The offer to purchase agreement - information on important clauses
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Parties to the Agreement :
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The identities of the parties must be ascertainable.
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The seller need not be the owner; he may not yet have taken transfer of the property, but may be allowed to resell it. This must however be disclosed in the contract, as well as who the owner is, and that transfer of the property cannot be passed to the purchaser before the seller has obtained transfer himself.
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If a party does not have the contractual capacity to conclude a contract, his name must still be cited, together with the identity of the person assisting him (i.e. the guardian of a minor).
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If a contract is entered into on behalf of a company or close corporation (cc), the name of the company or cc must be cited, together with the name of the person authorised to conclude the contract.
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If a contract is entered into on behalf of a partnership, the names of the partners must be cited.
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It is always a good idea to include contact numbers, i.e. telephone, fax, cell and email.
Description of Property
The best description of the property is the one contained in its title deed. If you do not have the title deed available, use your water and electricity bill to locate the erf number and quote it together with the physical address of the property.
Sale and Purchase of What?
Please refer to the article regarding what is included in the sale and purchase of a property.
Purchase Price and Guarantees:
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The purchase price must either be a fixed amount (i.e. R100 000.00) or be readily ascertainable (i.e. R100.00 per square meter, including the correct size of the property).
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Unless agreed otherwise, the purchase price is payable in a lump sum on transfer of the property to the buyer.
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The guarantees referred to in the offer to purchase examples mean that the purchaser furnishes the seller with a promise from a bank that the price will be paid in full once the property is registered in the name of the purchaser (the purchaser will then pay off this 'mortgage loan' to the bank).
Defects - and the "Voetstoots" Clause:
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BE AWARE of certain clauses in an agreement of sale relating to defects. In certain instances, the buyer is protected against severe defects discovered after the transfer on a property has gone through. The law will attempt to determine whether the defect is patent or latent, and on these grounds, make a ruling as to who is responsible for the cost of repair.
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A patent defect is clearly visible upon inspection, like a crack in a wall or window, and it should be stated in the offer to purchase who will be responsible for fixing (or replacing) the defect.
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A latent defect is not so easily picked up on superficial inspection, for example a faulty geyser, a damp area concealed behind furniture or fresh paint or a leaking roof.
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In terms of the common law, the seller is responsible for all latent defects in the property for three years from the date of sale of the property. The seller should supply all warranties and documentation of repairs and maintenance on transfer of the property. By the same token, the buyer must ensure that he is aware of all patent defects in the property.
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As a result of the seller's responsibility for latent defects, sellers will usually stipulate that the property is for sale 'as is' ('Voetstoots'). The seller is still responsible for any deliberately concealed latent flaw or defect.
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The burden of proving that the seller knows or ought to have known about the latent defect rests on the buyer. Depending on the circumstances, (and if the buyer can prove that the seller knows or ought to have known about the defect), the buyer can cancel the contract and/or claim repayment of a portion of the purchase price when a latent defect is present.
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All faults that have been detected should be recorded in the offer to purchase document along with details regarding which party will be responsible for their repair.
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The purchaser can insist on certain guarantees. For example, under the clause section 'Special Conditions', the buyer can stipulate that, "The Seller hereby warrants that the swimming pool on the Property sold is not leaking at the date of signature hereof by him".
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To protect yourself, as the purchaser it may be worth having a property inspection company inspect the property. The cost of the inspection will be for the purchasers account.
Risk, Rates, Rental Income and Ownership:
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The seller is responsible for any loss or damage caused by him (or his children or employees and so on) before the purchaser takes transfer. The agreement can be altered to state that the buyer is responsible for any loss or damage of any kind whatsoever from the date that the buyer takes occupation of the property.
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In the case of accidental damage or damage due to 'acts of God' the buyer carries the risk from the date of conclusion of a contract, provided the contract is not subject to suspensive conditions, in which case the risk remains with the seller. If the conditions are fulfilled, the risk is deemed to have passed to the buyer.
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Usually from the date of transfer the buyer will have all benefits attached to the property and all the risk of the property will pass to the buyer.
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The buyer will be liable for all rates and taxes and/or levies payable on the property from date of transfer and the buyer will have to refund to the seller, any amounts paid upfront in respect of the rates and taxes and/or levies on the property.
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The buyer will have the benefits of any rental income on the property, (if the property is let to a third party at the time of purchase), only once transfer takes place, although this can be regulated contractually between the parties.
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Ownership of the property takes place on transfer and not on occupation.
Registration and Transfer Fees
The purchaser will be liable for payment of transfer duty and all costs and fees in connection with the registration of the bond and transfer of the property on demand by the conveyancing attorney.
Estate Agents' Commission
The Seller will be liable for the payment of estate agents' commission on demand by the conveyancing attorney, once the registration and transfer has taken place.
Occupation and Occupational Interest:
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Occupational Interest is more commonly known as Occupational Rent.
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The occupational interest can either be a fixed amount (usually it is calculated as either the amount of the seller's bond repayment on the property or 1% of the purchase price) or an amount subject to an escalation if registration of transfer has not taken place within a certain period (this may apply when the occupational interest amount is less than the seller's bond repayments).
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If there is uncertainty about the occupation date, it is best to record in writing the latest date upon which the purchaser is willing to take occupation of the property.
Domicilia Citandi Et Executandi
Domicilia Citandi Et Executandi, also referred to as Domicilium, is the physical address you give for any legal documents and notices to be served to you. If you have been sent a document or notice to this address, you will be deemed to have received it, even if you did not in fact receive it. This may not be a PO Box or Private Bag address.
Purchaser's Cooling Off Right:
Please read the article The ‘CPAs’ Cooling-off Period.
"Escape" Clause
In certain cases the seller could include what is generally known as an "Escape Clause". When the buyer signs the offer to purchase subject to the buyer selling his existing property or obtaining a home loan for the purchase amount, this kind of condition usually has a time frame in which it needs to be either met or waived, it could be anything between 15 and 60 days. If the seller includes an "escape" clause, it would mean that the seller has the right to accept another offer on the property only if the second offer is "clean", with no such conditions attached. In other words he can only accept an offer from someone who does not have another property to sell or does not need to get finance from a bank in order to pay for this property.
If the seller does accept such a second offer after the first offer, he must give the first buyer time (usually 2 days) in which to either meet the suspensive conditions or waive them (waive meaning: continue with the transaction without any condition of selling another property or getting a bond) within that period.
Breach of Contract
A breach of contract exists when one or all of the parties to the contract to not do what was agreed upon in the offer to purchase. Examples of circumstances are:
- If the buyer does not pay his deposit to the seller's attorneys in time as agreed upon in the offer to purchase;
- If the buyer does not present the necessary guarantees from his bank in time as agreed upon;
- If the buyer does not make any effort to get finance for the property, and this was agreed upon in the offer to purchase, to do so;
- If either the buyer or seller fails to sign the necessary documents for purposes of transfer.
The bottom line is… make sure you are 100% aware of your obligations in terms of the agreement. In certain cases the seller could end up being entitled to as much as the whole sale price if the buyer is in breach of certain elements of the contract.
A professional estate agent will take the time to explain each and every clause in detail to you, and if not, we strongly recommend that you seek the assistance of an attorney to go through the contract for you and explain to you exactly what your obligations are as buyer and as seller.
This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here.
Author: Property Power