking on an acquisition or sale of immovable property, consult your attorney.
Your attorney will also be able to provide you with invaluable information such as a breakdown of who pays for what costs and can also provide you with an accurate estimate thereof. Furthermore, they will be able to answer questions relating to when you are at risk of paying any additional taxes, such as donation or capital gains tax, and even provide advice on more complicated issues such as the possibility of structuring a sale as a zero-rated transaction.
Phrases such as business days and calendar days can be explained to ensure notices are given timeously, to avoid a future unintended breach of any terms in the agreement.
“It is therefore worth repeating that it is critical that both purchaser and seller understand the fine print and consequence of the terms and conditions of an Agreement of Sale before signing on the dotted line,” said Nolte-Joubert.